Chinese freight containers are stored next to an American flag after being unloaded at the Los Angeles port in Long Beach, California on May 14, 2019. – Global markets are still in a red during a trade war between the two superpowers China and the United States, As most observers warn, it could crush global economic growth and hurt damaged demand for goods like oil. (Photo by Mark RALSTON / AFP) (Photo credit to read MARK RALSTON / AFP / Getty Images)
MARK RALSTON | AFP | Getty Images
Some US companies in China are speeding up the move away from the mainland as rising tariffs continue to hurt their businesses. According to a survey released by the US Chamber of Commerce in Shanghai on Wednesday.
More than a quarter of those surveyed ̵
The research, conducted in collaboration with PwC, examined 333 members of the US Chamber of Commerce in Shanghai. It was conducted from June 27 to July 25 – during the period when US President Donald Trump and China's President Xi Jinping agreed to resume trade talks, and before the recent escalation of the current tariffs.
U.S. Mainland companies also said restrictions on access to the local market have made it difficult for them to do business, the report said.
Asked about the best possible scenarios in ongoing trade negotiations, more than 40% of those surveyed said greater access to the domestic market would be the most important outcome to help their businesses succeed. It was followed by more than 28% who ranked improved intellectual property protection as the key.
The third most hoped result of the trade talks was "increased purchases of US goods", 14.3%, the survey showed. This is in contrast to the Trump administration's recent efforts to pressure China to buy more US products, especially in agriculture.
Excluded from Market Access
One of the longstanding complaints US companies have about operating in China is that many industries are closed to foreign companies. In the open sectors, it is difficult to compete with state-owned or privately-owned companies that may benefit from local connections or policies, they say.
Claims of Forced Transfer of Critical Technology to Chinese Partners and Lack of Intellectual Property Protection are just some of the challenges US companies cite to operate in China.
The latest survey by AmCham found access to the local market remained one of the key issues companies faced, with more than half of those surveyed – or 56.4% – saying that obtaining licenses was not easy.
Of the industry, the one that wanted the most improved market access was the banking, finance and insurance sectors. The high 81% of those surveyed in the sector seeking a better business environment contrast with Beijing's announcement in the past 18 months that it will relax foreign ownership rules in the financial sector. Some measures include allowing the majority of foreign ownership of a local investment firm and increased foreign ownership of local equities.
Respondents, however, noted a general improvement in almost all issues that mattered – including intellectual property protection and technology transfer. The proportion of companies that said the Chinese government treated foreign and local companies in the same way also increased from 34% to 40% in the latest survey.
Tariffs hurt US companies
US operations in China remain strong, with US companies and their affiliates trading for more than $ 450 billion in the Asian country, according to an August report by research firm Gavekal Dragonomics. The analysis also indicated that sales figures are more than double the value of US exports of goods and services to China.
However, retaliatory tariffs on both sides hit the revenue and prompted some US firms to change their China strategy, the AmCham study showed.
If Washington were to impose all the duties threatened, essentially all Chinese goods exported to the United States would be subject to duty rates by the end of the year. In response to rising US tariffs, Beijing has counteracted its own tariffs on US exports to China.
Just over half of the respondents in the survey said that revenues have gone down as a result of the increased tariffs. One third of them attributed a higher fall of between 1% and 10% of revenue.
Overall profitability did not fall in 2018, the report states. But several asked that turnover and margins went down last year, especially when compared with operations in other countries. The level of pessimism increased by 14 percentage points to about 21% – respondents felt less optimistic about the outlook for 2019, partly due to a slowing domestic economy.
Bright spots are still in China
However, the survey found some areas of optimism among respondents in China.
The category of pharmaceuticals, medical devices and life sciences ranked among the industries with the most respondents reporting revenue growth last year. This sector also came second among the most optimistic about 2019.
The AmCham report said that the positive outlook was "probably due to government policy changes, including accelerated approvals of foreign medicines."
More than two-thirds of food and agriculture companies planned to increase investment in 2019, most of any industry, the report states. Retail and consumer companies also intended to invest more in China, especially in smaller cities where many analysts still see a huge growth opportunity.
However, businesses are getting ready for a drawn-out trade war between the two economic giants. Of those surveyed, 35% expect the trade tension to continue for another 1 to 3 years, while almost 13% say it will continue for 3 to 6 years. However, about 17% were even more pessimistic, predicting that the trade conflict will go on indefinitely.
The report added: "Nevertheless, without the sign of a trade agreement, 2019 will be a difficult year; without a trade agreement, 2020 may be worse."