HONG KONG — American companies operating in China are experiencing the lowest profit margins on record, with overall business confidence dipping to unprecedented lows in the context of escalating U.S.-China tensions and a faltering Chinese economy, according to a new report.
In a survey of 306 businesses, only 66% reported profitability in 2023, marking a historic low as indicated by the findings of the American Chamber of Commerce in Shanghai. The report also notes that merely 47% of respondents expressed optimism about their future business prospects in China over the next five years— the lowest rate in over two decades.
Geopolitical disputes between Beijing and Washington have intensified in recent years, affecting trade relations, manufacturing, and disputes related to the South China Sea. Meanwhile, China’s domestic economy is struggling with weak consumer demand and persistent deflationary pressures in the aftermath of the COVID-19 pandemic.
According to the survey, geopolitical tensions were cited as the foremost challenge affecting business operations in China. The president of the American Chamber of Commerce in Shanghai highlighted the ongoing dilemma that companies face: balancing perceived risks against potential rewards.
“The risks of conducting business in China have escalated in recent years, coinciding with a slowdown in the market characterized by soft demand and excess capacity,” he stated.
In response to these challenges, many companies are shifting their investments to alternative regions such as Vietnam, Malaysia, and South Asia. The report reveals that a record 25% of corporations surveyed have reduced their investments in China this year, primarily due to worries about the country’s dwindling growth.
While just over half of U.S. firms anticipate an increase in their revenues compared to the previous year, only 37% predict that growth in China will surpass global growth rates in the next three to five years.
This report aligns with recent findings from a European business survey, which echoed similar concerns regarding the rising risks associated with operating in China. That report emphasized a lack of follow-through on promised reforms and a more politicized business atmosphere.
Some European firms now believe that the risks of investing in China may be outweighing the potential returns. The European Chamber of Commerce has called for the Chinese government to take decisive action to foster a more favorable business environment.
“China is no longer the top priority for investment but is instead falling to a lower ranking among global destinations,” said a representative from the European Chamber, urging a renewed focus on economic reform and investment confidence to reverse this trend.
