Chinese container ships are stored up to the US flag after being landed at the Los Angeles port in Long Beach, California on May 14, 2019 – Global markets continue to be alert because of the trade war between the two superpowers China and the US , which most observers warn could wreck global economic growth and hurt demand for commodities like oil. (Photo by Mark RALSTON / AFP) (Photo credit should read MARK RALSTON / AFP / Getty Images)
MARK RALSTON | AFP | Getty Images
Some US companies in China are accelerating their move away from the mainland as rising tariffs continue to hurt their businesses. This is according to a study published by the American Chamber of Commerce in Shanghai on Wednesday.
More than a quarter of those surveyed ̵
The study, in partnership with PwC, examined 333 members of the American Chamber of Commerce in Shanghai. It takes place from June 27 to July 25 – the period when US President Donald Trump and Chinese President Xi Jinping agreed to resume trade talks even before the last escalation in tariffs.
USA. Continental companies also said restrictions on access to the local market made it difficult to run their business, the report said.
Asked about the best possible scenarios in the current trade negotiations, more than 40% of respondents said greater access to the internal market would be the most important result in supporting their business. This was followed by more than 28% who identified improved intellectual property protection as key.
The third most reliable outcome of trade negotiations was "increased purchases of US goods" by 14.3%, the study shows. This is in contrast to the Trump administration's recent efforts to pressure China to buy more American products, especially in agriculture.
Deprived of Market Access
One of the longstanding complaints that US companies have about operating in China is that many industries are closed to foreign companies. In open sectors, it is difficult to compete with state-owned enterprises or private companies that can benefit from local ties or policies, they say.
The allegations of the forced transfer of critical technology to Chinese partners and the lack of protection of intellectual property are only part of the challenges that American business poses to work in China.
The latest AmCham survey found that access to the local market remains one of the key issues facing companies, with more than half of those surveyed – or 56.4% – saying that obtaining licenses is not easy.
By industry, the most sought after improved market access is the banking, financial and insurance sectors. The high 81% of those polled in this sector, who are looking for a better business environment, contrast with Beijing's statements over the last 18 months that it will ease foreign ownership rules in the financial sector. Some measures include allowing majority foreign ownership of a local securities company and increasing foreign ownership of local stocks.
However, the survey respondents noted an overall improvement in almost all relevant issues – including intellectual property protection and forced technology transfer. The proportion of businesses that said the Chinese government treats foreign and domestic companies also increased from 34% to 40% in the latest survey
Tariffs that hurt US businesses
Business presence in China in US remains strong companies and their partners, racking up more than $ 450 billion in sales in the Asian country, according to an August report by research firm Gavekal Dragonomics. The analysis also indicated that the value of sales was more than twice the value of US exports of goods and services to China.
But recessionary tariffs on both sides are hitting revenue and causing some US companies to change their strategy for China, the AmCham study of tariffs by the end of the year. In response to rising US tariffs, Beijing is counteracting its own tariffs on US exports to China.
Just over half of the surveyed respondents said that revenue had decreased as a result of increased tariffs. One third of them attribute a decline of between 1% and 10% of higher duty revenues.
Overall profitability has not decreased in 2018, the report said. But more respondents said revenue and margins declined last year, especially compared to operations in other countries. The levels of pessimism rose by 14 percentage points to about 21% – respondents felt less optimistic about the outlook for 2019, due in part to the slowdown in the domestic economy.
Bright spots remain in China
However, the survey found some areas of optimism among respondents in China.
The category Pharmaceuticals, Medical Devices and Life Sciences ranks among the highest-performing industries reporting revenue growth last year. The sector is also second among those most optimistic about 2019.
The AmCham report said that positive prospects were "likely due to changes in government policy, including accelerated foreign drug approvals."
More than two-thirds of food and agriculture companies are planning to increase investment in 2019, the largest of any industry, the report said. Retail and consumer companies also intend to invest more in China, especially in smaller cities, where many analysts still see a great opportunity for growth.
However, businesses are gearing up for a trade war between the two economic giants. Of those surveyed, 35% expect trade tensions to continue for 1 to 3 years, while nearly 13% say it will last 3 to 6 years. However, about 17% were even more pessimistic and predicted that the trade conflict would continue indefinitely.
The report adds: "However, without signs of a trade agreement, 2019 will be a difficult year; without a trade deal, 2020 could be worse. "