US corporate confidence in China hits low over Covid Zero policy and political tensions

(Bloomberg) — U.S. companies’ optimism about China has fallen to a record low, with President Xi Jinping’s Covid Zero policy causing more than half of companies to delay or cancel investments, a new survey by a U.S. business group shows.

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Pandemic-related shutdowns are creating an even bigger headache for U.S. companies in China than deteriorating relations between Beijing and Washington, according to a survey by the U.S.-China Business Council. Only 51% of respondents expressed some degree of optimism about the five-year business outlook in the world’s second-largest economy, down significantly from 69% last year.

“The looming possibility that companies will again be forced to partially shut down due to lockdowns and the impact of local controls on consumer demand have undermined confidence in the business environment,” according to the report, which was released on Monday. , US time. About 96% of companies have been adversely affected by China’s pandemic control measures, with more than half halting, delaying or canceling their investment plans in the country altogether, according to the council, a private organization with more than 270 American companies.

New investment by US companies in China is expected to slow in 2023 as a result of virus controls and other Chinese policies, including data and cyber security, the increasing difficulty of selling to the government and intellectual property protection issues, the report said. Due to the Covid-19 control measures, 17% of companies said that investments worth more than $50 million have been affected.

“It is unclear whether this pause in future capacity growth is another temporary blip or a point in a larger trend,” USCBC President Craig Allen said in a statement. In addition to long-standing concerns about China’s industrial policies that tend to hurt foreign companies, newer concerns like geopolitical tensions or data security are becoming more prominent, Allen said, and that raises the specter of a technological decoupling that “wouldn’t be in nobody’s interest.”

Read more: China’s lure for European companies goes beyond simmering tensions

Overseas companies have struggled to retain foreign staff already in China and bring in new ones, the survey showed. “Most US-based executives have been unable to travel to China to see their business, employees and customers for two and a half years, further exacerbating concerns with market conditions,” the report added.

Meanwhile, burdensome regulations have increased the compliance costs of doing business, even as the country’s top leaders claim China remains open to foreign business.

Almost 90% of the companies studied said their operations in China were profitable last year, although it is almost certain to have declined this year. In the first seven months of this year, profits of foreign industrial enterprises fell 14.5 percent from a year earlier, a steeper decline than the 13.9 percent decline recorded through June.

“Geopolitical pressures are spilling over into the commercial sphere, leaving companies — which depend on a stable and predictable trading environment — in increasingly challenging positions,” the report said. “Chinese customers’ real and perceived concerns about continued access to U.S. technology due to U.S.-China tensions continue to threaten the competitiveness of U.S. companies in the marketplace, a troubling trend that could be difficult to reverse.”

Allen is concerned that the economic relationship between the countries has not been given the priority it deserves. “In tense times like these, we should seize every opportunity for stability,” he said, urging “both countries to build on the hard-won trade progress of recent decades and address outstanding barriers to doing business in China.” .

Other points from the report:

  • Compared to other countries where companies operate, China remains a top priority for 77% of respondents. However, this number has been steadily declining over the past decade. China was the top priority for 96% of respondents a decade ago, and only 6% of companies reported China as their top priority market, an all-time low.

  • In the past 12 months, nearly a quarter of respondents have moved parts of their supply chains out of China — a jump from 2021 — and the majority are moving them to locations outside the US. The main reasons cited are Covid-19 disruptions in China and strengthening supply chain resilience.

  • Half of respondents report that the environment for sales to state and state-owned enterprises is worsening for foreign companies.

  • The survey was conducted in June and is based on responses from 117 member companies.

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