US firms still see profit opportunities

Despite concerns over US-China trade tensions and tariffs, American companies still see opportunities to bolster profits, according to a report by the American Chamber of Commerce in Shanghai released on Wednesday.

Some 76.8 percent of US companies in China reported profits last year, similar to previous years. Logistics companies all posted profits, as did 93.3 percent of chemical firms and 89.9 percent of pharmaceuticals, medical devices and life sciences firms.

The outlook for 2019 has dimmed though, with only 50.5 percent of companies expecting revenue to beat their 2018 numbers. 

Given that no resolution to the trade war was in sight when the survey was taken (from June 27 to July 25), five-year optimism unsurprisingly dropped for the first time since 2015 — only 61.4 percent of companies were optimistic about the five-year business outlook, a decrease of 19 percentage points from the previous year.

US companies still see opportunities, however, with 59.2 percent of respondents saying that increased consumption will be the top factor to benefit their industry in the next three to five years.

Similarly, 40 percent of those increasing their investment in China in 2019 report doing so due to the growth potential of the Chinese market.

"The allure of a growing consumption story keeps many here, but others are looking elsewhere," said Eric Zheng, chairman of AmCham Shanghai. "If China improved market access for foreign companies and made the regulatory environment more predictable, it could bolster the case for US companies to stay."

Respondents reported an improving regulatory environment, and that the operational environment for foreign companies also showed significant signs of progress. 

"Our members have seen improvements in the level of corruption and fraud in China, and some progress in the protection of intellectual property," said Ker Gibbs, AmCham Shanghai's president.

Inefficient government bureaucracy was down 22.0 percentage points, and corruption and fraud was down 20.4 percentage points, according to the survey. Meanwhile, nearly all the regulatory issues that most concern AmCham members, such as transparency, forced technology transfers and procurement practices, had improved.

"However, 57 percent of companies still view a lack of intellectual property rights protection as a hindrance to their businesses and over a third limit their investment innovation and IP as a direct result," Gibbs said.

Some 35.6 percent of survey respondents see US-China trade tensions continuing for one to three years, while 12.7 percent expect them to continue for three to five years. 

Seventy-five percent of respondents expressed their opposition to the use of tariffs.

Gibbs said US companies can prosper in China but tariffs and trade tensions were eroding their profits and investment. These are the very same businesses whose operations in China have added to US job numbers, he said. 

"If the US continues to use tariffs as the primary tool for achieving its trade and investment aims, we risk not only US jobs and company profits, but also giving up market share in China to European and other international competitors," he said. "That market share will be hard to win back."

The annual survey, one of the longest running surveys of US business in China, was conducted with support from PwC China. This year 333 AmCham Shanghai members responded to the survey.