This morning over 150 members attended the launch of the Chamber’s China Business Report at the Conrad Hotel. The report, produced in conjunction with PwC, showed that while most American businesses remain profitable, the impact of ongoing Covid-related restrictions is negatively impacting business confidence and leading to lower investment. Recovery from the original shutdown in 2020 has been stifled by the lockdowns earlier this year and, amid deteriorating US-China relations and macroeconomic pressures, members are reporting record-low optimism for revenue and the business environment.
At the morning event, Tiger Shan, PwC Strategy& China Lead Partner, presented the report’s primary findings, after which he hosted a panel discussion with three Chamber members. Bei Zhong, APAC General Manager at Parker LORD; Fred Freire, Asia President at Kraft Heinz; and Allan Gabor, President at Merck China, offered their perspectives on the report.
Key findings from the report include:
- 75% of respondents reported profits in 2021, marginally below rates from the past several years.
- 47% of companies projected year-on-year revenue growth in 2022, a 29 percentage point (pp) drop from the reported rate of year-on-year increases in 2021 and the lowest expectation in at least 10 years.
- Over the next three to five years, 47% of respondents expect revenue growth in China to outpace their companies’ worldwide growth, a 22 pp drop from last year.
- 52% of respondents reported that their headquarters’ confidence in China’s economic management worsened in the past year. Accordingly, just 18% of companies ranked China as number one in their company’s global investment plans, down from 27% in 2021.
- The percentage of companies describing themselves as optimistic or slightly optimistic about the five-year business outlook fell to 55%, the lowest in the survey’s history and a 23 pp drop from 2021.
- 19% of respondents are decreasing investment in China this year compared to 2021, with the top reasons all related to zero-Covid.
Although an increasing number of members are looking to other markets, the majority are keeping their footprint and operations in China and focusing on localization strategies.
- For the 30% of companies increasing investment this year compared to last year, the top reason was growth potential of the Chinese market.
- One-third of respondents have redirected planned China investments to other destinations in the past year, almost double the number of companies that did so in 2021.
- Only 53 companies (17%) indicated that they are considering moving operations or footprint out of China in the next one to three years, with just 19% of those planning to reshore to US locations. Zero-Covid restrictions have influenced 85% of these decisions and impacted supply chains for 80% of all respondents, though US-China relations remained the top reason for moving operations or footprint.
With zero-Covid weighing heavily on operations and confidence, improvements to the business environment are more important than ever. But this year’s data shows trends in the opposite direction.
- Only 17% of respondents said government policies and regulations towards foreign companies had improved in the past year, down 19 pp from 2021, while the rate of those reporting worsening rose 14 pp to 36%.
- Only 37% described the regulatory environment in their industry as transparent, a 10 pp drop from last year and the lowest in recent years.
- Over half (56%) of respondents said government policy shows favouritism towards local companies, up 5 pp from last year and the highest level since 2017.
Our sincere thanks to the American Chamber of Commerce in Shanghai for kindly sharing this information.
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