Merrill Lynch's emerging markets strategy and economics team released a report Friday in which it examined the question of whether foreign multinationals operating in China have indeed been making money.
In the report, the team estimated that between 1994 to this year as a whole, China is likely to have attracted some US$430 billion in foreign direct investment.
But while China's GDP growth is booming, "we have some doubts about the extent to which this will be reflected in profits," the team said.
In trying to answer the question, the team looked at seven industries -- namely the mobile phone, consumer durables, auto, retail, household goods, capital goods and information technology industries.
One of the report's findings was that while information on the importance of China to sales is generally widely available, there is very little data on profits and margins.
"One is forced to rely more on anecdotal evidence, " such as examples of multinationals who have said they are make money in China, such as Dell, Volkswagen, Nokia, Motorola, Carrefour, P&G, Unilever and Coke, the report said.
But the report also noted there are a number of examples where foreign investors have struggled, pointing to regulatory uncertainty, counterfeiting and poor infrastructure are amongst the problems experienced.
The key theme that emerges in the team's research report is how rising domestic competition has accentuated pricing pressures. Most multinationals are boosting production, admitting prices will fall, and hoping that margins can be supported by cost-cutting and economies of scale.
Sectors that are currently profitable include the handset, automobile, household and consumer goods, capital goods and computer hardware sectors.
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