The performance of US firms in China worsened last year for the second year in a row, hurt by a slowdown in the economy and a more challenging regulatory environment, a business group said yesterday.
The American Chamber of Commerce in Shanghai said fewer of its member companies reported being profitable or increasing revenue in an annual survey of China’s business climate.
“US managers should no longer expect China’s economy to grow at the same double-digit rates of years past,” stated the China Business Report 2012-2013, which surveyed more than 400 of the chamber’s members.
“The ‘new normal’ for US companies in China will be characterized by a maturing economy that is likely to generate weaker growth returns and rising business challenges,” the report added.
Challenges included surging costs for labor and taxes, finding and retaining employees, growing competition and murky government policies, the group said.
Last year, 71 percent of companies responding to the survey reported rising revenue, less than the 80 percent the previous year. And 73 percent of companies said they were profitable last year, down from 78 percent in 2011.
The Chinese economy — the world’s second-largest — expanded just 7.8 percent last year, its slowest pace in 13 years, in the face of weakness at home and in key overseas markets.
That helped foreign direct investment in China to fall for the first time in three years, declining to US$111.72 billion from an all-time high of US$116 billion in 2011.
Still, China remained a “vital market” for US companies, the chamber said, with nearly two-thirds of firms saying revenue growth in China was greater than their global figure.
Chinese government policies, which lack transparency and tend to favor domestic companies, were a hindrance and more than two-thirds of firms surveyed said the regulatory environment had not improved or had even deteriorated last year.
“It is incumbent upon China to address the more fundamental regulatory and policy issues,” the chamber said. “These include a lack of transparency, a tangled web of bureaucracy and other regulatory challenges.”
In a case that shook the foreign business community in China, US equipment giant Caterpillar Inc said in January it would take a US$580 million charge after uncovering “accounting misconduct” at a newly acquired Chinese firm.
Analysts said the stumble by a Chinese market veteran served as a reminder of the pitfalls of doing business in the hugely promising market.