A record share of US firms froze investments in China, as trade ties worsened earlier this year, a recent survey suggested.
Fewer than half of the companies surveyed by the US-China Business Council (USCBC) from March to May said they planned to invest in China this year, a drop from 80 percent last year and a record low since the group began asking a similar question in 2006, a report released on Wednesday showed.
While the annual survey was conducted before the easing of tensions following the countries’ talks in London last month, the sharp fall in sentiment underscores the damaging effect of the trade war on investment in the world’s second-largest economy.
Photo: Reuters
Companies are in a “wait-and-see mode,” USCBC business advisory services vice president Kyle Sullivan said in a briefing. “They are riding out the uncertainty in trade policy.”
The survey covered large, US-headquartered multinational companies, with more than 40 percent of respondents representing companies that generated at least US$1 billion in revenue in China last year.
While the country remains an appealing hub for manufacturing and innovation, 75 percent of respondents cited China’s retaliatory tariffs as their top cost concern, as they often rely on inputs from the US.
A record 27 percent of companies said they moved or planned to move some operations out of China, the highest since at least 2016.
Beijing and Washington have seen relations thaw after both sides agreed to approve exports of crucial technologies, with Chinese exports to the US narrowing their drop last month.
Still, shipments to the US fell 24 percent in the second quarter compared with an increase of more than 6 percent for China’s overall exports, official data released on Monday showed.
The survey also gave a sense of how US companies navigated tariffs. While the most common approach was sourcing from alternative markets, about one-third of companies renegotiated prices with suppliers, while a similar share passed higher costs to downstream customers.
The report also found that 32 percent of companies lost market share in China over the past three years, and nearly 70 percent are concerned about losing market share in the next five years.
About 40 percent of companies also reported negative effects from US export control policies, citing lost sales, severed customer relationships and reputation damage in China, it said.
Meanwhile, the proportion of companies reporting impacts from overcapacity rose to 42 percent over the past year, up from 25 percent last year, more than 80 percent of respondents said China’s industrial policies help Chinese companies that were previously uncompetitive and nearly 60 percent of respondents said the policies steer Chinese customers to domestic products, the report said.
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