U.S. Firms Profitable in China Despite Headwinds

The US-China Business Council reports 90% of firms were profitable last year but business confidence continues to decline.
Matthew HellerAugust 25, 2016

Most U.S. businesses operating in China remain profitable despite the country’s economic slowdown but business confidence continues to soften, according to the US-China Business Council.

In its annual survey of China’s business environment, the council found that 65% of businesses increased revenues last year, down from 79% a year earlier, but 90% said they were profitable, up from 85% in 2014 and the second highest level in the past five years.

Profitability increased for 30% of the 119 businesses that responded to the survey, a decline from 40% in 2014 that reflects growing competition in China from local companies, rising costs and regulatory obstacles.

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Looking ahead, the survey reports “a clear trend of declining optimism and softening confidence.” After peaking at 58% in 2011, only 30% of U.S. businesses are now optimistic about the five-year outlook for business in China while 10% are pessimistic or somewhat pessimistic.

The biggest driver of reduced confidence is the policy and regulatory environment in China, which was cited by 67% of respondents, followed by domestic market growth (59%), the competitive environment (52%), and the profitability of China operations (52%).

China remains the top priority for 17% of respondents and among the top five priorities for 67%. Only 4% said it was not a priority.

Of the 15% of companies that reduced or stopped planned investment in China over the past year, 31% cited increasing market access restrictions and 25% said business prospects were better in another country.

More than two-fifths (43%) are very concerned about Chinese policies on information flows and technology security. Specific concerns include internet service within China, inability to use global IT solutions, intellectual property theft, and restrictions on cross-border data flows.

“China is a $400 billion market for U.S. companies … but it should be more,” the council said. “Addressing market access, intellectual property protection, and level-playing field concerns in China must continue to be a priority during the remainder of the Obama administration and [for] the next president.”