HONG KONG: American companies’ business outlook for China has sunk to a record low, according to a new survey released on Monday, driven by tense diplomatic relations and regulatory crackdowns.
China’s strict zero-Covid measures, including citywide lockdowns and travel restrictions, have also become a top challenge for foreign companies operating in China, according to the US-China Business Council’s annual member survey.
Among the respondents in the June report – 117 multinational companies headquartered in the US – a record 21% said they were downbeat on business in China over the next five years.
The companies cited fraying US-China relations, which impacted nearly 90% of businesses through lost sales and a shift in suppliers due to uncertainty over reliable deliveries, the survey says, adding that the trend would be tough to reverse.
The nearly 90% represents a record high.
The regulatory environment was another reason for the gloomy outlook after China waged a crackdown on a broad range of industries including the tech sector.
Just over half the respondents said they were optimistic about the future for their China business, an all-time low.
“Both countries maintain tariffs on each other’s imports, and there appears to be little appetite in either government to make concessions during what is a politically sensitive year in both countries,” the US-based council wrote in the report.
Virus lockdown worries surpassed concerns about tense relations, with 96% of companies surveyed saying they were negatively impacted by China’s Covid-19 measures, which affected more than half of the companies’ future business and investment plans.
China’s financial capital Shanghai and other cities were locked down earlier this year in a bid to stem infections, dealing a heavy blow to manufacturing and other sectors.
Beijing also imposes a strict quarantine for people arriving in the country, even as most of the world drops virus measures.
Mounting uncertainty around China’s Covid-19 policies and bilateral tensions meant foreign companies were holding back from investing in China, with only a quarter of the survey respondents planning to accelerate committing resources over the next year – just half the proportion five years ago.
“How foreign companies invest in China moving forward will likely depend on China’s policy choices through the end of this year,” the report says.
Companies are also reconsidering their priorities as fewer respondents consider China to be their top market, the survey found, despite the country’s large and growing middle class.
Respondents were reevaluating their businesses, with nearly a quarter moving segments of their supply chains out of China.
Economists are slashing their forecasts for Chinese growth; few expect this year’s 5.5% target – which would represent the slowest annual pace in about a quarter century – to be hit.
Foreign companies face a growing number of challenges as the economic rivals lock horns over a host of issues, including Taiwan and Beijing’s claim to most of the South China Sea. Roughly half of the companies surveyed felt pressure to make political statements.
The Uyghur Forced Labor Prevention Act, which came into effect in June, has banned imports into the US from China’s Xinjiang region amid concerns over forced labour and claims of other human rights abuses in the region.
In December, US chipmaker Intel publicly apologised after it was slammed for making a reference to forced labour in Xinjiang in a letter to suppliers.