U.S. companies in China are seeing record-low profits as geopolitical tensions and a slowing Chinese economy take their toll.
According to a report released Thursday by the American Chamber of Commerce (AmCham) in Shanghai, only 66% of American firms in China were profitable in 2023. This is the lowest level recorded in the survey’s 20-year history.
Business confidence is also at an all-time low. Only 47% of respondents said they were optimistic about their business outlook in China over the next five years. This drop in confidence reflects rising concerns about the strained relationship between the U.S. and China.
Eric Zheng, president of AmCham Shanghai, highlighted the challenges American companies face. “The perceived risks of doing business in China have increased significantly,” he said at a news conference. “At the same time, the market is slowing down, with soft demand and overcapacity.”
U.S. Secretary of State Antony Blinken, right, with U.S. Ambassador to China Nicholas Burns, second left, and Chamber President Eric Zheng, waves as they meet with business leaders at the American Chamber of Commerce in Shanghai, China, Thursday, April 25, 2024. A new report by AmCham Shanghai has found that U.S. companies in China are seeing record-low profits.
Mark Schiefelbein/AP Photo
The report showed that 25% of surveyed companies reduced their investments in China this year. Many are redirecting resources to other regions such as Vietnam, Malaysia, and South Asia. The primary reasons for this shift are China’s economic challenges and growing uncertainty about its future as a business destination.
China is grappling with sluggish consumer demand and deflationary pressures. These economic issues have persisted even after the country reopened from strict COVID-19 lockdowns. Many companies now believe China’s growth will lag behind global growth in the next three to five years. Only 37% of respondents expect their revenue in China to increase at a faster rate than in other global markets.
The geopolitical tension between the U.S. and China remains a top concern for American companies. Disputes over trade, technology, and China’s territorial claims in the South China Sea have escalated in recent years. This hostile environment is making it more difficult for foreign companies to operate in China.
AmCham’s report follows a similar one released by the European Union Chamber of Commerce in China. The European report also warned of increasing risks for companies doing business in the country. Jens Eskelund, president of the European Chamber, noted that some European companies now see China as a less attractive investment destination.
“We are concerned about there being a tipping point,” Eskelund said. “China is no longer a top priority but increasingly a top three or top five destination.” He called on the Chinese government to address the concerns of foreign businesses by implementing promised economic reforms and ensuring a fair business environment.
Both AmCham and the European Chamber are urging China to focus on policies that boost investor confidence and economic growth. Without action, they warn that foreign investment in China could continue to decline.
This article includes reporting from The Associated Press
