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Trade Group Offers More Wary Assessment of Business Conditions in China

Wednesday, April 24, 2013
By Shawn McCausland
Sandler, Travis & Rosenberg Trade Report

The American Chamber of Commerce in China said this week that its 2013 Business Climate Survey found a more cautious but still generally optimistic assessment of business conditions in China. The report said the corporate outlook broadly accords with China’s own revised economic goals in an era of rebalancing: expectations for growth, but at a more tempered pace than seen just a few years ago; and investment expansion, yet at a more moderate rate than in the past. Respondents voiced continued concerns over pressure to transfer technology, inadequate protection of intellectual property rights, the potential for corporate data breaches, difficulties in obtaining business licenses, and inconsistent regulatory interpretations and unclear laws.

Risks. Rising labor costs and are now considered as great a business risk as a Chinese economic slowdown, followed by shortages of qualified employees and managers and increased Chinese protectionism. Just over a third of respondents believe they are disadvantaged by industrial policies that favor state-owned enterprises. 35% said de facto technology transfer as a requirement for market access is a concern, and 37% said this requirement is increasing, compared to 27% in 2012. Nearly three-quarters (72%) of respondents said IPR enforcement is ineffective or totally ineffective, up from 59% in 2012, though 47% said enforcement has improved over the past five years. The percentage of those saying that IPR infringement causes material damage to their Chinese operations rose from 22% to 34%. Over a quarter (26%) of respondents said proprietary data or trade secrets from their China operations have been breached or stolen, and 42% said this risk is increasing.

Revenues. 71% of respondents said their revenues in China increased from the previous year, down from 85% in 2011 and 81% in 2012. Over 40% said their operating margins in China are better than the global average for their company, though 33% said they are lower.

Investment. The percentage of respondents ranking China as a top-three destination for global investment fell from 58% to 47% and 11% said China is not a high investment priority at all, up from 7% in 2012. Just over one-fourth (28%) said they anticipate improvement in China’s investment environment, down from 43% a year earlier, while 53% said they think the situation will stay the same, up from 36%. The expectation of slower growth in China or faster growth in other markets was the primary reason cited by those who plan to slow their investment in China, followed by market access barriers or disadvantageous government policies.

Sourcing. 71% of respondents said their involvement in China is focused on producing or sourcing goods or services for the Chinese consumer and business markets, up from 61% in 2011 and 66% in 2012. 12% said they are focused on producing or sourcing goods or services for the U.S. market, compared to 10% in 2011 and 9% in 2012.

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