American Companies in China Face Worsened Conditions, Report Says

It’s not a good time for U.S. businesses operating in China, according to a new report, which says efforts by the country to promote its own homegrown champions are leaving foreign entrants on the outside.

Scores of American business have set up shop in the world’s second-biggest economy hoping to tap its growing middle class, though ownership restrictions there mean they’ve had to find local partners.

China has attempted to modernize its economy by setting clearer and more consistent regulations and improving its record of intellectual property protection. But policies designed to support domestic competitors and slowing economic growth have made 2017 one of the toughest times to do business there in decades, according to the American Chamber of Commerce in China.

“The pace of economic reforms and market opening has been slow and faltering,” the nonprofit group said in its annual American Business in China White Paper, released this morning.

Despite Donald Trump appearing to have established a strong foundation for discussions with Xi Jinping at a meeting this month, relations between the countries remain fraught. Trump is still talking tough about cracking down on what he describes as unfair discrepancies in trade policy, indicating he may still impose higher tariffs on Chinese imports.

Xi, meanwhile, will in October host China’s 19th National Congress, an important event that will determine much of the country’s top leadership and map out its political ambitions.

“We are experiencing a clear increase in uncertainty as the U.S.-China relationship enters a new era,” AmCham Chairman William Zarit said. “Multinational companies spanning this relationship, both American and Chinese, are paying close attention to developments as they make their plans.”

China once offered preferential tax treatment to foreign investors to encourage the arrival of their know-how and experience. But as its economy has modernized it has harmonized tax policies with increasingly capable local companies. Labor costs, meanwhile, are rising, while foreign companies express concerns that some new laws, such as those addressing cybersecurity, discourage offshore investment.

In January, an AmCham survey of 462 executives who do business in China found 83% expected bilateral relations between the two countries to either stay the same or deteriorate this year. The survey also found that many businesses were reconsidering investments there, while around 80% thought that foreign companies were less welcome than in the past.

Large companies that recently downsized in China include Yum Brands, which last year spun off its KFC and Pizza Hut chains there into a separate entity. In January, rival McDonald’s sold an 80% stake in its Chinese business to a group of local and American investors for about $1.7 billion.

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