China still remains ‘bright spot’ for US companies

16 january 2013

Despite bleaker business prospects over the past year, US companies operating in China continue to see it as a “bright spot” in which to do business, according to the president of the American Chamber of Commerce in Shanghai.

Small and medium-sized United States firms are being encouraged to boost their exports by cashing in on China’s increased domestic consumption, she added.

“It is fair to say there are challenges for our companies operating in the Chinese market. They can range from regulatory challenges to structural challenges,” Brenda Lei Foster, president of the chamber, or Amcham Shanghai, told China Daily.

“The importance is that the Chinese market is really maturing, and with that maturation you have increased domestic competition and competition from other countries. US companies just need to be able to compete at a higher level, but I think they are still optimistic about their prospects in China.”

A survey by the chamber this year showed that 80 percent of US companies in China reported revenue growth in 2011 over 2010, down from 87 percent in 2010 from 2009, while 51 percent of firms said their operating margins improved in 2011 from 2010, down from 66 percent in 2010 over 2009.

Amcham Shanghai, founded in 1915 and known as the “Voice of American Business” in China, is the largest and fastest growing American Chamber in the Asia-Pacific region.

A report by Amcham added: “Rising costs were rated the most significant business challenge in 2011, replacing human resource constraints for the first time since 2006. As a result, 91 percent of survey respondents said rising costs are causing China to lose some of its competitive advantages compared to other low-cost manufacturing countries.”

Following action taken by the Obama administration to create jobs for US citizens, some US firms in China pulled out, including the power company AES Corp, which sold its businesses in China due to the higher cost of coal in a State-regulated industry.

Foster said: “We don’t see a large group of US companies in China either returning to the US, or moving to other Asia-Pacific countries. They are fully focused on the Chinese market, and if so they are usually expanding or diversifying their operations, but they are not moving out of China.”

She said more than 60 percent of US companies are in China for the Chinese market 69 percent placed China in their top three investment destinations, while more than 76 percent wanted to increase their investment in China in 2012. “Our companies are still optimistic about investment in China,” she said.

With China’s once-in-a decade transition of power imminent, Foster said that no matter who the country’s new leaders were, she expected many policies covering investment and economic development to continue.

“What is very important is that they have also worked in provincial areas and have a lot of exposure to foreign business,” she said. They would be “quite familiar” with international trade and economic development and the challenges and opportunities for foreign companies, she added.

The leadership transition, or the 18th National Congress of the Communist Party of China, is scheduled to take place on Nov 8. Amcham Shanghai said: “China will remain a key market for US companies. Continuing a trend of ‘in China for China’, US companies are strengthening their connections outside China to boost their Chinese operations, and 62 percent of the companies imported parts or finished goods from the US into China in 2011.”

Foster said US companies will continue to tap China’s demand for sophisticated, innovative US products, including services, as the country makes the transition from an export-intensive economy to one driven by higher value-added production and domestic demand.

China’s expanding middle class is expected to reach 400 million in 2020 by US global management consulting firm McKinsey & Co.

The widening consumer base offers a “compelling destination for US small and medium-sized enterprises to boost exports or expand their business”, said the Amcham Shanghai report entitled “Viewpoint: Opportunities for US Small and Medium Business in the China Market.”

Foster said: “About 99 percent of US companies are SMEs and 1 percent of them are exporters. And only 10 percent of the exporters are exporting to China. We can increase this dramatically.”

The report said: “The opportunity is so great that simply doubling the number of US SMEs that export to 2 percent worldwide would result in approximately $400 billion in additional exports and approximately 2 million American jobs.”

Foster said Amcham Shanghai is setting up its SME Center to provide targeted services for small and medium-sized enterprises interested in exporting to or expanding their operations in China through resources and referrals to its 3,700-strong member network.

The chamber also wants Washington to provide SMEs with the resources, knowledge and expertise to seek opportunities overseas.