(Bloomberg) — American companies in China turned much more pessimistic over the past year, with disruptions from the Covid Zero policy hitting profits and ever-worsening relations between Washington and Beijing prompting rising numbers to reconsider their position in the country.
More than half of the 319 firms that responded to an American Chamber of Commerce survey said they wouldn’t be profitable in 2022, with 22% forecasting a loss, the worst result since at least 2019. Two-thirds blamed repeated lockdowns and other Covid Zero restrictions, the survey showed.
“While US-China trade has continued to grow throughout the pandemic, bilateral relations have become increasingly complex,” Chamber Chairman Colm Rafferty said. “Last year was particularly challenging,” he said, highlighting “efforts to ensure compliance with various new US and China-related regulations.”
American lawmakers have been intensifying efforts to find ways to decouple the US from China, reflecting a growing desire to counter Beijing’s global influence as the world’s largest economies spar over issues from Taiwan to technology and surveillance.
Firms’ outlook in China were also more negative than in previous years, with a third of respondents pessimistic about the domestic market and the prospects for economic recovery. Some 46% think US-China ties will continue to worsen in 2023, up from 24% the previous year, the survey showed.
The rise in tensions between the US and China was the most important business challenge for firms, especially in the technology, research and development sectors due to the continued conflict over semiconductors, respondents said.
The pessimism about the future was reflected in where executives are planning to invest their money, with “a sharp decline in members who rank China as a top three priority” for new spending. Almost half of firms plan no new investment, with another 9% planning to cut investment.
While many companies said they have no plans to shift their supply chains from China, 12% are already moving manufacturing or sourcing outside of the country and another 12% are considering it, the two readings almost double the level of even a year earlier.
Overall inbound foreign investment in China dropped sharply in the second half of last year as the increasingly strict lockdowns dragged on economic growth. The government in Beijing is clearly concerned about the outcome and has announced that getting foreign companies to stay and attracting new investment would be a focus for this year.
Since the AmCham survey was conducted, the Chinese government has abandoned Covid Zero, which might improve the outlook for both American and Chinese businesses. Parts of the economy appear to be rebounding, although the housing market has remained weak and export demand is dropping, knocking away two pillars of growth in previous years.
However, relations with Washington have continued to spiral downward, with a Chinese balloon that floated over the US and was then shot down by the American military the latest flashpoint between the two nations.
The survey was conducted between mid-October and mid-November last year.
–With assistance from Fran Wang.
©2023 Bloomberg L.P.
