US businesses' optimism in China falls to record low, survey shows

By Casey Hall

SHANGHAI (Reuters) - Political tensions, China's slowing economic growth and fierce domestic competition are sapping the confidence of U.S. businesses in the country, with optimism about their five-year outlook falling to a record low, a survey showed.

Only 47% of U.S. firms were optimistic about their five-year China business outlook, a drop of five percentage points from last year, according to the survey published on Thursday by the American Chamber of Commerce in Shanghai.This was the weakest level of optimism reported since the AmCham Shanghai Annual China Business Report was introduced in 1999. Also at record lows were the number of firms profitable in 2023, at 66%.

AmCham Shanghai Chairman Allan Gabor said the trend in falling profitability was due to a combination of factors.

"It's domestic demand, it's deflation, and of course we can’t ignore the membership's perceptions and concerns about geopolitics," Gabor said.

"This touches investments and touches operating plans in China in terms of how we develop business plans in China for the future."

The 306 U.S. firms polled were from a range of industries. U.S. foreign direct investment into China fell 14% to $163 billion in 2023 from the previous year, according to the U.S. State Department.

Geopolitics remains the number one challenge for most American businesses operating in China with uncertainty about the future of the relationship between the world's top two economies heightened ahead of the U.S. presidential election.

The U.S. is also soon expected to make its final determination on higher duties for Chinese-made products announced by President Joe Biden earlier this year. The 100% tariffs on EVs, 50% on semiconductors and solar cells, and 25% on lithium-ion batteries, among others, were due to take effect on Aug. 1, but have twice been delayed.

In response, China has urged the U.S. to immediately lift all tariffs on Chinese goods and vowed retaliation.

The bilateral relationship was cited by 66% of respondents as their biggest challenge and by 70% as the greatest challenge to China's economic growth.

On a marginally positive note, there was a slight uptick from last year - to 35% - in businesses reported believing China's regulatory environment is transparent. However, there was also a rise to 60% in companies that reported favouritism toward local companies.

The same proportion of U.S. firms as last year, 40%, are currently redirecting or looking to redirect investment that had been earmarked for China, the AmCham report said, mainly to Southeast Asia, but also to India.

The declining sentiment of U.S. businesses echoed a paper published by the European Union Chamber of Commerce in China on Wednesday that said the challenges of doing business in the country were starting to outweigh the returns.

(Reporting by Casey Hall; Editing by Sonali Paul)