China drops in priority for US companies due to rocky relations, survey says
China fell slightly in strategic priority for American companies over the past year as deteriorating relations between the countries continued to weigh heavily on executives, according to the annual US-China Business Council (USCBC) member survey released on Thursday.
While China remained among top priorities for US companies, it has become a little less important. As many as 74 per cent of the company executives surveyed considered China as the top priority, or among the top five; that number was as high as 94 per cent a decade ago.
Executives said the dip in priority was the result of the worsening bilateral tensions that remained the top concern for the fourth year for their businesses. The rocky relationship has resulted in reputation damage to US firms, lost sales, shifts in suppliers and increased scrutiny from regulators in both the United States and China.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
"There have been considerable changes" for American companies in the US in the past year, said Craig Allen, president at the USCBC, which represents more than 200 US companies, at a virtual event about survey on Thursday. "There's a significant increase in tension, and yes there are concerns about factors that we cannot control."
China has dropped in strategic priority among US firms. Image: US-China Business Council alt=China has dropped in strategic priority among US firms. Image: US-China Business Council
Allen urged the US and China "get back to the negotiation table" to talk about trade issues such as market access that goes beyond the phase one deal.
"Neither government should take for granted the economic relationship and the stabilising role that business plays in US-China relations," said Allen.
The results of the survey, conducted in June among 107 companies, came as the tensions between the US and China continued to worsen despite the change of US presidency at the beginning of this year. Over the past year, both countries have imposed policies in finance, trade and technology that have alienated the other from the markets.
US President Joe Biden has not softened on many policies put in place by his predecessor. Instead, Biden signed an executive order in June to expand the list of Chinese companies banned from American investment for allegedly having ties with Chinese military.
The Securities and Exchange Commission last week also imposed rules to request additional disclosure by Chinese companies seeking to list their stocks on US exchanges.
The hostility between the two countries has led to stronger Chinese government policies promoting domestic firms, said the surveyed companies, which in turn threatened "to limit opportunities for foreign companies in the market".
The percentage of companies that said their businesses were affected by China's push to develop their own technologies rose to 38 per cent from 12 per cent in 2019.
State subsidies for Chinese companies and regulatory barriers made it "an uneven playing field" for American companies in China, the respondents said.
Chinese firms enjoyed preferential treatments such as easier government financing, better access to government contracts, and smoother licensing and approval processes. That challenge had become more pressing as Chinese companies matured and became more competitive than before.
"Governments are increasingly asserting themselves into the economy and are feeling that they need to have more sovereign control over key elements of the economy. That puts pressure on further localisation," said Mike Froman, president of strategic growth at Mastercard, who served as US trade representative under former president Barack Obama, at the Aspen Security Forum on Tuesday.
"Something companies are going to have to deal with is understanding how to pursue their business models or alter their business models in a way that allows them to show up more locally in the countries in which they operate."
A cargo ship loaded with containers at Lianyungang port in China's eastern Jiangsu province on July 22. Photo: STR via AFP alt=A cargo ship loaded with containers at Lianyungang port in China's eastern Jiangsu province on July 22. Photo: STR via AFP
For the first time in the survey's history, 45 per cent of the respondents said they felt pressure, from both the US and Chinese governments as well as consumers, to make statements about political issues.
Aside from geopolitics, the Covid-19 pandemic - and travel restrictions it has caused - ranked as the third top challenge for the companies this year. As many as 57 per cent of the respondents said they have cancelled trips to China. The absence of face-to-face exchanges has also made engagement more difficult.
But despite the pandemic and trade tensions, US companies reported strong profits and growth prospects in China. As many as 95 per cent of the 107 companies surveyed said they were profitable last year and 64 per cent saw revenue grow. More than 40 per cent have plans to increase resource commitments in China over the next year.
With significant challenges in the business environment and concerns about geopolitical tensions, the vast majority of the companies that invest in China said they are in the country to serve the Chinese market, where they see strong growth prospects. They expect growth prospects in China to exceed other emerging markets.
Two thirds of the more than 100 respondents surveyed have been in the Chinese markets for more than 20 years.
This article originally appeared on the South China Morning Post (SCMP).
Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.
