BEIJING -- U.S. companies operating in China are becoming more profitable and plan to continue to expand in the fast-growing nation, despite worries about restrictive government policies and a possible economic slowdown, a survey shows. "U.S. firms must grapple with the fact that their global competitiveness depends increasingly on how they fare in China," the American Chamber of Commerce in China said in the report accompanying its annual survey of business conditions. At the same time, the report said, the environment for foreign companies in China is becoming more complex, as the government focuses more on promoting local industry and eliminates some preferential treatment for foreign companies.
A solid majority of the chamber's responding member companies -- 73% -- said their China operations are profitable, up from 64% in the previous annual survey. Most companies also said their operating margins in China increased in 2006. The chamber's survey has shown 60% or more of member companies reporting improved margins every year since 2001.
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The European Union Chamber of Commerce in China released a survey in September that said 83% of its member companies expected to be profitable for the year. The increasingly significant scale of the Chinese economy, which is growing at three times the rate of the U.S. economy, is making China an increasingly important market for companies world-wide. China attracted $69.5 billion in foreign investment last year, and U.S. companies continue to invest in an attempt to gain market share: 83% of respondents said they are likely to expand capacity in their own China operations. Nearly a quarter expect to purchase a Chinese company in the future and 47% at least considered doing so in 2006.
A majority of respondents also said China is their top investment priority globally -- even though, for many U.S. companies, the country is a relatively small market at the moment. More than half the companies said China accounted for 10% or less of their global revenue, with a quarter saying it accounted for less than 2%. Survey respondents said their biggest business challenges in China were a lack of transparency, inconsistent and unclear regulations and bureaucracy. The chamber's report said that those top four complaints haven't changed since 1999. A majority of respondents -- 60% -- also said competition from both foreign and domestic companies had increased.
A third of respondents said they were worried about the risk of an economic slowdown, and a quarter cited the risk of growing protectionism in China. "There has recently been some protectionist backlash against foreign acquisitions of leading local companies," the report said, although only eight out of 161 companies responding reported a failed acquisition attempt in 2006. The chamber urged the Chinese government to continue to embrace market competition and to make the process by which it develops regulations and standards more transparent. The report, repeating a longstanding complaint of U.S. businesses, also said U.S. visa policy makes it unnecessarily difficult for Chinese citizens to make legitimate business trips to the U.S., and thereby discourages Chinese businesses from buying U.S. goods. A total of 247 member companies participated in this year's survey, though not all responded to every question.
