China’s Slowing Economy Puts a Damper on American Business: Survey

American companies doing business in China are minimizing expectations as the Chinese economy slows.

That’s the bottom line from an annual survey published by the American Chamber of Commerce on September 11.

Persisting trade tensions with America are excarberating the issue, respondents say, with 53% stating that US and Chinese tariffs are leading to less investment spending. Respondents identified China’s weakening domestic economy as a more significant factor clouding their outlook, however.

Nearly 58% of respondents said that a slowing Chinese economy is the biggest challenge they expect to face in the next three to five years, compared to a third of respondents in last year’s survey. The percentage of American Chamber of Commerce members planning to cut China investments in 2019 has tripled, rising from 6% to 18% in 12 months.

The picture does not look much brighter when it comes to revenue growth. Only half the respondents expect to see growth in 2019, down from 81% in 2018. About 21% of respondents express pessimism about business prospects in China over the next five years. In recent years fewer than 10% said they were pessimistic.

“It has to do with uncertainty. Business fundamentally does not like uncertainty,” said American Chamber of Commerce President Ker Gibbs.

The Chinese consumer market continues to attract US companies, but more and more are seeking other areas like Southeast Asia for sourcing and producing, as they do not wish to become targets in the trade war.

“Fears of repercussions from the Chinese government, including non-tariff barriers such as increased regulatory scrutiny or inclusion on the anticipated unreliable entity list, may explain the decline, as could tariffs,” the report says.

Asked about the best possible outcomes of the ongoing trade negotiations, respondents cited two well-known issues. More than 40% said that getting greater access to the notoriously difficult-to-enter Chinese domestic market would be the key in helping their business succeed. Another 28% identified higher intellectual property protection as the key to success.

The survey found optimism among respondents in certain industries. The pharmaceuticals, medical devices, and life sciences category ranked among the industries anticipating revenue growth, and that sector was the second-highest in optimism levels. The report said that such a positive outlook was “likely due to government policy changes, including accelerated approvals of foreign drugs.”

More than two-thirds of food and agricultural companies are also planning to increase investment - higher than any other industry. Retail and consumer firms are also positive about short-term investments, but they plan to focus on smaller cities where analysts see major growth opportunities.

Otherwise, businesses seem to be preparing for a long trade war, with 35% expecting tensions to continue for another one to three years. About 13% predicted the trade war would last three to six years, and 17% expect it to drag out indefinitely.

“Still,” the report concludes, “with no sign of a trade agreement, 2019 will be a difficult year; without a trade deal, 2020 may be worse.”