Given all the talk from Washington about how China hobbles U.S. business by manipulating its currency, abusing intellectual property, and blocking access to its markets, you might think U.S. companies are struggling mightily on the mainland.
But you'd be wrong. A report from the American Chamber of Commerce in China shows a much more nuanced -- and positive -- picture. Of the 1,400 U.S. enterprises surveyed, 68% were profitable last year, with 42% reporting that margins in China topped worldwide levels. And 93% say economic reforms following China's entry into the World Trade Organization in 2001 have improved their prospects.
"Overwhelmingly, companies believe the climate has gotten better,? says business consultant Teresa Woodland, who serves as co-chair of the Chamber's public policy development committee, and who has helped manage similar surveys since 1999. ?They are very positive on how things are going."
LACK OF COOPERATION. That's not to say there are no problems. The report also shows an increasingly competitive environment as Chinese companies get bigger and smarter. And few would discount continuing troubles with poor intellectual property safeguards and local protectionism. More than half of the U.S. companies surveyed said they're not satisfied with the cooperation of Chinese officials in fighting the counterfeiting scourge, and 80% call China's legal protections against fakes ineffective.
One big change: More U.S. companies are looking to China as a market for their goods. All told, 83% of U.S. companies said producing goods and services for the domestic market is one of their top three reasons for entering China, up from 60% in 1999.
Another shift is that U.S. companies more often go it alone these days. In years past, Beijing required them to form joint ventures with local partners. But many of those rules have been relaxed, and American investors have become more comfortable navigating the mainland alone.
BIG BEER BUY. Today, just 27% of U.S. companies are paired with Chinese partners, down from more than three-quarters in 1999, the report shows. Even as fewer U.S. companies start joint ventures, more are interested in acquiring Chinese companies. Anheuser-Busch (BUD), for instance, spent $630 million to buy northeastern China's Harbin Brewery in June, 2004.
The mainland is also becoming a far more competitive place to do business. One key reason is the rise of local rivals such as computer maker Lenovo (LNVGY) -- which last year purchased IBM's (IBM) PC business -- white-goods maker Haier, and nimble auto makers including Chery and Geely.
All told, 70% of U.S. companies reported increased competition from Chinese rivals. The market is "definitely competitive -- we have seen it in the way pricing is coming down," says Dale Sullivan, director of General Motors' (GM) Chevrolet brand in China.
Competition for workers is growing almost as much as competition for customers. Some 41% of U.S. companies say rising salaries and wages are a major challenge for their operations.
A NEW GREAT WALL. New competition for markets, managers, and margins is pushing U.S. companies deeper into China. While 47% of all U.S. companies surveyed are already in secondary cities, that number jumps to 64% for manufacturers. Meanwhile, 39% plan expansion into second-tier markets. "Incomes have gone up, and these markets have become more attractive," says Woodland.
But venturing beyond Beijing, Shanghai, and Guangzhou has its challenges. Even though the central government wants to make things easier for foreign investors, provincial and municipal authorities aren't always so cooperative.
Some 24% of companies say local protectionism is getting worse, compared with 15% who say things are improving in that respect. Provincial "officials are not as experienced, and [smaller] markets are not as sophisticated," says Woodland.
Nevertheless, add it all up, and the report shows most companies are still bullish on China. Indeed, 79% say China is their top investment destination. And 49% are optimistic on the five-year business outlook for China, while 43% say they are "cautiously optimistic" -- leaving 6% of respondents neutral and just 2% "slightly pessimistic." Struggling in China? Hardly.
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