USCBC 2016 Membership Survey: The Business Environment … 2016 Annual... · —Key Findings — 1...

— Key Findings —1

USCBC 2016 Membership Survey:

The Business Environment in China

Key Findings

USCBC 2016 China Business Environment Survey

2

Business outlook reflects slowing growth

• China’s growth slowdown is impacting American company financials and

market sentiment. Nearly 20% of survey respondents expect revenue to

decline this year, though two-thirds anticipate continued growth.

• Companies are responding by doing what would be expected — cutting

costs, slowing investment, controlling hiring … but not pulling out.

• Despite slowing revenue growth, 90% of companies remain profitable, but

at reduced rates that reflect increasing competition, rising costs, regulatory

impediments, and, in some sectors, overcapacity.

• Business confidence continues to soften. Almost three-quarters of

companies have an optimistic or somewhat optimistic five-year outlook, the

lowest total over the past decade. Pessimism remains low (10%), however.

Policy uncertainty undermining confidence

• Three years after China announced significant reform goals, most American

companies are not seeing significant changes in the business environment.

• The biggest driver of reduced confidence is the policy and regulatory

environment, followed by the market slowdown and profit margins squeezed

by increasing competition, rising costs, and overcapacity.

• Of the Top 10 challenges, six would be improved by a high-standard

US-China Bilateral Investment Treaty.

1

2

3 China still outpaces other markets

• Despite the challenges of a slowing economy and increasing domestic competition, China remains a priority market for

American companies. 91% of companies say China growth prospects are the same or better than other emerging markets.

• USCBC estimates that China is a $400 billion market for US companies — tied with Mexico as the second-largest foreign

markets for American goods, services, and farm products, after Canada — but it should be more. Addressing market

access, intellectual property protection, and level-playing-field concerns in China must continue to be a priority during the

remainder of the Obama administration and for the next president.

Revenue from China Business in Past Year

3


China’s growth slowdown is reflected in slowing revenue growth.

84%72% 73%

79%

65%

13%

10% 12%9%

10%

3%

18%12%

26%

Increased

Unchanged

Decreased15%

2011 2012 2013 2014 2015

2016 Revenue From China is Projected to:

4


Increase62%

Remain unchanged

21%

Decrease17%

The economic slowdown is impacting revenue

projections —nearly 20% expect revenues to

decline this year, though ²/3 anticipate growth.

Companies are responding by doing what

would be expected —reducing hiring,

cutting costs, slowing investment.

55%46%

36%

33%37%

44%

12% 17% 20%

2014 2015 2016

Expand

Contract

Remain

unchanged

Company Head Count Expected to:

Are Your China Operations

Profitable?

5


89% 91%83% 85%

90%

2012 2013 2014 2015 2016

Despite the slowdown in revenue growth,

companies remain profitable in China.

Yes

Profitability Compared to Previous Year

55%

30%

44% 40%30%

35%

49%29%

30%

35%

10%21%

27% 30%35%

2012 2013 2014 2015 2016

Decreased

Unchanged

Increased

But profitability is at deteriorating rates that

reflect increasing competition, rising costs,

and regulatory impediments.

6


Optimistic

Somewhat

optimistic

Neutral

Pessimistic or

somewhat

pessimistic

72% are optimistic or somewhat optimistic; pessimism remains low (10%);

but … a clear trend of declining optimism and softening confidence continues.

Five-Year Outlook for Business in China

55% 52%58% 57% 58%

48%39%

31%24%

30%

38%38%

35% 37% 33%42%

49%54%

52% 42%

7%7% 5% 4% 8% 6% 7% 14%

15%18%

3% 2% 2% 1%4%

1%5%

9% 10%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Issues Impacting Five-Year Outlook

7


Multiple responses allowed

67%

59%

52% 52%

38%

2% 1%

Policy andregulatory

environment

Domesticmarket growth

Competitiveenvironment

Profitability ofChina

operations

Costs Overcapacity Other

Declining optimism driven by 1) the policy and regulatory environment, 2) slowing market

growth, and 3) profit margins squeezed by rising competition and rising costs.

1

2 3

China's Prominence in Overall

Company Strategy

8


22%15%

22%16%

17%

72%81% 71%

78%67%

5% 3% 7% 6%12%

2012 2013 2014 2015 2016

Despite the headwinds of the economy

and competition, China remains a priority

market for most American companies.

Top

priority

Among

top five

priorities

One of

many

priorities

4%Not a priority 1%1%

67%

52% 50% 51%46%

31%

41% 48%38% 46%

2012 2013 2014 2015 2016

Resource Commitment

for the Next Year

Will be

curtailed

Will remain

unchanged

Will

accelerate

At the same time, market and policy headwinds

have slowed investment overall. Fewer companies

are accelerating investment in China—although

The number reducing investment remains small.

2%7%

2%

11%

8%

Did Your Company Reduce or

Stop Planned Investment

in China in the Past Year?

9


Yes15%

No85%

31% 31%

25%

0%

13%

Increasingmarketaccess

restrictions

Reducedcapital

investmentglobally

Betterbusiness

prospects inanothercountry

Rising costs Other

Why Did Your Company Reduce

or Stop Planned Investment

in China in the Past Year?

Few companies are halting investments in China, but those that do cite market access

restrictions and better business opportunities in other markets as top reasons.

View of China’s Growth Prospects

vs. Other Emerging Markets

10


Better73%

Same18%

Worse9%

Worse32%

Same33%

Better34%

View of China’s Policy Environment

vs. Other Emerging Markets

Context is important:

91% say China growth prospects are the same or better than other emerging markets;

on the other hand, views on China’s policy environment versus other markets are mixed.


11

Challenges in red addressed in full or in part by a BIT

Why does a Bilateral Investment Treaty with China matter?

Six of the

Top 10

challenges

would be

impacted

by a BIT;

A high-

standard

BIT is a

business

community

priority.

Concern about Chinese Policies on

Information Flows and Technology Security

12


Very concerned

43%

Somewhat concerned

36%

Neutral11% Not very

concerned10%

Not concerned: 0%

80% of companies are concerned about China’s data and IT security policies,

including the impact they have on day-to-day business operations.

Concerns Regarding

Cyber-Related Issues

1%

14%

22%

30%

38%

43%

49%

50%

51%Internet service

within China

Inability to use global

IT solutions in China

IP theft

Restrictions on cross-

border data flows

US-China

political tensions

Restrictions

on VPN use

Loss of sales in China

due to national

security/protectionism

Plant and worker safety

risks from cyber-intrusion

Other

13


Significant benefits

2%

Some benefits

42%

Not seeing benefits

56%

Most foreign companies are not seeing benefits from China’s economic reforms,

which is consistent with the limited overall progress on reform that USCBC has found.

USCBC Economic Reform Scorecard:

Impact of Reform on Foreign Companies

Is Your Company Seeing Any

Benefits From China’s

Economic Reforms?

February 2016


14

Challenges vary by sector, but competition with Chinese companies

remains the No. 1 concern among US companies.

Top 10

challenges:

Drill Down

15


United States34%

China62%

Other4%

Less than 5 years

2%

11-20 years26%

More than 20 years

65% 60%Manufacturing

53%Services

8%Primary

industries (agriculture,

mining) 2%other

YEARS DOING BUSINESS IN CHINA

7%

LOCATION

INDUSTRY

Demographics of respondents

119 companies

• US- and China-based perspectives

• Balance of industry sectors

• Experience: 90% in China for 10 years or

more

• ~20% are tech companies in manufacturing

or services

5-10 years

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