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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
USCBC 2016 China Business Environment Survey
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
USCBC 2016 China Business Environment Survey
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
USCBC 2016 China Business Environment Survey
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
USCBC 2016 China Business Environment Survey
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
USCBC 2016 China Business Environment Survey
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
USCBC 2016 China Business Environment Survey
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
USCBC 2016 China Business Environment Survey
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
USCBC 2016 China Business Environment Survey
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.
USCBC 2016 China Business Environment Survey
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
USCBC 2016 China Business Environment Survey
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
USCBC 2016 China Business Environment Survey
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
USCBC 2016 China Business Environment Survey
14
Challenges vary by sector, but competition with Chinese companies
remains the No. 1 concern among US companies.
Top 10
challenges:
Drill Down
15
USCBC 2016 China Business Environment Survey
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