By Glenna Stewart

Last month, the US-China Business Council (USCBC) published the results of its annual member survey, highlighting the gains US businesses have made in China, along with the obstacles they still face.

The results of the survey de-bunked several common myths about US companies operating in China, including the following:

  • Most US investment in China are 100 percent US-owned (WFOE). They are not joint ventures with Chinese partners.  Nearly 75 percent of new business enterprises are entirely foreign-owned.
  • Fifty-seven percent of USCBC member companies said their principal objective was to serve Chinese consumers.
  • Eighty-one percent of companies say their operations in China are lucrative.

The survey emphasized the considerable importance an increasingly large number of US companies place on their China operations.  Eighty-seven percent of companies reported China is at or near the top of their priorities, a sixteen percent increase from last year.  Respondents also stated that company resources for China, such as investment, staffing and executive time, would increase over the next year:

The priority that US companies place on China and the resources they plan to dedicate to growing their businesses there indicate not only the extent of US companies’ stake in the continued development of China’s economy, but also the depth and importance of the bilateral trade and economic relationship.

The report also highlighted the operating issues still plaguing US companies in China.  Respondents were asked to rank the top five issues of most importance and evaluate the progress China has made in handling them.

  1. Human Resources:  China’s swiftly growing economy mean the demand for capable workers outpaces supply.  Recruiting and retaining employees, especially mid-level managers, is becoming increasingly difficult.  Competition for good talent has driven wages up.
  2. Administrative Licensing and Business Approvals:  Problems with securing administrative licenses, business approvals, product safety licenses, automatic import licenses, certifications and registrations are pervasive in China and have existed for many years.  More than half the survey’s respondents said there has been no progress made in alleviating these issues.
  3. Intellectual Property Rights Enforcement:  A growing legal framework exists to protect Intellectual Property Rights (IPR) in China, however, implementation of those laws has seriously lagged, especially at the provincial and local levels.  This issue has consistently been ranked as one of the top ten concerns over the last four years and fifty-seven percent of USCBC members report no improvement in the enforcement and prosecution of IP violators.  Thirty-three percent, however, reported some progress.  For more on how China is slowly but surely improving its IP enforcement, go here, and here.
  4. Competition and Overcapacity:  Chinese reinvestment of retained earnings in new production facilities, regardless of market forecasts, has resulted in plummeting prices for certain products, due to oversupply:  “US companies are increasingly concerned that they will face domestic competitors’ financing expansion on non-market-based terms.  This is one reason why China’s unfinished financial reforms are critical to sustainable economic growth and to ensuring a competitive ‘level playing field.'”
  5. Transparency:  Nearly 60 percent of survey respondents said there has been no progress in improving availability of necessary information is struggling to develop an open regulatory system where rules are circulated for comment before implementation.  For more on transparency in China, go here, here, and here [link no longer exists].

The full report on Business Council’s website describes five additional issues impacting foreign companies that do business in China: standards setting, distribution rights, US visas, national treatment and market access in services, and it also summarizes the respondents’ China operations and assesses the impact of China’s entrance into the WTO.

What do you think?