A recent survey conducted by AmCham China has unveiled a significant shift in the attitudes of U.S. companies operating in China. Between October 21 and November 15, 368 members participated in this comprehensive survey, which highlighted a record number of companies accelerating plans to relocate their manufacturing or sourcing. The findings indicate a growing concern over U.S.-China tensions and increasing competition from local Chinese firms.
A notable 67% of respondents stated they were not contemplating relocating their manufacturing operations, marking a 10 percentage point decrease from the previous year. More than 60% of the surveyed companies identified U.S.-China tensions as the foremost challenge for conducting business in China in the upcoming year. Meanwhile, competition from state-owned and privately owned Chinese companies emerged as the second-largest hurdle for these businesses.
The survey also revealed that about 30% of respondents are considering or have already started diversifying their business operations in 2024, surpassing the previous high of 24% in 2022. This indicates a growing trend towards diversification, although the majority of U.S. companies have not yet planned such moves. Despite this, India and Southeast Asian countries remain the most favored destinations for production relocation. However, 18% of companies are considering relocating to the U.S. in 2024, an increase from 16% in the previous year.
The proportion of companies no longer listing China as a preferred investment destination has climbed to 21%, doubling from pre-pandemic levels. For the third consecutive year, more than half of the respondents reported not making a profit in China, citing a decline in competitive margins compared to other global markets.
In response to these challenges, Chinese authorities have been ramping up efforts since late September to stimulate growth and address the real estate slump. Concurrently, the Biden administration has underscored its competitive stance against China, implementing sweeping restrictions on Chinese access to high-end U.S. technology.
"One of the major impacts that we've seen in the last five years was Covid and how China closed itself off from the world because of Covid," said Michael Hart, Beijing-based president of AmCham China.
"I don't see that trend slowing down," Hart added, emphasizing the persistent shift in operational strategies among U.S. companies.
The survey also highlighted that service firms identified their top opportunity as Chinese companies seeking to expand overseas. This potential for outbound expansion presents a lucrative avenue for U.S. companies navigating the complexities of the Chinese market.
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