U.S. Businesses’ Optimism in China Plummets to All-Time Low Due to Market Concerns

U.S. businesses based in China are unsurprisingly becoming more negative about their prospects in the country, with geopolitical tensions and a slowing economy among the contributing factors. A recent survey, published on Tuesday, revealed that confidence about the five-year outlook has plummeted to an all time low.

Even after the uplift in economic activity following the easing of pandemic restrictions in 2022, the percentage of U.S. firms hopeful about their business panorama over the next five years has decreased to just 52%. This is the most dismal outlook recorded since the American Chamber of Commerce (AmCham) in Shanghai began the annual survey in 1999.

Sean Stein, Chairman of AmCham Shanghai, commented on the surprising results, noting that the enduring optimism about a sustained rebound in economic growth has faded over the course of the year. Concerns regarding international political struggles, with U.S.-China tensions cited as a chief business challenge by 60% of the survey’s 325 respondents, equaled worries over China’s economic slowdown.

The transparency of China’s regulatory environment is also causing anxiety among firms. One third reported that policies and regulations targeting foreign companies had deteriorated in the past year. However, many companies attribute the pressure to split from their Chinese operations to U.S. government policy.

Companies have been caught in the crossfire of the deteriorating relations between the two countries for several years. The U.S. has been blocking China’s access to advanced technology while U.S. firms are reporting an increase in fines, raids and other actions by China that make conducting business more risky. Last month, U.S. Commerce Secretary Gina Raimondo, noted during a visit to China that U.S. companies have reported that China has become “uninvestible.”

Geopolitical tensions have been highlighted as the main risk to China’s future economic growth in the AmCham report. Respondents suggested that improved U.S.-China relations was the premier factor that would enhance their industry’s future prospects in China.

The survey was carried out prior to Raimondo’s visit. Despite the pessimistic responses at that time, it is believed that some companies have since reevaluated their stance and are now considering the probability that U.S.-China relations may not continue on the current downward trajectory.

A significant percentage of companies, 40% – an increase from last year’s 34%, are currently considering redirecting investment that had been allocated for China, mainly to Southeast Asia.

This pattern is supported by the findings of a recent report published by Rhodium Group, stating that India, Mexico, Vietnam, and Malaysia were receiving the majority of investment that U.S. and European firms were shifting away from China.