U.S. businesses battle rising costs, rip-offs in China

BEIJING – As more Chinese get behind the wheel, the Ford Focus has become the best-selling passenger car in China, driving Ford China sales up by 67% last month.

General Motors broke its own record for February sales, and plans to invest $11 billion with its Chinese joint venture partners by 2016.

But most U.S. companies surveyed by a U.S. business association have seen China growth slow in both revenue and profitability, and will scale back expansion plans this year. As labor costs rise, U.S. firms feel targeted by government campaigns, and complain that China still fails to stop local firms copying their intellectual property, the American Chamber of Commerce in China (AmCham China) reported.

AmCham's annual survey, released Wednesday, found broad optimism about the short-term business outlook, but growing frustrations about issues including unclear laws, unfair licensing requirements that favor domestic companies, difficulties hiring due to smog worries, and Internet censorship that negatively affects companies' ability to conduct business normally.

Among the 365 U.S. companies and individuals who participated, 68% still characterized China's protection of intellectual property as "ineffective," while 40% said foreign companies are singled out in pricing and anti-corruption campaigns conducted by the Chinese government.

"The economy is under considerable stress," Mark Duval, AmCham China president and formerly an executive at Motorola China, said Wednesday. Negative signs include "growth rates easing, costs rising, margin increases declining. And some investment plans are being scaled back."

The survey results suggest U.S. firms now take a more sober view of China's economy and business environment, after many boom years led to over-excited projections and plans. Although China's growth rates remain the envy of most of the world, almost half of respondents view China as a top-three investment priority, compared to a majority in 2007 who ranked China No. 1. Two in five felt foreign business is less welcome in China than before.

As China's economy, the world's second largest, changes from being primarily the "workshop of the world," U.S. firms find their activities and experiences here increasingly resemble those of developed markets, the American Chamber of Commerce in Shanghai reported last month.

"More companies are involved in the service sector, and there is a continuing shift from the pursuit of manufacturing for export, toward producing and distributing goods for the domestic market, as well as rapid growth of the services sector," said the Chamber when releasing its 2013 China business climate survey.

In both surveys, rising costs, notably labor, were listed as the No. 1 business challenge for the second and third years running, respectively. Other challenges, such as market access issues and IPR enforcement, have long troubled U.S. officials and business people.

New U.S. Ambassador to China Max Baucus addressed the often controversial U.S.-China economic relationship Tuesday, in his first public remarks less than 24 hours after arriving in the Chinese capital. One of his three main goals is to strengthen that relationship "in a way that's mutually beneficial and ensures a level playing field for American businesses and workers to compete fairly with their Chinese counterparts," said Baucus, 72, a long-time senator from Montana who helped facilitate China's joining the World Trade Organization. That move reduced some, but far from all, hindrances to foreign business in China.

When nominating Baucus in December, President Obama said "the economic agreements he helped to forge have created millions of American jobs and added billions of dollars to our economy." Like previous administrations, Obama's White House has faced complaints that China has taken U.S. jobs and factories due to currency manipulation and unfair business practices.

Obama's counterpart Xi Jinping, whose wife Peng Liyuan receives America's first lady this week, has launched a corruption drive in China that Duval considers positive for U.S. firms. "American companies are global leaders in terms of ethical business practice, so in a sense I guess you could say that the anti-corruption drive gives us a competitive advantage because that's how we operate," he said.

China's dreaded smog, which may force Michelle Obama, plus her mother and two daughters, to don face masks during their visit, is affecting foreign business, but could help some U.S. firms, said Duval. Last week, Panasonic, the Japanese electronics firm, became one of the first international companies to offer a wage premium to workers sent to China, as compensation for the toxic air they must breathe here.

Almost half of AmCham members surveyed said they had difficulties recruiting or retaining senior executive talent to work in China due to air quality issues. Smog forms a rising concern for HR managers, said Duval, but he insisted a silver lining lurks within the cloud.

"There's a tremendous opportunity here for all kinds of goods and services to help deal with this," he said. In the Beijing Times, a popular tabloid, a full-page advertisement Wednesday promoted the air purifiers of U.S. firm Envion.


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