US firms moving operations out of China – Companies cite worsening conditions

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BEIJING, Jan 20, (AFP): One out of four US companies active in China has moved some operations out of the country or is planning to, as conditions worsen in the world’s second-largest economy, an American business group said Wednesday. Foreign investment has been a key part of China’s transformation in recent decades, which has seen it become the workshop of the world and its largest trader in goods, but growth is now slowing and it faces rising competition on labour costs from rivals in Asia and elsewhere.

The American Chamber of Commerce in the People’s Republic of China said more than three-quarters of respondents to its annual business climate survey — 77 percent — said they felt “less welcome” in the country last year. It was a significant jump on the 47 percent in 2014, and came in the wake of wide-ranging monopoly probes that have targeted foreign firms, some of which have paid huge penalties to Chinese authorities. “Some of the policies which are being considered or have already been enacted are fundamentally leading China in the wrong direction,” said Lester Ross, the chamber’s vice chairman.

Among the 25 percent who have moved some of their capacity elsewhere in the last three years, or are planning to do so, the most common driver was rising labour costs. But the chamber said almost one in 10 said they were doing so because of “regulatory challenges”. Internet censorship emerged as a major concern for many firms, with almost 80 percent saying that China’s sprawling online control apparatus had a negative impact on them. Chinese authorities strictly censor websites in the country, and limit access to those outside with a web of controls known as the Great Firewall of China.

More than 70 percent of US firms said that as a result they were unable to access websites and information sources crucial to their business. More than half found the inability to use some online tools — Facebook, Dropbox, Instagram, YouTube, and Gmail are all blocked in China — hindered their ability to operate. Among the firms that were switching operations away, almost half — 49 percent — moved them to other developing Asian countries, while 38 percent went to North America.

US firms sometimes face controversy in their home country over operations in China, with accusations that they are exporting jobs, and some have moved capacity back in recent years, drawn in part by cost savings due to an energy boom and stable wages. China’s GDP grew 6.9 percent last year, its slowest in a quarter of a century, government figures show, and the economy faces challenges including industrial overcapacity and a stagnant property sector, as well as stock market volatility.

Among survey respondents, 45 percent reported flat or declining revenues last year, with only 64 percent saying their China businesses were profitable — the lowest proportion in five years. The chamber’s 18th annual survey had responses from 496 of its 961 company members.

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