SOURCE: The US-China Business Council

October 09, 2008 10:04 ET

US Companies' China Outlook: Market Growth, Tempered by Bureaucratic, Cost Challenges

WASHINGTON, DC--(Marketwire - October 9, 2008) - The US-China Business Council's (USCBC) annual survey of the China business environment finds that its member companies continue to increase sales and profitability in the third-largest market for US exports -- a market that is significantly larger when goods that are made and sold in China by US companies operating there are included.

At the same time, companies remain frustrated by bureaucratic barriers to market expansion and shortages of local managerial and other personnel. And, though optimistic about growth prospects, USCBC companies express rising concerns about PRC government policies under development that might restrict future growth in many key industries.

The full report is available at www.uschina.org/public/documents/2008/10/uscbc-member-survey.pdf.

USCBC Members' Top 10 Issues

1.  (Tie) Administrative licensing
1.  (Tie) Human resources: Talent recruitment and retention
3.  Cost increases
4.  Transparency
5.  Uneven enforcement of PRC laws
6.  Intellectual property rights enforcement
7.  Competition and overcapacity
8.  Developing sales and distribution channels
9.  PRC Customs and trade administration
10. Protectionism in China

USCBC members highlighted the following concerns:

--  Administrative licensing:  Last year's number-two issue, companies
    find China's business- and product-licensing bureaucracy a major headache,
    with no improvement over the past 12 months. The slow, opaque, and
    inconsistent licensing process impedes both market entry and subsequent
    expansion.
--  Human resources:  Finding and keeping top and mid-level local talent
    in a competitive hiring environment remains a day-to-day challenge. Salary
    increases in some fields can top 20 percent per year. This was the top
    issue in the survey for the past three years.
--  Rising costs:  As forecast in last year's survey, rising costs
    rocketed into the top 10 this year, in the form of higher costs for labor,
    materials, and taxes.
--  Rule of law:  Legal issues remain firmly in the top 10, with
    insufficient regulatory transparency, uneven enforcement of laws, and
    inadequate intellectual property rights protection all in the top 10 --
    despite some improvements in all three.
    

The Path Ahead: Optimism, Yet Rising Concerns about Economic Nationalism

--  USCBC members remain optimistic about expanding their businesses in
    China, with 90 percent optimistic or somewhat optimistic about prospects
    over the next five years.
--  Concerns about protectionism in China remain a top 10 issue, however.
    Policies under development that might restrict investment expansion, favor
    domestic technologies and product standards, and protect certain "pillar"
    industries and "national champions" have 82 percent of respondents very or
    somewhat concerned.
    

Once Again, Some Results Correct Popular Misperceptions

--  US companies invest in China to reach the China market:  Ninety-two
    percent of respondents cite this as their main objective for establishing
    operations there. Far behind are investments made to export to other
    markets (26 percent) or the US market (23 percent). So, who is doing all
    that exporting from China? Much of it is from Asian companies that have
    been exporting to the United States for decades -- but now have facilities
    in China. The rising costs cited above may be affecting those companies
    most.
--  Companies can make money in China:  Eighty-eight percent of
    respondents say they are profitable in China, and 81 percent say their
    profit margins in China are the same or better than their company's global
    margins.
--  US companies serve as models for better business practices and working
    conditions in China:  Eighty-three percent of respondents pay higher wages
    than their domestic counterparts. More than 90 percent bring their global
    workplace safety practices to their China facilities, which two-thirds say
    exceed local requirements.
    

The US-China Business Council (USCBC, www.uschina.org) is the leading organization of US companies engaged in business with the People's Republic of China. Founded in 1973, USCBC provides extensive China-focused information, advisory and advocacy services, and events to roughly 250 US corporations operating within the United States and throughout Asia.

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