US Businesses Wary About Protectionism In China

US Businesses Wary About Protectionism In ChinaA new survey from the American Chamber of Commerce in China indicated that concern is growing among U.S. businesses in the country that protectionist policies are threatening their long-term future in a key market, even while they remain optimistic about an economy that has rebounded strongly from the global recession.

The annual AmCham-China survey of its members—a barometer of sentiment among U.S. investors in China—reflects worries that China’s three-decades-long push for open markets could be stalling, as the government increasingly seeks to favor state-owned domestic enterprises that have spearheaded the economic recovery.

In the latest example of difficulties facing U.S. businesses in China, AMR Corp.’s American Airlines announced it was canceling its inaugural Chicago-Beijing flight on Monday because it couldn’t secure “viable” slots from Chinese authorities. The airline said the tentative new start day for the route is now May 4.

The AmCham survey adds to evidence that foreign investors, looking beyond the current boom, are growing cautious. China says steadily increasing levels of foreign investment indicate the country remains an attractive destination for foreign businesses. Foreign direct investment rose 7.7% in the first three months of this year from the year-earlier period.

“While most members continued to be optimistic about China’s market potential, many have begun questioning their long-term viability in China, as they consider the obstacles presented by an increasingly difficult regulatory environment,” says the AmCham-China white paper, released Monday.

For the first time in the 12-year history of the surveys, regulation tops the list of concerns among member companies, displacing worries about rising salaries, and recruiting and retaining key staff.

The main grievance is that laws and regulations are inconsistently applied around China, the white paper says, a problem that adds to the cost of compliance and results, for example, in delays obtaining licences and approvals. This will discourage investment in China’s underdeveloped interior and “has the potential to hamper China’s future economic development severely.”

At a news conference to launch the survey, Lester Ross, an AmCham-China board member and managing partner in Beijing for U.S. law firm Wilmer Cutler Pickering Hale & Dorr, cited many examples of ways in which Chinese regulation discriminates against foreign investors and favors their domestic competitors. Foreign companies face long delays in gaining approval for mergers and acquisitions while Chinese applications face “little, if any, review.” Environmental laws are applied more stringently against foreign companies, Mr. Ross said. Authorities tend to “disfavor foreign rights holders” in disputes over intellectual property.

US Businesses Wary About Protectionism In China

On the same day the survey was released, Yang Changyong, a research associate with the Foreign Economic Research Institute of the National Development and Reform Commission, wrote in a front-page opinion article in the overseas edition of the People’s Daily, “Facts and figures show that the investment environment in China is not only NOT deteriorating, but on the contrary continues to improve.” The article continued, “The improvement of China’s environment for foreign investment not only requires the Chinese government to be sincere with foreign investors, but also requires foreign investors’ and foreign media’s understanding and respect for China.”

An AmCham-China survey released in March showed a growing number of U.S. companies feel unwelcome. That result was linked to regulations aimed at squeezing foreign firms out of China’s vast government procurement market.

However, in April, China issued a draft for a new set of rules on government procurement that omitted clauses viewed by foreign companies as being the most threatening. AmCham-China President Christian Murck on Monday welcomed that move as “a positive step forward.”

Overall, the AmCham survey showed that U.S. companies in China are performing well. A total of 71% of companies said they were “profitable” or “very profitable” in 2009, down just slightly from 74% in 2008. Nearly four out of five companies said they would expand investment in China this year; and 91% said they were optimistic about the outlook for the next five years.