US firms optimistic about future

US companies operating in China are largely optimistic about the future, despite certain uncertainties in Sino-US trade relations, according to a report issued by the American Chamber of Commerce in China (AmCham-China).

Companies continue to improve their performance as the business environment improves, said AmCham-China President Charlie Martin yesterday.

The annual paper highlights the importance of Sino-US commercial relations and calls on both governments to take specific measures to improve the business climate.

It is based on the chamber's annual survey of members and on input from more than 30 industry- and topic-specific forums.

Almost all respondents, 91 per cent, are optimistic about prospects for continued success in China in the next five years.

China continues to rank as a top investment destination for most respondents.

Some 33 per cent of respondents chose China as the No 1 destination and 42 per cent said it was one of the top three.

"We noted three trends in companies' expansion strategies," Martin said.

First, companies are increasingly expanding into secondary cities. Some 58 per cent of respondents have a presence beyond first-tier cities such as Beijing, Shanghai and Guangzhou.

Two years ago, less than half of those surveyed had extended their China operations into secondary cities.

Furthermore, new entrants are moving quickly to establish a presence in secondary cities: 24 per cent of companies that have been in China for two years or less have a presence in secondary cities.

In addition, more than 20 per cent of companies are putting more than half of their investment into places outside of first-tier cities.

Second, US companies are spending more in research and development (R&D).

In the previous paper, 7 per cent of respondents had R&D centres and 45 per cent had increased R&D activities.

In the 2006 survey, 65 per cent had increased R&D operations over 2005 and 39 per cent were likely to invest in R&D this year.

Third, US companies are increasingly investing by purchasing local assets, according to the survey.

Twenty-two per cent of companies plan to acquire a Chinese company this year, an increase from the 17 per cent who have acquired Chinese corporate assets over the past two years.

Over a third of companies describing themselves as "very profitable" in the survey are actively pursuing acquisitions, compared to only 17 per cent of the overall survey pool.

There are various reasons for acquiring Chinese firms.

These include improving market access, expanding the customer base and increasing distribution rights.

For US service companies, nearly 70 per cent cited acquiring a business license in a restricted industry as their top motivation.

But the report found China's commercial policies do not always create a favourable regulatory environment.

Currently about 70-80 per cent of deals involving foreign buyers fail to go through, according the paper.

"We just want to know who is in charge," said Martin.

Emory Williams, chairman of AmCham-China, said while companies are profiting from China's market growth and improved business environment, they continue to wrestle with obstacles that impede their ability to grow.

"But it is critical we recognize that a good Sino-US commercial relationship can, and does, have a positive impact on overall Sino-US relations," he said.

Source: China Daily