For the fourth straight year, tensions between U.S. and China rank as a top challenge for American companies to do business with the Chinese, according to a study by the U.S.-China Business Council (USCBC).
The USCBC, a private, nonpartisan, nonprofit organization of more than 260 American companies that do business with China, conducted the survey in June 2021 and included 107 member companies. The results of the survey were released this past August.
"In 2021, an overwhelming majority of USCBC member companies remain commercially successful in China, a trend that has been well documented in USCBC’s annual member surveys for more than a decade," the USCBC states in the report summary. "Nonetheless, companies still face significant challenges arising from US-China relations, the policy and regulatory environment, residual effects of the COVID-19 pandemic on travel, and rising costs."
The survey reports that tensions between the two countries' governments remain the top challenge to doing business in China, for the fourth consecutive year. The majority of survey respondents state bilateral trade tensions have been "harmful" or "severely harmful" to their business, according to the survey.
Financial, trade, investment, and technology policies enacted by each country threaten to alienate each from the other's markets, the survey found. While China moved to slow reforms to intellectual property and market access, it increased state support for Chinese companies and restrictive data policies.
Nearly 75% of survey respondents report knowledge or suspicion that companies owned or backed by China receive benefits from the Chinese government that their company does not. Competition with Chinese companies ranked as the second biggest challenge, according to the survey. The report states the increased competition is to be expected as China's markets have evolved, but support from the state is still seen to tilt to China's advantage.
"State support for Chinese companies—in the form of preferential government financing, licensing, and access to contracts, to name a few—has provided a significant home-field advantage for increasingly sophisticated Chinese companies, making it difficult for US companies to compete," the report states.
U.S. companies are also reporting that Chinese protectionist policies have enabled Chinese companies to have a competitive advantage. Some tactics include government backed subsidies, licensing, governmental procurement access, standards setting and foreign investment barriers.
“Companies continue to identify a long list of protectionist policies and behaviors that skew the playing field in favor of their Chinese competitors." the report said. "National policies promoting domestic innovation are at the top of the list for the second year in a row.”
For the first time in its history, the survey asked the question "Has your company felt pressured to make(or not make) statements about sensitive political issues in the US-China relationship?" The majority, 55%, responded they had not. However, 45% reported they had and the pressure came from both countries' governments as well as from consumers. Nationalism was said to play a part in consumers' purchasing decisions, according to one-third of respondents.
A majority of responding companies state they remain profitable in China, with more than 40% reporting they plan to increase resources and commitments in China in the next year.
Although most companies still see strong prospects for growth in the China market, enthusiasm has been dampened by geopolitical tensions and policy challenges, the survey reports. As a result, U.S. companies report prioritizing business in China less than they had in years past.
"While most companies are not moving their business or supply chains out of China, these challenges raise questions about their future competitiveness in China," the report states, "particularly if perception challenges intensify and the policy environment deteriorates further."