US Firms Reducing Investment in China, New Survey Finds

Rising U.S.-China tensions are causing all-time highs in uncertainty and pessimism for U.S. companies doing business in China, and are driving U.S. companies to reduce investment in China in record numbers, according to an annual member survey released by the U.S.-China Business Council on Sept. 26. More than a third of companies said they have either stopped investing in China or have scaled back.

The survey found 28% of respondents were either somewhat pessimistic or pessimistic in their five-year outlook for business in China, up from 21% in 2022 and 9% in 2021, and the highest number the USCBC has tallied since it began the survey, USCBC Vice President Kyle Sullivan said at a press event for the survey on Sept. 26. The main issue impacting that outlook is geopolitics, with 77% of those surveyed saying that impacts their five-year outlook. For others factors, 64% said "Policy and regulatory environment" affected their assessment, while 50% said the competitive environment affected their outlook.

The survey represented the views of 117 USCBC member companies, with over two-thirds of the companies represented having operated in China for more than 20 years.

Among the respondents, more than 20% were planning to move or have already moved operations out of China.

More than one-third of the companies have $1 billion of revenue in China and more than 80% of the companies made a profit in China, the survey said. One-third of the companies represent the "services industries," one-third the industrial or technology sectors, and the other third represent "other" industries, USCBC President Craig Allen said at a press event for the survey.

Rising tensions also are impacting companies' commercial decisions, with 51% of those surveyed saying they lost sales due to customer uncertainty about continued supply. In addition, 35% of the companies surveyed said the tensions led to a delay or cancellation of investment in China, and 33% lost sales due to greater influence of nationalism on consumer decisions in China, among other issues.

In one poll, 84% of members said that U.S.-China tensions impacted their business in China. Regarding the impact of the U.S.-China tensions on member companies, over 80% of respondents said that the tensions between the U.S. and China were harmful for their business; 17% of those who found it harmful to their business found the tension to be "severely harmful," the poll said.

Companies have responded to the tensions by developing new supply chains or shifting away from certain industries in China, the survey said, with 31% saying they have developed new supply chains and 29% saying they shifted away some of their business from China. Of those surveyed, 28% of companies are localizing more production and an additional 21% are investing fewer resources in China; 24% of the respondents said they were not significantly altering their strategy in China.

The tensions also led to an increase in the number of companies that reduced or stopped planned investment in China in the past year, with 34% of the respondents saying their company stopped or reduced their investment in China this year. That is up from 22% in 2022 and is the highest amongst the years shown, dating back to 2014.

As to why some companies stopped their investment, 73% of the members who said they reduced or stopped investment in China said they did so because of the “increased costs or uncertainties" as a result of the tensions between the U.S. and China; 37% said they did so because of increasing "market access restrictions in China" or other business deterioration factors; and 33% said supply chain resiliency, among other issues.

The survey concluded that while the data does underscore "heightened anxiety" about the tensions between the U.S. and China, there were reasons to be "guardedly optimistic." Since the survey, both the U.S. and China have stepped up diplomatic engagement and have agreed to "establish an information exchange on export controls, create a working group on trade and investment issues, and convene technical discussions on strengthening trade secret protection during licensing processes," the survey said.

The U.S. and China also are gradually increasing the number of direct flights between the two countries, which will ease obstacles to travel and improve "commercial links" between both countries, the survey said.

Chinese policymakers are also understanding foreign companies' concerns, the USCBC said. The survey was taken before China released 24 measures calling for "granting national treatment to foreign enterprises in government procurement and standard-setting initiatives as well as for expediting security reviews necessary for cross-border data transfers," the survey said. While this is a positive development, the USCBC urged caution, and said Chinese policymakers should ensure that implementation and enforcement is "timely, fair and consistent across jurisdictions in China."