Frustrations over China increase at US companies

March 19, 2014 6:40 am
Frustrations over China increase at US companies
By Tom Mitchell in Beijing
Almost 80 per cent of US companies participating in an annual survey reported that their China revenues had “increased slightly” or were in decline over the past year, as frustrations mount over everything from government investigations to internet censorship.

“[China’s] current economic model is under considerable stress,” Mark Duval, president of the American Chamber of Commerce in China, said at a briefing in Beijing on Wednesday. “Growth rates are easing, costs are rising, margins declining and some investment plans are being scaled back.”
More than 360 US companies participated in the survey, which has shown increasing pressure on multinationals’ China revenues since the effects of a Rmb4tn ($645bn) government stimulus began to fade in 2012. Over the past three years, the percentage of Amcham members reporting “substantial” China revenue increases has fallen from 41 per cent to 23 per cent.
“We are still seeing gains but the gains are not as aggressive as in the past,” Mr Duval added. “Our member firms are no longer chasing growth at any cost. It’s all about managing what you have.”
Government pricing investigations, internet censorship and pollution were cited as challenges for US companies operating in the second-largest economy.
Over the past year the National Development and Reform Commission, which polices many aspects of China’s competition law, has launched investigations against US companies in industries from baby formula to communications equipment.
Forty per cent of the survey’s respondents felt the Chinese government’s anti-monopoly investigations had deliberately targeted foreign firms, a charge denied by the NDRC but also one that is of increasing concern to the US government. Max Baucus, Washington’s ambassador to Beijing, on Tuesday emphasised the need for “a level playing field for American businesses and workers to compete fairly with their Chinese counterparts”.
More than 55 per cent of the US companies surveyed said internet censorship was having a negative effect on their operations, while almost half reported difficulties in recruiting or retaining senior executives because of the poor air quality in China’s largest cities. Last week Japanese group Panasonic announced that it would pay its China-based expats a pollution allowance.
Foreign companies and executives rely on overseas “virtual private network” tools to access even routine websites such as Google’s search engine or Gmail. But China’s internet censors often target VPN traffic during politically sensitive periods, such as the recent session of the National People’s Congress or the upcoming 25th anniversary of the 1989 Tiananmen Square massacre in June.
US companies reported a similar squeeze on their revenues from China in the run-up to the stimulus of 2009-2010, which was designed to cushion the impact of the global financial crisis.
But with no repeat stimulus on the horizon as Beijing worries about rising debt levels, Mr Duval said his member companies have high expectations for far-reaching reforms promised in November by the ruling Chinese Communist party.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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