U.S. Business Optimism in China Drops to Record Low Amid Geopolitical Tensions and Slow Growth

A recent survey from the American Chamber of Commerce in Shanghai revealed that optimism among U.S. businesses in China has reached a record low. Political tensions, slowing economic growth, and increasing domestic competition are eroding confidence, with only 47% of firms optimistic about their five-year outlook.

U.S. Firms' Optimism in China Drops to 25-Year Low as Profits and Confidence Decline

According to Reuters, the survey published on September 11 by the American Chamber of Commerce in Shanghai revealed that only 47% of U.S. firms were optimistic about their five-year China business outlook, a five-point decrease from the previous year. This was the lowest level of optimism documented since the AmCham Shanghai Annual China Business Report was introduced in 1999. The number of profitable firms in 2023 was also at a record low, at 66%.

Chairman Allan Gabor of AmCham Shanghai stated that the downward trend in profitability was the result of a combination of factors.

"It's domestic demand, it's deflation, and of course we can’t ignore the membership's perceptions and concerns about geopolitics," Gabor said.

"This touches investments and touches operating plans in China in terms of how we develop business plans in China for the future."

U.S. Firms Shift Investment Away from China as Geopolitical Tensions and Tariffs Cloud Outlook

The 306 U.S. firms that were surveyed were from a variety of industries. According to the U.S. State Department, U.S. foreign direct investment in China decreased by 14% to $163 billion in 2023 from the previous year.

The future of the relationship between the world's top two economies is uncertain, and geopolitics remains the primary challenge for the majority of American businesses operating in China, particularly in the lead-up to the U.S. presidential election.

It is also anticipated that the United States will shortly make its final decision regarding the increased dutieson Chinese-made products that were announced by President Joe Biden earlier this year. The implementation of the tariffs on EVs, semiconductors, and solar cells, as well as lithium-ion batteries, was originally scheduled for August 1, but has been postponed on two separate occasions.

China has threatened to retaliate and has urged the United States to eliminate all tariffs on Chinese products immediately.

66% of respondents identified the bilateral relationship as the most significant challenge and 70% as the greatest threat to China's economic development.

On a marginally positive note, the percentage of businesses that reported believing that China's regulatory environment is transparent increased slightly from the previous year—to 35%. Nevertheless, the number of companies that reported favoritism toward local companies increased to 60%.

The AmCham report stated that the same % of U.S. firms as last year, 40%, are currently redirecting or seeking to redirect investment initially intended for China. The investment is being redirected primarily to Southeast Asia and India.

The European Union Chamber of Commerce in China published a paper on September 11 that echoed the deteriorating sentiment of U.S. businesses, stating that the challenges of conducting business in the country were beginning to outweigh the returns.