US Companies Gain in China, Still Face Hurdles, Says New Survey

Washington, DC, August 30, 2006 - The US-China Business Council's (USCBC) annual member survey reveals that US companies are optimistic about their China operations even as they face old and new hurdles to operating in the Chinese market.

"US companies have made significant gains in China, thanks in part to China's World Trade Organization entry and other market openings," said USCBC President John Frisbie. "But a shortage of skilled managers, problems with licensing and business approvals, inadequate intellectual property protection, and a general lack of transparency are among the hurdles US companies still face as they try to act on these market openings."

Among the findings in this year's survey:

The results counter several common misperceptions about US companies operating in China:

Eighty-one percent of companies say that their Chinese operations are profitable, a significant increase from a US government survey in 1999. And more than half say that profitability rates for their China operations meet or exceed their company's global profit margins.
Most US investment in China is in 100 percent US-owned enterprises, not joint ventures with Chinese partners. This trend has developed steadily with China's market openings; nearly 75 percent of new investment is now in wholly foreign-owned enterprises.
USCBC companies primarily invest in China to serve the Chinese domestic market, not export back to the United States. Fifty-seven percent of the respondents said that their main investment objective was to access the China market. Only 18 percent invest in China as an export platform to the US market. The remainder export to other countries in Asia or elsewhere around the globe.

The survey reveals several successes in the operating environment:

Ninety-seven percent of respondents are optimistic or somewhat optimistic about prospects for their China business over the next five years.
US companies are building their sales presence in China by implementing newly granted distribution rights--a key market opening measure and top USCBC priority in 2005.
China's WTO-mandated market openings have clearly benefited American companies. More than 80 percent of respondents cited China's WTO entry as meaningful to their business. US exports to China have more than doubled since China's WTO entry in 2001--growing faster than any major US export market.

The results reveal significant remaining operating concerns and identify WTO obligations that China has not yet met:

The top operating concern this year is not a policy issue--it is human resources. The shortage of experienced and skilled local executive talent, especially in middle management ranks, is a persistent and growing problem for US companies.
Intellectual property rights protection is a top issue, but getting business licenses and government approvals has emerged as a more immediate concern. Companies run into licensing issues as they seek to act on WTO openings in sectors such as construction, financial services, distribution, and product licenses.
Downward pressure on margins may be developing--respondents cited competition from Chinese companies investing in excess capacity as a growing problem.
Other top issues include inadequate regulatory transparency, China's product and technology standards-setting process, and restrictive US visa policy for business visitors.

The full report can be found at www.uschina.org/public/documents/2006/08/member-priorities-survey.pdf.

The US-China Business Council (USCBC, www.uschina.org) is the leading organization of US companies engaged in business with the People's Republic of China. Founded in 1973, the USCBC provides extensive China-focused information, advisory and advocacy services, and events to nearly 250 US corporations operating within the United States and throughout Asia.