US and European companies operating in China continue to report record-low business confidence and profits amid geopolitical tensions between Beijing and the West and a slowing Chinese economy, two separate reports published last week by the American Chamber of Commerce in Shanghai and the EU Chamber of Commerce in China showed. The reports also found that more companies than ever are pessimistic about their business outlook in China due to Beijing’s failure to implement policies to stimulate and revive the world’s second-largest economy.
The American Chamber of Commerce’s report showed that only 47 percent of US firms were optimistic about their business outlook in China over the next five years, 5 percentage points lower than a year earlier and the lowest level since the US business group started the survey in 1999. Meanwhile, just 66 percent of the US businesses surveyed said they were profitable last year, a record low, the report said.
Similarly, 44 percent of European companies polled said they were pessimistic about their profitability in China over the next two years, the highest level since records started in 2012, the EU Chamber of Commerce’s report showed. Nearly two-thirds of respondents also said their profit margins in China had sunk to equal to or below the global average.
The reports underscore a trend of a persistent decline in foreign direct investment into China this year, which fell 31.5 percent during the January-to-August period from a year earlier, greater than the 29.6 percent fall during the first seven months and accelerating from the 26.1 percent decline in the first quarter, Chinese Ministry of Commerce data released on Saturday showed.
They also come after IBM Corp last month said it would shut down a key research division in China, affecting more than 1,000 employees, three months after Microsoft Corp confirmed it had offered to relocate some of its employees in China. Meanwhile, Taiwanese restaurant chain Din Tai Fung last month also announced it would close 14 stores in northern China by the end of next month, although the chain’s stores in Taipei, New York and London still have customers lining up to dine on a first-come, first-served basis.
While geopolitical tensions and tough regulations have long been risk factors for Taiwanese firms, China’s struggling economy has increasingly emerged as a major concern, driving more of them to repatriate funds to Taiwan instead of parking them in China for potential investment purposes, the latest data released last week by the Financial Supervisory Commission (FSC) showed. Publicly listed firms repatriated NT$65.6 billion (US$2.06 billion) of investment gains from China in the first half of this year, an 8.25 percent increase from a year earlier, the highest figure on record for the period. Firms — including those listed on the Taiwan Stock Exchange and the Taipei Exchange — remitted their investment income, dividends and proceeds from share sales back home to align with their business groups’ capital planning strategies, the commission said.
FSC data also showed that 1,198 listed Taiwanese companies had invested in China as of the end of June, 11 fewer than at the end of last year, the largest decline in seven years for the same period.
The data reflect a trend that more Taiwanese firms have become cautious about their investment across the Taiwan Strait and are preparing global strategies in light of rising risks in China’s business environment and a slowing economy, along with the strained relationship between Taipei and Beijing and the intensifying rivalry between the US and China, not to mention fierce competition with Chinese firms who benefit from extensive government support. Most importantly, as Chinese authorities still do not understand the full scale of their country’s dire economic situation, they are likely to see more international firms scale back their operations there in the near to medium term.
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