The proportion of US companies in China to relocate has reached a record high, according to a survey.
Chinese and U.S. flags wave near The Bund before a U.S. trade delegation meets with their Chinese counterparts for talks in Shanghai, China, July 30, 2019.
Ali Song | Reuters
BEIJING – A record share of U.S. companies in China are accelerating plans to relocate manufacturing or sourcing, a trade survey showed on Thursday.
About 30% of respondents will start in 2024, up from a peak of 24% in 2024, according to annual surveys from the American Chamber of Commerce in China.
It surpassed the 23 percent share recorded in 2017, when U.S. President Donald Trump began his first term in office and began raising tariffs on Chinese goods.
In addition to US-China tensions, Michael Hart, president of Beijing-based AmCham China, said: “One of the major impacts we’ve seen in the last five years is Covid and how China has closed itself off from the world because of the virus. He told reporters on Thursday.
“That’s one of the biggest triggers when people realize they need to diversify their supply chains,” he said. “I don’t see that trend slowing down.”
China has restricted international travel and closed parts of the country during the Covid-19 outbreak to limit the spread of the disease.
While India and Southeast Asian countries remain the most popular destinations for relocating production, the survey found that 18% of respondents would consider relocating to the US in 2024, up from 16% last year.
Most US companies did not have separate severance plans. More than two-thirds, or 67 percent, of respondents said they do not plan to relocate manufacturing jobs, a 10 percent decline from 2023, the survey found.
The latest Amcham China survey included 368 members from October 21 to November 15.
Trump confirmed this week that he plans to raise tariffs on Chinese goods by 10%, and the actions will be as effective as in 2018. They said they could come on February 1. This follows America’s increasingly tough stance against China. The Biden administration has emphasized that the United States is in competition with China and has imposed broad restrictions on the ability of Chinese companies to access advanced U.S. technology.
More than 60% of respondents said US-China tensions are the biggest challenge to doing business in China in the coming year. The second biggest challenge for American businesses operating in China was competition from local state-owned or privately owned Chinese companies, the study found.
Slow economic growth
Adding to geopolitical pressures, growth in the world’s second-largest economy has slowed, with consumer spending missing since the outbreak. In late September, Chinese authorities began stepping up efforts to stimulate growth and stem the real estate slump.
For the third-straight year, more than half of AmCham China’s respondents did not make any profit in the country, the region has been marginally lower compared to other global markets.
The share of companies that did not list China as a preferred investment destination rose to 21 percent, more than double the pre-pandemic level.
Looking ahead, however, technology, industrial and consumer businesses see growth in domestic consumption as a top business opportunity by 2025, the study found. He said that service companies are most likely to be Chinese companies looking to expand overseas.
Hart noted that many members are still optimistic about Chinese consumers as a “scalable, important market.”