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On the afternoon of May 1, 2023 Eastern Time, the China General Chamber of Commerce-USA (CGCC) and the China-U.S. Chamber of Commerce Foundation (CGCC Foundation) released the 2023 Annual Business Report of Chinese-funded Enterprises in the United States in Washington. Investigation Report”. This year marks the 10th anniversary of the continuous release of the annual business survey theme report, which has a new milestone. The report authoritatively presents the choices, difficulties and plans for the future faced by Chinese companies in the United States in the third year of the epidemic after conducting a questionnaire survey on Chinese companies in the United States, providing information for Chinese companies’ direct investment in the United States and Sino-US economic diplomacy. new reference.
Hu Wei, President and CEO of the Bank of China in the United States and Chairman of the China General Chamber of Commerce in the United States, said in the opening speech: “This report was written by the China General Chamber of Commerce in the United States and received the participation and strong support of 101 Chinese companies. This survey provides first-hand data and analysis to help people from all walks of life better understand the current situation of Chinese-funded enterprises operating in the United States and the challenges they face in 2022, and provide constructive suggestions for deepening understanding and cooperation between China and the United States. reference.”
Overall, the overall revenue performance of Chinese-funded enterprises in the United States in 2022 is slightly worse than that in 2021, and enterprises are cautious about the development of investment in the United States. Tensioned Sino-US relations and persistent inflation are currently the two most concerned issues for Chinese companies in the US. Chinese-funded enterprises are generally satisfied with the US market environment and have formed their own localization strategies to maximize business growth. The ups and downs of the market in the past have pushed Chinese-funded enterprises to adopt a diversified business portfolio as the main strategy to combat short-term market fluctuations.
Some important data deserves attention. The first is that Chinese companies in the United States are facing profitability challenges. Compared to the 2022 survey results, only 42% of companies reported year-over-year revenue growth; 24% of companies experienced revenue declines of more than 20%. 35% of the companies surveyed expect their U.S. business revenue to remain the same in the next two years; 19% of the companies surveyed expect their revenue to decline in the next two years. In 2022, a larger proportion of surveyed companies will experience a decline in U.S. revenue compared to the previous year, with 13% of surveyed companies experiencing revenue declines of more than 20% and 24% of surveyed companies experiencing revenue declines of 0% Between -20%. The percentage of companies reporting revenue growth this year is significantly lower than last year’s report, which is cause for concern. Compared with last year’s survey results, the overall percentage of companies expecting revenue declines has increased by 5 percentage points. Compared with the grim situation shown in the survey in 2021, the data reported in 2023 has improved significantly, but compared with the data five years ago (2017) when the economy and the Sino-US situation were more ideal, there is still a significant gap. The macro environment was much more favorable then, there was no global public health crisis, no inflation or interest rate concerns like we have now. In this sense, we must not only see the encouragement brought by the recovery, but also be prepared that the recovery period may be quite long.
Tensioned Sino-US relations and persistent inflation are currently the two most concerned issues for Chinese companies in the US. 81% of the companies surveyed expressed deep concern about the tense bilateral relationship between the United States and China. 68% of the surveyed companies are highly concerned about the continued inflation in the US and its possible impact on the economy. Forty-four percent of companies surveyed predict further deterioration in U.S.-China relations. At the same time, 83% of the companies surveyed said that the uncertainty of inflation and economic trends has had a negative impact on their business. In practice, the confidence in cross-border direct investment and the courtesy received in the host country are the “barometers” of the relationship between the two countries. Whether it is Sino-US tensions or inflation (inflation is related to the 25% tariffs imposed by the US on China), they are already on the rise. Profoundly affect micro-enterprise individuals.
One bright spot is that most Chinese companies are satisfied with the overall environment of the US market, and have formed their own localization strategies to maximize performance growth. More than 80 percent of companies surveyed are satisfied (or neutral) with all aspects of the U.S. business environment, and 58 percent are very satisfied with the U.S. in terms of innovation, technology, and environmental/social and governance. Although most of the companies surveyed believe that they have largely achieved or fully achieved their original intention of investing in the US, about 20% of the companies believe that the actual growth of their US business has been lower than expected. Nearly 50% of the companies surveyed reported that their profitability in the US market was lower than that of their Chinese parent companies. Objectively speaking, the advantages of the U.S. investment market factors are world-class, which determines its long-term and stable attraction to Chinese companies. It can be seen from the fact that more than 80% of Chinese companies are satisfied with the U.S. business environment. There is a high degree of recognition of the US business environment, and the attractiveness of the US market to Chinese companies is sustainable.
Chinese companies have to face complex challenges such as Sino-US relations and changes in the US price market. The ups and downs of the market in the past have pushed Chinese-funded enterprises to adopt a diversified business portfolio as the main strategy to combat short-term market fluctuations. During an up market cycle, “new business areas and portfolio expansion” are the top strategic priorities adopted by Chinese companies. In the down cycle, in addition to 65% of the interviewed companies choosing to “actively adjust their core business strategy”, 54% of the interviewed companies chose to “explore new business opportunities” to offset the pressure faced by the main business. In the face of an upward cycle, Chinese companies often take advantage of the trend, actively develop investment portfolios in new business areas, expand and promote the development of new customers, and implement more active marketing and brand promotion activities. In the shrinking down cycle, companies mainly actively change their core business strategies to make them more adaptable, seek new business opportunities, accelerate growth, and implement employee training to prepare for possible opportunities. Faced with the weakening of political trust between China and the United States and the business advantages of the United States, Chinese companies are also actively seeking changes. For most Chinese companies investing in the United States, it is strategic, and most of them can only move forward and not retreat.
Chinese entrepreneurs’ new business investment in the US market is not much different from the data in 2022, and from the market performance from 2018 to 2022, Chinese companies’ new business investment in the US market is generally stable, in terms of increment and stock Has greater stability. This shows that Chinese-funded enterprises in the United States are in a stable and relatively mature state of business. In terms of profitability, 34% of companies achieved a constant profit margin before interest and tax (EBIT). In 2022, this figure will be 25%. The survey results are 15%. This reflects that the profitability of Chinese companies investing in the United States has declined.
By industry. Investment in the industrial sector was the most stable, followed by consumer discretionary and finance, while real estate investment experienced a significant recession. Industrial companies continued to show the most optimism (91%), with only 9% predicting lower revenues. The real estate business is pessimistic, as many as 34% of the surveyed companies expect future revenue to decrease, and only 17% of the surveyed companies expect revenue to increase. The financial industry and the non-consumer goods industry are in the middle, with 17% and 22% of the companies surveyed respectively expecting revenue to decrease in the next two years. In terms of year-on-year changes in revenue forecasts in the next two years, companies that are expected to increase by more than 20% account for about 10%, which is significantly decreasing from the survey data (over 20%) in 2018-2020, which shows that China’s Investments tend to be conservative in terms of revenue expectations, but real estate investment has no corporate feedback on the value of future revenue growth of more than 20%. . In the survey of year-on-year changes in US investment expectations in the coming year, more than half of them will maintain the current status, and in terms of finance, discretionary consumer goods, real estate, and industry, such conservative expectations occupy an absolute proportion.
The parent companies of Chinese-invested enterprises in the United States are basically the heads of various domestic industries. According to the report, the challenges for companies doing business in the United States include: deadlock in bilateral relations between China and the United States, inflation, uncertainty in the US economy, Sino-US economic and trade frictions, uncertainty in US foreign investment policies, difficulty in recruiting talents, and high compliance costs wait. From 2018 to last year, about 30% of the companies believed that Sino-US relations had deteriorated moderately, and the evaluation of Sino-US relations also led to a large group of companies investing in the United States to be conservative in their expectations of Sino-US bilateral relations. Companies that have seen significant improvement in Sino-US relations have completely disappeared in the past two years.
The biggest economic obstacle to operating in the United States comes from inflation. As many as 58% of the interviewed companies believe that this has brought moderate or mild negative impacts, while 25% of the companies said that it constitutes a serious negative impact, and only 15% think that there is no impact. In the increased cost accounting, labor, inventory, supplies, materials, etc. are the bulk, and the impact of rising fuel prices is also significant. In order to reduce costs, enterprises mainly respond by raising commodity prices and service prices (that is, price increases at the same frequency), using more energy-saving products and technologies (24%), and reducing corporate profits (23%). Enterprises are basically in a passive situation in the face of inflation.
Chinese companies invest in the United States with relatively ambitious goals at the beginning, and invest with the goals of learning, improving corporate organization, and expanding the market. Among the interviewed companies, 30% of the companies were able to successfully achieve their goals, 20% of the companies achieved more than the scheduled goals, 3% of the companies exceeded the original goals, 67% of the companies believed that their business and investment had grown, and the company expanded its business in the United States and investment, while 33% of the enterprises believe that there is no growth, only maintaining the stability of the business. This shows that operating in the United States is challenging and the competition is fierce.
Chinese companies focus on localization strategies, and some indicators, such as retaining local wealth and assets, employment, promoting localized competition strategies, labor and environmental compliance, community participation, and local customers, all account for a relatively large proportion. Although the United States has considerable investment advantages, the proportion of Chinese respondents who are very satisfied (4%) is still low, and 7% are very satisfied with the legal and regulatory environment that the United States is proud of. Very satisfied with innovation and innovation (11%). This shows that the most attractive elements of the United States to Chinese companies are actually technology and innovation, followed by the legal and regulatory environment.
This time the report was released significantly earlier (at the end of June last year). In the 2023 China Business Environment Survey Report released by the American Chamber of Commerce in China (AmCham China) on March 1 this year, more than half of the interviewed American businessmen said that China is no longer their primary or top three investment destinations. It was the largest increase in the survey’s history. According to the report, most American businessmen do not intend to withdraw from the Chinese market, but they are pessimistic about last year’s revenue and profits, China’s economy, investment and business environment prospects, and even the future trend of US-China relations. In this regard, observers said that as the geopolitical competition between the two countries intensifies, the business difficulties faced by foreign companies in China will hardly improve in the next 5-10 years. According to the latest “China Business Environment Survey Report” released by the American Chamber of Commerce in China, only 45% of the interviewed American businessmen regard China as the primary or top three investment destinations, the largest drop in the survey’s 25-year history. In other words, the proportion of American businessmen who no longer give priority to investing in China or only regard China as one of many investment destinations has risen to a record high, totaling 55%.
By comparing the evaluation reports of the chambers of commerce of the two countries over the same period, we can find an interesting phenomenon: American companies in China tend to be on the sidelines and pessimistic, and some companies clearly intend to divest in the Chinese market. But for Chinese companies operating in the United States, most still have to choose to face the difficulties and not to divest easily. The reality shows that Chinese companies are more dependent on the US market and technology.
In terms of recommendations, the report proposes not to waste every crisis, but to use the current market downturn window period to strengthen and consolidate the internal capabilities of enterprises; establish a systematic approach to improve the success rate of portfolio expansion; in the market, make full use of the US market Promote product and service innovation; Technically, embrace new digital tools; Geographically, consider the entire North American market as a whole. Objectively speaking, these suggestions are very good. The challenges presented in the report are obvious, and Chinese investment in the United States has encountered difficulties. However, as Chairman Hu Wei said, if we extend the timeline a little bit and compare the results of the survey report over the past ten years, we can find that Chinese companies have shown excellent resilience in adapting to the US market and achieving long-term development, regardless of good times or bad times , positive impact, sufficient synergies and continuous optimization. If we look at the experience of Chinese companies in the United States in 2022 in a long-term historical perspective, and in the macroscopic picture of Sino-US relations, their experience is a reflection of Sino-US cooperation and conflicts. And trading companies can better experience the complexity and magnificence of Sino-US relations.
The maturity of major-country relations does not lie in the absence of conflicts, nor in one-sided emphasis on cooperation, but in the deep integration of actors on both sides into the context of “conflict-cooperation” that always accompanies them. In the evolution of the situation, various stakeholders can form an in-depth judgment on the direction of Sino-US relations. Only the political and business circles in China and the United States realize that the trend of Sino-US relations is unconsciously shaping a “new type of major-country relationship.” In this process, conflict and cooperation are a normal state, and enterprises must adapt to the Chinese government as well. Enterprises with direct investment in the United States can most deeply perceive the resistance and dynamics of Sino-US relations. The challenges that Chinese companies need to face in the United States can be summed up in four aspects: First, the profitability of the company itself. This is the core and fundamental issue related to the survival of enterprises in the United States. Enterprises investing in the United States should make good use of all the advantages of the American market and seize opportunities to grow bigger and stronger. Second, properly handle the relationship with the US government and the norms formulated by the government. This involves corporate social responsibility, taxation, compliance and security reviews, among others. Third, deal with the issue of the relationship with the parent company, that is, the strategic design of the parent company and the autonomy of the US subsidiary. Fourth, the issue of the relationship between enterprises and new business ethics (such as ESG).
As an annual report, it is also an important reference material for Sino-US bilateral economic analysis. The new report follows the objective and neutral spirit of the past, and the samples used can basically reflect the experience and expectations of Chinese companies in the United States. But here are a few issues that deserve the attention of the China Chamber of Commerce in the United States: First, the content of communication can be enriched, that is, in the form of “PDF+”, for example, for some important data comparisons, such as visual animation presentations, etc.; In the categories of real estate, manufacturing, and non-essential goods, selecting the words of several representative figures, etc., can better improve the readability of the report. The second is to increase the content design of the corporate ESG level, because this is the latest evaluation system for organizations including companies. The third is to expand the sample as much as possible, because in the current design, more than 100 samples are somewhat underrepresented (the sample base reported last year was 111, and this time there are ten fewer samples), and only 30 companies are allocated to each industry. Many left and right companies participated in the questionnaire, which will weaken the weight of the report. Fourth, China’s agricultural investment in the United States may be a new hot topic that needs attention.
Compared with last year’s report, this year’s report has been reduced in terms of both the fullness of the length and the details. The new and significant change is that the new crown is no longer a hindrance for companies to invest in the United States. The fluctuations in Sino-US relations and inflation have become the main obstacles. Whether it is from the perspective of the macro environment or the US business environment, challenges may be normalized, and the only thing that is certain Yes, if China’s leading companies want to become global companies, they cannot avoid investing in the United States. In the face of difficulties and challenges, China’s commercial departments, CCPIT, industry associations and other institutions should pay more attention to Chinese companies in the United States.
Note:The author thanks Ms. Ying Li of the China American Chamber of Commerce for providing a timely and complete report in spite of her busy schedule.
reference:Annual Business Survey Report of Chinese-funded Enterprises in the United States, https://www.cgccusa.org/wp-content/uploads/2023/02/2023-CGCC-Survey-Report-Chinese.pdf.
(Wang Yingliang, Chief Writer of China Development International Affairs (NEIA) Research Workshop, researching Sino-US political and business relations, industrial investment and national competition, WeChat account porsche910114. This article only represents the author’s personal opinion. Editor’s email [email protected])