By Reshma Kapadia
The sheer heft of the American Chamber of Commerce in China's latest look at the challenges U.S. companies face in the world's second-largest economy makes it clear. Things are getting worse.
At 600 pages, the Chamber's 26th annual assessment and proposals to build a bridge between U.S. and Chinese policymakers is the longest ever. Issued Tuesday, it identified U.S.-China tensions, vague data-security rules, and increasing competition as among the top challenges facing U.S. multinationals.
One theme touches on moves by both governments. Fast-moving policy shifts on both sides of the Pacific are creating growing challenges for U.S. companies -- a problem that shows no signs of easing as Washington and Beijing increasingly view their economic relationship through the lens of national security.
While rising tensions in the U.S.-China relationship and inconsistent and unclear laws and regulations and their enforcement topped the list of challenges, two new ones appeared in the top five: Worries about data security and increasing competition from privately owned Chinese companies.
"The Chinese government has stated that it encourages foreign direct investment, but many of our members continue to encounter barriers to investment and operations including policies that discriminate against them and public relations campaigns that create suspicion of foreigners, " AmCham said in its report.
Among the group's proposals for Chinese officials: "Clarify how the country's national security laws apply to business, legitimate due diligence requirements, and the need for detailed information about supply chains."
These broader concerns are playing out as an unspectacular economic recovery in China and growing competition have contributed to earnings disappointments or warnings from a host of U.S. multinationals. On Sunday, Tesla, for example, again slashed prices in China, where its sales fell 4% in the first quarter versus a year earlier. Nike's Chinese sales growth has continued to decelerate and Apple just had its worst first quarter of iPhone sales in China since the pandemic hit, according to a report by Counterpoint Research.
Chinese leader Xi Jinping has embarked on an effort to woo foreign investors as they become skittish about China's longer-term growth and the state of U.S.-China relations. But the efforts are overshadowed by the damage created by inconsistency in policy and the discrepancy between stated policies and their implementation -- raising concerns about companies' medium-to long-term prospects in China, the group said.
Both U.S. companies and investors could see more volatility. The U.S. is expected to increase tariffs on certain goods and consider other trade measures as China has relied increasingly on exports of cheaper products -- cars, solar panels, aluminum -- to revive its economy, threatening the prospects of U.S. companies.
That possibility is reflected in wariness among U.S. investors. The iShares MSCI China exchange-traded fund is down 13% over the past year at $40.57, compared with the 23% gain in the S&P 500.
In a survey by J.P. Morgan of investors on the sidelines of last week's IMF/World Bank annual meetings, a quarter indicated they aren't invested in China at all.
More than one-third were significantly underweight China versus their benchmarks, and 16% slightly underweight. Only 10% were overweight despite cheap prices for Chinese assets, according to Joyce Chang, head of research for J.P. Morgan.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 23, 2024 16:20 ET (20:20 GMT)
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