AMCHAM SURVEY: COMPANIES STILL OPTIMISTIC ABOUT

UNCLAS SECTION 01 OF 02 BEIJING 000442 SENSITIVE SIPDIS STATE PASS USTR E.O. 12958: N/A TAGS: EINV CH SUBJECT: AMCHAM SURVEY: COMPANIES STILL OPTIMISTIC ABOUT CHINA SENSITIVE BUT UNCLASSIFIED -- BUSINESS PROPRIETARY NOT FOR INTERNET DISTRIBUTION -- PLEASE PROTECT ACCORDINGLY. ¶1. (SBU) Summary: The American Chamber of Commerce in China (AmCham) on February 10 briefed members on the results of its soon-to-be released 2010 Business Climate Survey. Companies said they were generally optimistic about the Chinese market, with firms that had been operating in China longer more likely to report being profitable here. Respondents most frequently listed "inconsistent regulatory interpretation" as one of their companies' top concerns in China. Almost two-thirds of respondents said China's enforcement of intellectual property rights (IPR) was ineffective, while 60 percent said Internet censorship did not affect their companies' ability to conduct business normally in China. End summary. 2 (SBU) AmCham's Public Policy Development Committee on February 10 previewed for its members the results of its 2010 Business Climate Survey, due to be released publicly in March. AmCham conducted the survey in November/December 2009 (i.e., before Google's announcement that it was considering withdrawing from the Chinese market.) The survey was open to AmCham's 1200 corporate members, of which 388 responded. BUSINESS ENVIRONMENT -------------- ¶3. (SBU) Asked to rank their top five business challenges in China, respondents most frequently cited "inconsistent regulatory interpretation," "management-level human resources constraints," and "obtaining required licenses," followed by a three-way-tie between "national protectionism," "bureaucracy," and "unclear regulations." (In AmCham's 2009 survey, "management-level human resources constraints" topped the list, followed by "inconsistent regulatory interpretation," "bureaucracy," "unclear regulations," and "lack of transparency.") Twenty-six percent of respondents said they viewed foreign companies as "increasingly unwelcome" to participate in the Chinese market compared to one year ago, 30 percent viewed foreign companies as "more welcome," and the remaining 44 percent saw "only minor change from 2008." THE CHINESE MARKET -------------- ¶4. (SBU) Sixty percent of respondents said their companies' primary goals and strategies in China were to "produce or source goods or services in China for the China market." A larger number of respondents this year said competition from Chinese firms had "increased" or "increased slightly" than did a year ago. Eighty percent of respondents said their companies planned to increase investment in China operations for 2010, but few planned to expand beyond current locations into second- and third-tier cities. REVENUE AND PROFITABILITY -------------- ¶5. (SBU) Twenty-eight percent of respondents said China ranked as the number one priority for their companies' near-term global investment plans, with an additional 47 percent placing China as one of their top-three priorities. Although companies reported their financial performance in China in 2009 as slightly less profitable than in 2008, a larger percentage of respondents were "more optimistic" about their one-year business outlook in China than a year before, and more respondents rated as "optimistic" their five-year business outlook in China than did one year ago. ¶6. (SBU) Respondents said their 2009 operating margins were slightly higher than the company's worldwide operating margins. Companies that had had a physical presence in China longer were more likely to report their financial performance in China as "profitable" or "very profitable." RISKS AND HOT-BUTTON ISSUES -------------- ¶7. (SBU) Respondents most frequently cited "Chinese economic slowdown," "global economic slowdown," and "labor costs" and "global financial market instability" (tied) as the top three risks facing their China operations. Approximately 63 percent of respondents said China's enforcement of intellectual property rights was either "ineffective" or "totally ineffective," while the remaining 26 percent said BEIJING 00000442 002 OF 002 enforcement was either "effective" or "very effective." Approximately 60 percent of respondents said Internet censorship did not impact their companies' ability to conduct business normally in China, 32 percent said there was a "somewhat negative" impact from Internet censorship, and eight percent said there was a "severe negative impact." MESSAGING -------------- ¶8. (SBU) Hart offered little analysis of the survey data. He said AmCham would, over the next few weeks, formulate a message to deliver to the PRC, the USG, and local and foreign media upon the survey's release. HUNTSMAN