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
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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
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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
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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
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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

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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
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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