It’s not that American multinationals don’t love China. They do. But for different reasons now. They like the growing middle class. They like the data on luxury spending and on car loving Chinese. What they don’t like is rising wages.
What brought them to China in the first place, cheap and abundant labor, is no longer the case. And that has American businessmen souring somewhat on China, according to the U.S. China Business Council (USCBC), a Washington DC-based lobby firm for American multinationals.
“Tempered optimism sums up corporate America’s view of the China business environment for the second year in a row,” said John Frisbee, president of the USCBC. While most respondents to the U.S. China Business Council’s annual survey said China remains among their company’s top five priorities, fewer respondents this year ranked China as their number one priority.
“For the second consecutive year, respondents suggested that companies’ optimism about the prospects for the market in the next five years has moderated,” Frisbee said in a statement Thursday. Rising costs for labor, lax intellectual property rights enforcement, competition with Chinese companies, and challenges with the licensing and business approval process continue to rank as the top issues of concern to foreign companies doing business in China. But the number one issue was the fact that Chinese workers are earning more than ever.
One company in the survey, which was not named, said that, “Costs, particularly in major metropolitan areas, are moving to a point that China is no longer world-competitive.”
Despite higher labor costs, more than 90% of survey respondents report that their China operations are profitable, the highest percentage reported since USCBC began surveying its membership.
But looking into their crystal ball shows a future China that’s radically different from its past. This is no longer a Happy Meal toy economy, and corporate investors know it.
The vast majority of respondents have expressed concern about rising costs since the question was first asked in 2007. Only in 2009 as the global recession was at its height and wage pressures eased did that number dip below 80%. Human resources costs have consistently been the specific cost of most concern, reaching 92% in this year’s survey.
Top Ten China Concerns
1. Cost Increases
2. Competition with Chinese Companies in China
3. Administrative Licensing
4. Human Resources: Talent Recruitment and Retention
5. Intellectual Property Rights Enforcement
6. Uneven Enforcement/Implementation of Chinese Laws
7. Nondiscrimination/National Treatment
9. Standards and Comformity Assessment
10. Foreign Investment Restrictions
In 2007, 88% of respondents were worried about rising labor costs, dropping to 70% in 2009.Source: Forbes – “As China Workers Earn More, American Companies Shed Their Optimism”
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