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Report: US firms profitable in China, concerned about policies

The majority of U.S. companies remain profitable in the China market, but increasing local competition and rising costs are pressuring profit margins, according to a new survey.

The U.S.-China Business Council (USCBC) said Monday that nearly 50 percent of survey respondents reported double-digit revenue expansion — fewer than in prior years, but still strong results compared with other global markets. 

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“The China market continues to deliver important revenue opportunities for American companies, even as GDP growth moderates,” said USCBC President John Frisbie. 

The central concern around the increasing competition from China's domestic industry resides in the preferential treatment received by Chinese state-owned enterprises.

"The survey data shows again that nationality trumps ownership, Chinese companies, whether state-owned or private, receive benefits that foreign companies do not," the report said.

Meanwhile, the optimism of U.S. firms doing business in China is being tempered by policy uncertainty on intellectual property protections and enforcement of new antitrust laws that appear to focus more on foreign competitors. 

"While both foreign and domestic companies are being investigated, foreign companies appear to be facing increasing scrutiny," Frisbie said.

All told, 86 percent of survey respondents are concerned about the lack of transparency, due process and other issues surrounding competition-related investigations.

U.S. firms say they continue to limit their operations and intellectual property exposure in China because of the lack of protections while little progress is being made on much-needed policy changes.

Overall, companies have seen few tangible effects so far from China’s economic reforms and report little improvement in any of the top 10 issues over the past year, which is holding back any plans to expand. 

Half of the companies plan to boost resources in China in the next 12 months, down from almost 75 percent three years ago.

Also, retaining good workers is being complicated by China’s environmental pollution with 40 percent of companies reporting that air pollution has made it difficult to retain or assign expatriate staff to China.

Pollution has also increased the use of sick leave among those workers.

The business environment survey provides an annual assessment and lists the top 10 challenges faced by U.S. companies operating in China.