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The American Chamber of Commerce in China recently issued its 2016 Business Climate Survey, and as usual, it has some interesting things to tell us about the experiences of foreign corporations in China. While the good news is that American business appears committed to the China market and optimistic about the country’s long-term economic prospects, the current economic slowdown is clearly taking a toll. Only 61% of companies reported revenue growth for 2015, dropping from 75% in 2014. And the number of companies reporting declining revenues more than doubled, to 23%.

Foreign businesses in China.
Image credit: bloombergview.com

While the good news is that American business appears committed to the China market and optimistic about the country’s long-term economic prospects, the current economic slowdown is clearly taking a toll. Only 61% of companies reported revenue growth for 2015, dropping from 75% in 2014. And the number of companies reporting declining revenues more than doubled, to 23%.

The survey also reported increasing concerns about transparency, predictability and fairness of the regulatory environment.  And industrial policies which favor domestic companies were also identified as a source of concern.  Perhaps more ominously, a whopping 77% of respondents indicated that they felt that foreign businesses were “less welcome” than before in China.

Reaction from official and unofficial sources in China was swift.  The Ministry of Foreign Affairs was quick to emphasize that China’s “policies of creating a good environment for foreign companies investing in the country won’t change”.  And the semi-official China Daily opined in an editorial that “foreign companies should do well to seize the opportunities of China’s rise as a consuming society rather than complaining about the loss of old business opportunities.”

But are the concerns really about the loss of old business opportunities? Admittedly, tougher competition and changing market dynamics in China are a growing challenge for MNCs, but the real concerns seem to have more to do with the application, interpretation, and enforcement of regulations and laws — and the perception that they are being applied in a way that disadvantages foreign firms.  This perception, along with the various other policies which seem to tilt the playing field in favor of domestic companies, helps explain the pervasive feeling of being “less welcome”.

This is the real issue both sides would do well to focus on. If foreign corporate perceptions about being less welcome are off the mark, Chinese officials should engage in a forthright dialogue to explain why these concerns are misplaced, rather than just asserting that the environment for foreign companies is “good”.   If, on the other hand, there is any validity to this perception, it would behoove Chinese officials to address the issue in a serious and thoughtful way.

The relationship between China and its FDI providers has been immensely and mutually profitable for more than two decades now.  Keeping this partnership on track for future decades will require a constructive and vigorous dialogue – and open-mindedness on both sides

AuthorStephen Olson – Research Fellow at the Hinrich Foundation.
Follow Stephen Olson on Twitter @StephenOlsonHF