Rising costs, low returns 'inevitable' amid restructuring: experts
China still remains an appealing and open destination for foreign investors, despite some challenges due to rising costs and uncertainty over Donald Trump's presidency, experts said on Wednesday.
The comments come after the American Chamber of Commerce in China (AmCham China) released a survey on Wednesday, saying that China has become a less attractive destination for foreign firms. The survey was based on 462 responses from member companies in the U.S., Europe, Australia and Asia that are doing business in China. U.S. firms represented over 80 percent of the respondents.
The share of companies that "identified China as a top three global investment priorities dropped to 56 percent, compared with a peak of 78 percent in 2012," a five-year low, according to the report.
In addition, more than 80 percent of the companies surveyed said that "foreign companies are less welcome in China than in the past," up from 77 percent in 2016.
The chamber noted that foreign companies are slowing investment in China partly due to "higher costs and rising protectionism."
"It is inevitable that China's moves to upgrade its economic structure will lead to some cost hikes and shrinking returns, but this occurs mostly in the low-end manufacturing sector," Sang Baichuan, director of the Institute of International Business at the University of International Business and Economics in Beijing, told the Global Times on Wednesday.
Rising costs might drive out some foreign companies in the low-end sector, but "in a similar vein, foreign companies in sectors such as high-end manufacturing and clean energy, which yield higher returns, can prosper," Sang said, noting that such migration is in line with the central government's efforts to boost high-quality foreign investment.
In 2016, revenue growth was stronger in the services and technology industries as well as other R&D-intensive sectors, according to the AmCham China survey.
Experts also disputed the responders' concerns on domestic protectionism. "There's no ground for such assumptions, and based on Trump's words during and after his campaign, he is the one that more likely to impose protective measures," Sang explained.
"There may be some restrictions, but overall the environment is improving," Mei Xinyu, an associate research fellow with the Ministry of Commerce, told the Global Times on Wednesday.
On Tuesday, the State Council, China's cabinet, issued new measures to further open China's market to foreign investors. Following the announcement, restrictions in the manufacturing of rail equipment, motorbikes, ethanol, oils and other sectors will be gradually removed.
"It is the largest ever opening-up to foreign investors, signaling the Chinese government's consistent efforts to create a fair and competitive market for both domestic and foreign players," Sang said.
The move also reflects that the country has been continuously improving its business environment, Hua Chunying, spokesperson of the Ministry of Foreign Affairs, said during a press briefing on Wednesday.
"I am not sure about the accuracy of the survey released by the AmCham China," she said, noting that U.S. investment in China increased about 52.6 percent year-on-year in 2016, which showed that China is very attractive market for U.S. companies.
Uncertain business ties
U.S. business circles are also particularly concerned over the fate of China-U.S. commercial ties after Trump takes office. The survey showed that 72 percent of the responders "felt that positive U.S.-China relations were critical to business." However, only 17 percent thought ties would improve in the future.
Trump has pledged that he will bring U.S. plants back home and create more jobs as well as impose tariffs up to 45 percent on Chinese imports. He has also proposed to cut the U.S.' corporate tax rate from 35 percent to 15 percent.
Some of his pre-inauguration efforts seem to have paid off. On Saturday, U.S. tech giant Oracle Corp announced plans to cut off around 200 research and development staff in Beijing, citing "restructure efforts." The announcement comes about one month after Oracle's co-CEO joined Trump's transition team.
An employee, who only spoke on the condition of anonymity, described the move as a "cut-off to retain job opportunities for the people in the U.S."
"Some of the unit being cut may have posted a lower-than-expected performance last year, but the storage group is making lucrative revenues. Oracle does need IT staff to continue offering such services, so most of our jobs will be transferred to U.S. engineers," the employee told the Global Times on Wednesday.
But Mei predicted that in the wake of Trump's presidency, only a small proportion of U.S. companies will pull out of Chinese market," while most of them will stay due to the huge appealing market and mature industry chain.