A Chill in China’s Business Climate

on September 11 2014 | in Trends | by | with No Comments

international companies in China, Google, Microsoft, BMW, Audi, Mercedes-Benz, antitrust regulations, Chinese government

The Chinese government’s antitrust and anti-corruption crackdowns have made it undeniably harder for international companies to operate in the country, and some are reconsidering their expansion plans for China.

The Wall Street Journal reports that a survey by the American Chamber of Commerce in China found that 60 percent of companies surveyed feel less welcome in China than before, up from 41 percent in last year’s survey. Furthermore, 49 percent of respondents believe foreign companies are being “singled out for attack.”

Seven years ago, the same survey found that China was the number one investment priority for American companies. This year, however, only 20 percent of respondents see China as a top priority, with many seeing it as one of a number of possibilities for international investment.

Even though many of the US companies in China remain profitable, revenue and profit growth is slowing, and many companies are downsizing their expansion plans.

American companies aren’t the only ones feeling the heat. In a similar survey by the European Union Chamber of Commerce in China, 61 percent of European companies that have been in China for more than ten years said it is more difficult to conduct business in the country than it was previously.

Along with increased government scrutiny, rising political risks and foreign policy tensions, increasing labor costs, and complicated rules for foreign investors have contributed to the slowdown in investment from North America, Europe, and Japan.

So far, the government’s next moves in the antitrust crackdown have been unpredictable, and no industry is safe. Regulators have already investigated companies in the food, auto, and technology industries, including US-based food processor OSI Group, Microsoft, Qualcomm, Audi, BMW, and Mercedes-Benz.

Though many of the companies have cooperated with the investigations and taken steps to appease regulators, such as slashing prices, the state-run media coverage can be much more damaging and costly to an international brand. OSI Group was recently the target of scrutiny and its business in China was devastated after Shanghai TV ran a story on the alleged abuses at the company’s Shanghai factory.

As revenue slows and conducting business becomes harder, companies may decide that the risks of doing business in China outweigh the rewards.

image credit: mercedes-benz

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