In recent times, US firms are redirecting their investments away from China due to a drop in confidence caused by slow export growth and mounting debt in the world’s second-largest economy. This shift in investment preference is a result of deteriorating bilateral ties and the slowing economic growth of China. According to the 2024 China Business Report released by the American Chamber of Commerce (ACC) in Shanghai, only 13 percent of respondents ranked China as their top investment destination, marking a four-percentage point decline and the lowest in the survey’s history. Additionally, the number of respondents who viewed China as a low-priority investment destination increased by 24 percent, further highlighting the lack of confidence in doing business in China.
The primary concern of US companies in China, according to the survey, is the worsening bilateral tensions between the two countries. Two-thirds of respondents identified the US-China trade tensions as the top challenge for their company operations in the next three to five years. The ongoing debate between US presidential candidates Donald Trump and Kamala Harris also shed light on the strained relations between the two countries. Harris accused Trump of facilitating the transfer of American semiconductor chips to China during his presidency, which aided in modernizing China’s military. In response, Trump highlighted how Chinese companies built auto factories in Mexico under the Biden administration, displacing manufacturing jobs in the US.
Apart from bilateral tensions, US companies are also concerned about China’s economic slowdown, with 60 percent of respondents expressing worries over the economy. The decline in real estate prices, worsening job security, and low consumer confidence are key factors contributing to these concerns. Economists question whether China will be able to meet its official growth target of 5 percent in 2024 amidst these challenges. The recent survey conducted by the AAC highlighted these growing apprehensions among US companies operating in China and echoed similar sentiments expressed in a survey by the European Union Chamber of Commerce.
The European survey emphasized the need for the Chinese government to fulfill its reform pledges to improve business conditions and restore investor confidence. Jens Eskelund, the president of the EU chamber, noted that an increasing number of companies were reevaluating their operations in China due to the challenges of doing business outweighing the returns. The economic slowdown, weak domestic consumption, market access issues, and Beijing’s focus on national security over the economy were listed as key challenges faced by foreign businesses in China. This has led to a significant decline in foreign direct investment (FDI) in China, with a 29.6 percent decrease in inbound FDI totaling 539.5 billion yuan (USD 75.8 billion) in the first seven months of the year.
With USD 5.6 billion recorded as FDI in July, the lowest within a single month since 2008, it is evident that foreign investors are reevaluating their stance on China as an attractive investment destination. The declining FDI inflows and the growing concerns expressed by US and European companies in the surveys reflect the shifting landscape of global investments away from China. Addressing these concerns and restoring investor confidence will be crucial for China to remain competitive and attract foreign investments in the future. As the US and China continue to navigate their complex relationship, the business environment in China will continue to evolve, presenting both challenges and opportunities for foreign companies looking to invest in the region.
