How Bilateral Tensions Affected U.S. Companies in China

Trade tensions between the U.S. and China started a long time ago, but it is hard to determine for how long tensions would continue to dominate the headlines. An annual business sentiment survey conducted by the American Chamber Commerce in Shanghai and consultancy PwC China contains many interesting details.

According to a business sentiment survey, half of the companies believe that tensions will last at least three years. Interestingly, last year only 30% of companies that took part in the survey expected that result.

Moreover, 27% of companies expect that tensions will last indefinitely, compared with just 13% last year. This survey shows that U.S. companies in China are increasingly fretful that tensions between the countries will continue in the future.

Tensions between the U.S. and China remain the top concern for American companies in China. Government officials in both countries should keep in mind that these tensions created huge problems for the companies. It is worth noting that, tensions between the largest economies started before the pandemic. However, the coronavirus pandemic exacerbated the situation.

Moreover, Washington threatens to blacklist Chinese technology companies on national security grounds. As a reminder, one of the world’s largest smartphone makers Huawei is struggling to cope with problems, due to U.S. sanctions. This example underlines the severity of the problem.

Tensions and politics

Bilateral tensions continue to affect the companies but there is another issue as well that has the potential to escalate the situation in 2020. U.S. President Donald Trump wants to stay for another term.  This week, he again raised the idea of separating the U.S. and Chinese economies also known as decoupling. According to President Trump, his country would not lose money if the countries no longer did business.

According to the survey conducted by the American Chamber Commerce in Shanghai and PwC China, only 29% of firms plan to increase their investment in China in 2020. Last year, the result was 47%. As can be seen from the data, companies are not willing to invest due to the ongoing situation. It is hard to blame them after taking into account, bilateral tensions and economic uncertainty caused by the coronavirus pandemic.

Interestingly, 32% of respondents said they believe the deterioration in relations was affecting their ability to retain both local and expatriate staff.

Hopefully, the number of companies with a pessimistic five-year outlook fell from 21.1% in 2019 to 18.5% in 2020. According to the report, the improvement may be attributable to the Phase One trade deal. However, pessimism remained historically high.

As a reminder, the American Chamber of Commerce in Shanghai and PwC China conducted the survey from June 16 to July 16. Moreover, 346 companies took part in this survey.

Hopefully, more than 90% of respondents plan to stay in China. It is worth noting that, around 70% of more than 200 companies own or outsource production in China. They do not plan to shift manufacturing to other countries. Interestingly, less than 4% are shifting some production back to the U.S. Also, 14% of companies plan to relocate some production to other to non-U.S. locations.