US firms exit China amid geopolitical tensions, economic slump, and declining profits, says report

American companies operating in China are reporting record-low profits and a sharp decline in business confidence due to escalating US-China tensions and a sluggish Chinese economy, according to a report published Thursday by the American Chamber of Commerce in Shanghai (AmCham), as per an Associated Press report.

Out of 306 companies surveyed, only 66 percent were profitable in 2023—a record low, according to AmCham’s China Business Report. The study also revealed that just 47 percent of respondents are optimistic about their business prospects in China over the next five years, marking the lowest level in the survey’s more than 20-year history. 

Geopolitical tensions between Beijing and Washington over trade, manufacturing, and geopolitical issues, like China's claims over the South China Sea, have been major obstacles for US businesses. 

Additionally, China’s economy faces headwinds, including weak consumer demand and deflationary pressures, despite earlier hopes of a post-COVID rebound, as per the report.

The report identified geopolitical tensions as the top challenge for US businesses in China. 

“It’s a balance between risk and reward,” said Eric Zheng, president of AmCham Shanghai, during a news conference before the report’s publication. “The perceived risks of doing business in China have gone up in the past few years, but at the same time, the market is slowing down, with soft demand and overcapacity," he said.

Many US companies are shifting investments to other regions like Vietnam, Malaysia, and South Asia. According to AmCham's report, a record 25 percent of companies reduced investment in China in 2023, driven primarily by concerns over the country’s slowing growth.

While more than half of US companies expect revenue increases compared to last year, only 37 percent anticipate China’s growth to outpace global growth in the next three to five years.

European Union Chamber of Commerce's state in China

The release of AmCham’s report followed a similar assessment from the European Union Chamber of Commerce in China, which highlighted rising risks and declining confidence among European companies. The European Chamber's report pointed to unfulfilled promises of reform and a growing politicisation of the business environment.

Jens Eskelund, president of the European Chamber, expressed concern during the news conference on Wednesday: “We are concerned about there being a tipping point now, and therefore, we have a call for action to the Chinese government to turn the tide.” 

He added, “China is becoming no longer a top priority but increasingly a top three or top five destination. We believe that the relative attractiveness as a location will continue to deteriorate unless we address some of these concerns."

Both American and European business groups have urged China to focus on economic reform and growth to restore investor confidence, emphasising the need for a more level playing field for foreign companies.