US firms gloomy about Chinese prospects

11 March 2009

BEIJING: Some 35% of US companies operating in China predict their revenues in the country will decline in 2009, up from 13% who forecast a similar decrease last year, according to figures from the American Chamber of Commerce in China.

Alongside the impact of the economic slowdown, Sir Martin Sorrell has suggested that China's domestic brands are set to pose an increasing challenge to the positions of their foreign counterparts.

It has also been argued, however, that many multinational brands are operating highly successfully in the Chinese market, and Coca-Cola recently announced it plans to spend $2 billion (€1.6bn; £1.4bn) enhancing its operations there.

Despite this, the American Chamber of Commerce in China reports that only 5% of US firms are "optimistic" about the country's trading environment this year, compared with 48% who are "pessimistic".

Nearly two-thirds of American companies reported that their operations in China were targeting domestic consumption, compared with 9% primarily producing goods to export to the US.

While 12% of firms predicted their revenues will decrease "substantially" this year, 16% think they will increase dramatically, 35% foresee a "slight" improvement and 14% forecast static growth.

Just under 40% of corporations also intend to scrap their scheduled investment in China in 2009, and around a fifth will cut their workforce – though 32% plan to hire more staff.

Equally, while 80% of firms said China is now less competitive because of increased labour and regulatory costs, 74% agreed their operations had been "profitable" or "very profitable" form 2002–08.

A total of 52% of respondents further agreed that they were optimistic about the five-year trading outlook in the country, compared with just 9% who were pessimistic on this measure.

The annual survey was based on a survey of 400 respondents late last year, supplemented by further data from 200 respondents last month as a result of the changing economic climate.

Data sourced from Wall Street Journal; additional content by WARC staff