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PR Newswire
07-07-2014, 07:46 AM
Good times may be over for foreign firms in China
Growth slowdown, stiff competition, rising labour costs hurting profits
Published on Jul 7, 2014 1:44 AM
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BEIJING - A growing cluster of problems is confronting foreign companies in China, leading many executives to wonder whether the good times might have gone.
A slowdown in China's breakneck economic growth, stiffer competition from Chinese firms and rising labour costs have combined to cut into the profit margins of US firms operating here.
Many executives say they think the playing field is being tipped against them by a government that favours domestic companies, or they complain about being excluded from key sectors of the economy by laws restricting foreign investment.
Meanwhile, hazardous levels of air pollution here make it increasingly hard to recruit executives from other countries.
In a possible sign of the growing disenchantment, US investment in China fell 9.3 per cent in the first five months of this year compared with the same period last year. Although such numbers are volatile, the decline in investment from Europe was even bigger.
"Perhaps the golden age for multinationals in China is over," said Mr Duncan Clark, chairman of investment advisory firm BDA.
To be sure, enticing opportunities remain - in the established business of selling airplanes and the newer partnerships in the movie industry, as well as in consumer goods and financial services. But double-digit profit is much harder to come by than it was two decades ago.
China is a maturing market with a host of challenges, many linked to its Communist Party- directed economic model.
"What has changed is that the easy money, the easy opportunities, the lower-hanging fruit, have started to go away," said finance professor Christian Lundblad of the University of North Carolina's Kenan-Flagler Business School.
"So those nagging things that have always been there are starting to become a bit more pronounced. The opportunities are getting more complicated than they used to be."
Mr James McGregor, greater China chairman of consulting firm Apco Worldwide, said the environment for foreign companies is growing more difficult as Chinese firms grow stronger. "There is less that China can't do and less that China needs," he said.
Things are not helped by tight regulations that prohibit or sharply restrict foreign investment in many parts of China's economy, especially where giant state- owned firms dominate.
In telecommunications, banking, oil and shipbuilding, for example, the state's champions hold sway, boosted by subsidies, cheap loans and often a free pass from regulators.
Government procurement, a market estimated to be worth US$1.3 trillion (S$1.6 trillion), is largely closed to foreign businesses, and industry standards are often written to favour domestic companies.
The US-China Business Council says China restricts investment in more than 100 sectors, including agriculture, petrochemicals and health services.
In various sectors, many foreign companies can operate in China only if they form joint ventures with domestic firms. Some of those partnerships work well, but very many do not, executives say.
Business leaders are urging the administration of United States President Barack Obama to push hard for a bilateral investment treaty being negotiated with China. That, they say, will help bring down many of the barriers to US investment here.
WASHINGTON POST
Growth slowdown, stiff competition, rising labour costs hurting profits
Published on Jul 7, 2014 1:44 AM
PRINT EMAIL
BEIJING - A growing cluster of problems is confronting foreign companies in China, leading many executives to wonder whether the good times might have gone.
A slowdown in China's breakneck economic growth, stiffer competition from Chinese firms and rising labour costs have combined to cut into the profit margins of US firms operating here.
Many executives say they think the playing field is being tipped against them by a government that favours domestic companies, or they complain about being excluded from key sectors of the economy by laws restricting foreign investment.
Meanwhile, hazardous levels of air pollution here make it increasingly hard to recruit executives from other countries.
In a possible sign of the growing disenchantment, US investment in China fell 9.3 per cent in the first five months of this year compared with the same period last year. Although such numbers are volatile, the decline in investment from Europe was even bigger.
"Perhaps the golden age for multinationals in China is over," said Mr Duncan Clark, chairman of investment advisory firm BDA.
To be sure, enticing opportunities remain - in the established business of selling airplanes and the newer partnerships in the movie industry, as well as in consumer goods and financial services. But double-digit profit is much harder to come by than it was two decades ago.
China is a maturing market with a host of challenges, many linked to its Communist Party- directed economic model.
"What has changed is that the easy money, the easy opportunities, the lower-hanging fruit, have started to go away," said finance professor Christian Lundblad of the University of North Carolina's Kenan-Flagler Business School.
"So those nagging things that have always been there are starting to become a bit more pronounced. The opportunities are getting more complicated than they used to be."
Mr James McGregor, greater China chairman of consulting firm Apco Worldwide, said the environment for foreign companies is growing more difficult as Chinese firms grow stronger. "There is less that China can't do and less that China needs," he said.
Things are not helped by tight regulations that prohibit or sharply restrict foreign investment in many parts of China's economy, especially where giant state- owned firms dominate.
In telecommunications, banking, oil and shipbuilding, for example, the state's champions hold sway, boosted by subsidies, cheap loans and often a free pass from regulators.
Government procurement, a market estimated to be worth US$1.3 trillion (S$1.6 trillion), is largely closed to foreign businesses, and industry standards are often written to favour domestic companies.
The US-China Business Council says China restricts investment in more than 100 sectors, including agriculture, petrochemicals and health services.
In various sectors, many foreign companies can operate in China only if they form joint ventures with domestic firms. Some of those partnerships work well, but very many do not, executives say.
Business leaders are urging the administration of United States President Barack Obama to push hard for a bilateral investment treaty being negotiated with China. That, they say, will help bring down many of the barriers to US investment here.
WASHINGTON POST