BEIJING — U.S. companies in China are accelerating plans to shift manufacturing or purchasing at a record high, a business survey showed on Thursday.
The American Chamber of Commerce in China's annual survey shows that about 30% of respondents are considering or starting such diversification in 2024, exceeding the high of 24% in 2022.
This also exceeds the 23% share reported in 2017, when President Donald Trump began his first term and began raising tariffs on Chinese goods.
Michael Hart, president of the American Chamber of Commerce in Beijing, said that in addition to U.S.-China tensions, "one of the main impacts we've seen over the past five years is the COVID-19 epidemic and how China has become isolated from the world because of the COVID-19 epidemic." China told reporters Thursday.
"That's one of the biggest triggers because people realize they need to diversify their supply chains," he said. "I don't see this trend slowing down."
During the Covid-19 pandemic, China has restricted international travel and locked down parts of the country in an attempt to curb the spread of the disease.
While India and Southeast Asian countries remain the most popular destinations for production relocation, the survey showed that 18% of respondents were considering moving to the United States in 2024, up from 16% the previous year.
Most American companies have no plans to diversify. The survey shows that more than two-thirds (or 67%) of respondents said they would not consider relocating manufacturing, a 10-point drop from 2023.
The latest survey by the American Chamber of Commerce in China covered 368 members from October 21 to November 15. Trump was re-elected as President of the United States on November 5.
Trump this week confirmed plans to increase tariffs on Chinese goods by 10% and said the tariffs could be imposed as soon as February 1. Prior to this, the United States had become increasingly tough on China. The Biden administration has emphasized that the United States is competing with China and has imposed sweeping restrictions on the ability of Chinese companies to obtain high-end American technology.
More than 60% of respondents said Sino-US tensions are the biggest challenge for doing business in China in the next year. The survey shows that competition from local state-owned enterprises or Chinese private enterprises is the second biggest challenge faced by American companies in China.
Since the pandemic, growth in the world's second-largest economy has slowed and consumer spending has slumped, adding to geopolitical pressures. Chinese authorities began stepping up efforts in late September to stimulate economic growth and stem the real estate slide.
For the third year in a row, more than half of AmCham China survey respondents said they were unprofitable in China, adding that the region's profit margins were less competitive than in other global markets.
The survey shows that the proportion of companies that no longer lists China as their preferred investment destination has climbed to 21%, double the level before the epidemic.
However, looking ahead, technology, industrial and consumer companies said they see domestic consumption growth as the biggest business opportunity in 2025, the survey showed. Services companies say their best opportunities are with Chinese companies looking to expand overseas.
Hart noted that many members remain optimistic about Chinese consumers as a "large and important market."