Many U.S. companies are less optimistic about doing business in China even though sales there are still rising, and most of those firms are planning to increase investment, according to an annual survey of business executives released on Wednesday.
"The China market continues to deliver sales growth and profitability for U.S. companies, but rising costs, increasing competition, and persistent market access and regulatory barriers are tempering the optimism of U.S. companies doing business with China," the U.S.-China Business Council said.
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Forty-five percent of the 111 companies surveyed said they were less optimistic than three years ago about the business environment in China, compared to 26 percent that were more optimistic and 29 percent that were unchanged in their view.
At the same time, 89 percent, the highest ever in the seven-year history of the business group's member survey, said they made a profit in China in 2011 and two-thirds said their revenues grew by at least 10 percent.
The survey comes amid growing U.S. frustration that many parts of China's economy remain off-limit to foreign investment 11 years after it joined the World Trade Organization. China also is preparing for a once-in-a-decade leadership change that could keep any new economic openings on hold for a while.
It was taken before the House of Representatives Intelligence Committee urged American companies on Monday to avoid doing business with China's leading telecoms equipment manufacturers, Huawei Technologies Co and ZTE Corp <<000063.SZ>> because of security concerns.
The panel's recommendation has raised fears of possible Chinese retaliation against U.S. firms.
While two-thirds of survey respondents said they planned to increase investment in China in the next 12 months, 17 percent said they had halted or delayed investment plans.
Fully half of those respondents cited market access and investment barriers as the main reason for their change of plans. Those barriers, along with global economic uncertainties, probably also contributed to a drop of more than 20 percent in U.S. investment in China in the past year, the business group said.
U.S. anxiety about China is reflected in the U.S. presidential election, with Republican challenger Mitt Romney accusing President Barack Obama of not being tough enough with Beijing, a characterization the White House disputes.
Romney has promised to label China a currency manipulator his first day in office, something the Obama administration has declined to do in seven consecutive semi-annual Treasury Department reports. The next one is due on Monday, October 15, although the reports are often delayed.
Many manufacturers based in the United States complain that Beijing deliberately undervalues its yuan currency, giving Chinese companies an unfair price advantage.
But the U.S.-China Business Council said currency "once again failed to make the top 25 issues" of its member companies that responded to its survey, 57 percent of which were in manufacturing, 44 percent in services and nine percent in primary industries like agriculture and oil and gas.
Survey respondents, for the second consecutive year, said finding, hiring and retaining workers was their biggest challenge in China, followed by the country's highly restrictive licensing procedures for every aspect of doing business.
Increased competition from China's state-owned enterprises and rising labor, raw material, land and utility costs were the third and fourth top concerns, followed by weak Chinese enforcement of intellectual property rights.
Competition from other foreign companies doing business in China also is getting tougher, survey respondents said.
Some of those competitors come from countries with lax anti-corruption laws and the companies often use that advantage to gain market share, the business group said.
(Reporting By Doug Palmer; editing by Gunna Dickson)