The economic slowdown in China, marked by weak domestic demand and industrial overcapacity, is eroding the profitability of businesses in the Asian country.
“Companies are currently less profitable in China than they were a few years ago, but the risks—from reputational to regulatory and political—are increasing,” said Sean Stein, president of the US-China Business Chamber, an organization based in Washington that represents major American multinationals with operations in the country.
The survey, conducted between March and May among 130 companies, comes against a backdrop of trade tensions between Beijing and Washington, which include tariffs and export controls on strategic products like advanced semiconductors and rare earth minerals.
Despite high-level discussions in Geneva and London resulting in agreements to ease some restrictions, the lack of a lasting trade deal keeps uncertainty in the sector.
More than half of the surveyed companies indicated no plans for new investments in China this year—a record figure, according to Kyle Sullivan, the entity’s vice president.
About 40% of companies reported negative effects from US export control measures, including loss of sales, breakage of customer relations, and reputational damage from being seen as unreliable suppliers.
The restrictions especially impact high-tech products, whose potential military use concerns Washington.
Sean Stein warned that these measures must be applied precisely, lest European, Japanese, or Chinese companies quickly fill the void left by American firms.
US chip maker Nvidia recently received authorization from the US Government to resume sales of H20 chips to China, used in artificial intelligence systems, announced the company’s CEO, Jensen Huang. However, the company’s more advanced semiconductors remain subject to restrictions.
Although 82% of companies recorded profits in 2024, less than half expressed optimism about the future of operations in China, citing tariffs, deflation (an annual drop in consumer prices), and political unpredictability as risk factors.
The number of American companies planning to relocate operations from China also reached a historic high: 27%, up from 19% the previous year.
For the first time in years, issues like the Chinese regulatory environment, intellectual property protection, or market access no longer rank among the top five concerns of companies.
“It’s not that the situation has improved significantly, but rather that new challenges, many of them originating from the US, have become equally problematic,” said Sean Stein.
Almost all surveyed companies acknowledged, however, that they cannot maintain global competitiveness without a presence in the Chinese market.
A similar report by the European Union Chamber of Commerce in China, published in May, also pointed to spending cuts and plans to reduce investments due to the economic slowdown and intense local market competition.
