The American Chamber of Commerce in South China is optimistic on the mainland's growth prospects — but with a caveat.
“I predict that by late this year, the Chinese economy will be back on track, the transition will continue and everybody will be happy, but that only assumes that the government stays the course and continues reforms at an accelerated pace,” said Chamber President Harley Seyedin in a press conference to announce the release of the chamber's eighth annual white paper on the business environment in China.
The 322-page bilingual tome applauds such developments as rulings by recently established intellectual property courts that shut down counterfeit web pages and websites hawking pirated movies.
But — in pages literally lifted from last year's white paper — the chamber passionately urges government officials to continue economic reforms such as treating foreign firms equally and downsizing bureaucracies.
“We feel that the Chinese leadership's call for ‘supply-side economic reform,' announced in late 2015 as a strategic framework for the 13th Five-Year Plan, is particularly timely,” Seyedin said.
The chamber struck a familiar note in expressing concern about the outsize roles of local governments and state-owned enterprises in setting the economic agenda.
“The government must continue ahead with difficult reforms to curb the power of the state and improve the rule of law. It must expose state firms to the discipline of genuine market competition and the scrutiny of independent regulators,” the chamber concluded.
The accompanying survey of 246 companies in Southeast China highlighted the nation's ongoing trek from developing to developed economy.
Three quarters of the responding companies focus on selling to the surging domestic market. That's a sea change from previous years, in which most respondents were manufacturing exports.
“China's export manufacturing is in decline. That is something exactly we predicted five years ago,” Seyedin said. “The days of China as the workshop of the world are over, and therefore China needs to transition to a different model of economic development.”
For the first time, survey respondents ranked “local competition” as the biggest challenge to growth, followed by regulations, rising labor costs, a dearth of qualified applicants and foreign competition.
The chamber is specifically concerned about what Seyedin calls “an uneven playing field” that favors domestic over foreign firms and state-owned enterprises such as China Recycling Development Co., the country's biggest recycler, over private firms.
While the survey respondents are upping their domestic reinvestment this year by 8.8 percent, they plan on reducing their reinvestments in the following three years.
“They're taking a watch-and-see attitude about the direction of China's economy,” Seyedin said. “The memories of targeting investigations, of unfair treatment, of unequal treatment, that happened in 2014 are still fresh in multinational minds, and while they're optimistic about 2016 they're extremely cautious about their investments in the following three years.”
While the government has taken steps to expose domestic firms to foreign competition, there are still too many sectors in which foreign investment is limited, the chamber said.
A key concern of Chamber members is transparency and the hasty manner in which new rules and regulations are put into effect.
“In many cases, there is no discussion or comment period for businesses, academia, labor or affected industries and groups,” Seyedin said. “And most often, the regulatory changes do not consider what we call grandfathering, which is allowing businesses which invested six months ago to continue to operate under the old laws as opposed to having to change everything.”
Taking a victory lap, Seyedin boasted that previous editions of the white paper have an enviable track record of accurate predictions. In the midst of the 2009 recession, the Chamber accurately predicted that China would maintain strong growth, he said.
“We do trust our numbers. Nearly every year, our predictions have been accurate,” Seyedin said. “This year's predictions … are somewhat different than all the news we read about, and all the reports we have that China's economy is in demise. Our report shows to the contrary.”
Thirty-eight percent of respondents were interested in investing in the recently announced Free Trade Zones in South China.
Twenty-seven percent of respondents plan to boost their investment budgets due to the Bilateral Investment Treaty (BIT) between China and the United States.
About 50 percent of respondents believe that a more freely convertible yuan would boost their business, down from 66 percent in last year's survey.