Companies choose to stay and thrive in China, poll finds

There has been no big rise in US companies moving their operations out of China despite strained relations between the two countries, annual surveys by the US-China Business Council over the past five years have found.

In its latest poll of its member companies doing business in China, the Washington-based trade body found 87 percent of the companies have not shifted any segments of their supply chains out of China in the past year.

That percentage has remained unchanged since 2019 and was on a par with the level in 2015, when 88 percent of respondents said they had not moved any operations out of China or planned to do so.

The level was 92 percent in 2017, when nascent US-China tensions began to grow and ties ultimately plunged to their lowest point since the two countries forged diplomatic relations in 1979.

Throughout the surveys of the past few years, the business council has said most US companies remain committed to doing business in China, and few were divesting existing operations, as a result of their commercial success and growth prospects.

The polls over the past five years found that the US companies have continued to perform strongly in China, with 91 percent to 97 percent of the US businesses reporting that their operations in the country were profitable, helping to ramp up their innovation and competitiveness capabilities there and beyond.

The surveys cited "increased costs or other uncertainties resulting from US-China tensions", and "costs in China" as top reasons for the small number of US businesses relocating their operations.

Despite some officials' and lawmakers' persistent calls for economic decoupling and for reshoring of supply chains, of the US companies that have adjusted supply chains, just 2 percent moved one or more segments to the US, and 12 percent moved elsewhere, this year's member survey found.

That contrasted favorably with the years from 2017 to 2020, when about 3-4 percent of those who said they planned to move operations out of the China said they planned to return to the US.

In its 2017 member survey, the business council predicted "the pace of divestitures is unlikely to see a major shift" in the coming years, as a sharp rise would make it difficult for US companies to maintain the investment levels required to remain cost-competitive in China.

The council's subsequent polls have proved the trend, and in this year's survey it concluded "that a relatively small number of companies' shifted supply chains speaks to the strength of China's supply chain ecosystems and to the difficulty of relocating", though it also cautioned that may not be the case indefinitely.

The US businesses continuing to stay and expand investment in China－only 6 percent said they were curtailing investment over the next year－fall into the larger picture that foreign investments into China are accelerating, and China's integration into the global economy continues to deepen.

Nicholas Lardy, a senior researcher at the Peterson Institute for International Economics in Washington, said global economic decoupling from China is not happening.

"The US can limit the flow of advanced technology to China, but China is of growing importance to multinationals. These firms are doubling down on their investments in China, not reorienting their investment back home."

As China continues to lead the global recovery from the adverse economic effects of the pandemic, and as business for foreign firms in China continues to improve, foreign multinationals are increasing their inputs in China, establishing thousands of new firms and expanding existing ones, Lardy wrote in a recent blog post.

"I don't see much effort by China to decouple from the global economy," he said separately. "China's share of global trade and inbound FDI is now growing more rapidly than at any other point since economic reform began in the late 1970s."

As the administration of US President Joe Biden has yet to review its China policy, Lardy said, Biden should eliminate the tariffs on Chinese goods that are raising the price of imports, costing the average US family $1,000 a year, according to one estimate.

Ryan Hass, who served in the Obama White House and is now a senior fellow in the foreign policy program at the Brookings Institution, noted decoupling is in either country's best interests.