US firms less optimistic, but will still invest in China -survey

By Doug Palmer

WASHINGTON, Oct 10 (Reuters) - Many U.S. companies are lessoptimistic about doing business in China even though sales thereare still rising, and most of those firms are planning toincrease investment, according to an annual survey of businessexecutives released on Wednesday.

"The China market continues to deliver sales growth andprofitability for U.S. companies, but rising costs, increasingcompetition, and persistent market access and regulatorybarriers are tempering the optimism of U.S. companies doingbusiness with China," the U.S.-China Business Council said.

Forty-five percent of the 111 companies surveyed said theywere less optimistic than three years ago about the businessenvironment in China, compared to 26 percent that were moreoptimistic and 29 percent that were unchanged in their view.

At the same time, 89 percent, the highest ever in theseven-year history of the business group's member survey, saidthey made a profit in China in 2011 and two-thirds said theirrevenues grew by at least 10 percent.

The survey comes amid growing U.S. frustration that manyparts of China's economy remain off-limit to foreign investment11 years after it joined the World Trade Organization. Chinaalso is preparing for a once-in-a-decade leadership change thatcould keep any new economic openings on hold for a while.

It was taken before the House of RepresentativesIntelligence Committee urged American companies on Monday toavoid doing business with China's leading telecoms equipmentmanufacturers, Huawei Technologies Co and ZTE Corp[<000063.SZ>] because of security concerns.

The panel's recommendation has raised fears of possibleChinese retaliation against U.S. firms.

While two-thirds of survey respondents said they planned toincrease investment in China in the next 12 months, 17 percentsaid they had halted or delayed investment plans.

Fully half of those respondents cited market access andinvestment barriers as the main reason for their change ofplans. Those barriers, along with global economic uncertainties,probably also contributed to a drop of more than 20 percent inU.S. investment in China in the past year, the business groupsaid.

U.S. anxiety about China is reflected in the U.S.presidential election, with Republican challenger Mitt Romneyaccusing President Barack Obama of not being tough enough withBeijing, a characterization the White House disputes.

Romney has promised to label China a currency manipulatorhis first day in office, something the Obama administration hasdeclined to do in seven consecutive semi-annual TreasuryDepartment reports. The next one is due on Monday, October 15,although the reports are often delayed.

Many manufacturers based in the United States complain thatBeijing deliberately undervalues its yuan currency, givingChinese companies an unfair price advantage.

But the U.S.-China Business Council said currency "onceagain failed to make the top 25 issues" of its member companiesthat responded to its survey, 57 percent of which were inmanufacturing, 44 percent in services and nine percent inprimary industries like agriculture and oil and gas.

Survey respondents, for the second consecutive year, saidfinding, hiring and retaining workers was their biggestchallenge in China, followed by the country's highly restrictivelicensing procedures for every aspect of doing business.

Increased competition from China's state-owned enterprisesand rising labor, raw material, land and utility costs were thethird and fourth top concerns, followed by weak Chineseenforcement of intellectual property rights.

Competition from other foreign companies doing business inChina also is getting tougher, survey respondents said.

Some of those competitors come from countries with laxanti-corruption laws and the companies often use that advantageto gain market share, the business group said.

(Reporting By Doug Palmer; editing by Gunna Dickson)

((doug.palmer@thomsonreuters.com)(202 898 8341))