A third of U.S. companies are not planning to expand investment in China -- an even higher proportion than during the global financial crisis -- while a quarter have either moved or plan to move capacity out of China.
Here are six charts that explain the overall environment and some of the challenges foreign companies face in China.
1. While many companies continue to grow, the proportion of companies that described their business as profitable in 2015 fell again in 2015. Compared with operations elsewhere in the world, China does not look particularly attractive to businesses in terms of profit margins, the report found.
2. A higher percentage of companies feel less welcome in China in 2015. Their top concern was "inconsistent regulatory interpretation and unclear laws," overtaking labor costs as the top issue for first time in five years. "The welcomeness factor really is about how they are able to conduct their businesses in a way that is predictable, with a level of certainty," said James Zimmerman, Chairman of the American Chamber of Commerce in China.
3. A number of laws China is drafting, such as the foreign NGO law, anti-terrorism law and national security law, have raised concerns. U.S. companies feel they are "drafted very broadly and can have serious implications for the business environment," said Lester Ross, vice chairman of AmCham in China, adding the business lobby group was trying to make Chinese authorities realize that "some of the policies which are being considered or already been enacted are fundamentally leading China in the wrong direction."
The chart below surveys foreign NGOs operating in China, and shows many are thinking of quitting if the law regulating their activities is passed.
4. China is trying to transform its economic structure, promoting growth in certain sectors and encouraging innovation. But for foreign companies, the question is whether China is "doing so on a level playing field, or are they instead saying we are going to hold you back so domestic companies can grow," said Ross. In an economic downturn, companies become more concerned about whether they are treated unfairly “because the laws and regulations are interpreted in a ways that adversely impact them," he said.
5. More than one in 10 U.S. companies operating in China say they invest less in innovation because of the slow, unstable and censored Internet, according to the report.
6. Air pollution is making it harder for companies to attract top level executives. "I think companies are taking more of a wait-and-see approach and hoping that the Beijing government will get its arms around the issue," said Zimmerman. "It is a concern and it is becoming a growing concern, and it affects all of us, not just the foreign companies, but it's also affecting all the citizens in the cities they live in."
Read AmCham China's full report here.