American Corporate Experience

in a Changing China

– Insights from AmCham Business Climate Surveys, 1999-2005

American Corporate Experience in a Changing China 1

 The American Chamber of Commerce - PRC The American Chamber of Commerce in Shanghai
China Resources Building, Suite 1903 Suite 568, Shanghai Center
8 Jianguomenbei Avenue 1376 Nanjing Road West
Beijing 100005 Shanghai 200040
People’s Republic of China People’s Republic of China

8 1903 1376 568

: 100005 : 200040
Tel: (8610) 8519-1920 Tel: (8621) 6279-7119
Fax: (8610) 8519-1910 Fax: (8621) 6279-7643
Website: www.amcham-china.org.cn Website: www.amcham-shanghai.org

©2006 by the American Chamber of Commerce in the People’s Republic of China, all rights reserved. This report may not be reproduced either in part or
in full without the prior written consent of the board of governors of the American Chamber of Commerce in the People’s Republic of China.
Survey analysis provided by WuDeLan Partners Ltd.

2 American Corporate Experience in a Changing China

Table of Contents

Chairmen’s Message 4

The Magnitude of Change 6

A Fundamental Shift in China’s Approach to Foreign Investment 6

China’s Role in Corporate Strategy 14

The Emerging Margin Squeeze 18

Improved Performance After Year Two 20

Persistent Challenges Evolving 22

Moving Forward 34

List of Exhibits 36

American Corporate Experience in a Changing China 3

 Chairmen’s Message

E
ach year since 1999, AmCham-China has asked its members to comment on their business experiences
in China, including their strategic objectives, their success at achieving goals, and their outlook for
the future. In 2003, AmCham-Shanghai began to participate in this survey, greatly increasing the
number of respondents. We use this data from our member companies to shape the policy messages we
deliver to senior officials in the Chinese and U.S. governments. We publish the survey results each year as
part of the business climate section of our annual White Paper on American Business in China.

This year, to support the strategic and operational needs of member companies and companies considering
entering China, we have decided to release broader findings from the surveys, focusing on medium-term
trends rather than just a current year snapshot. Our seven years of survey data, combined with the specific
advocacy issues AmCham has been pursuing with the Chinese and U.S. governments, illustrates how
China has changed and developed in its path to becoming a major force in the global economy. We have
also included our analysis of trends and reflections on areas of key concern for U.S. companies in China.
We hope these insights into past patterns help you as you plan for the future.

Emory Williams Jeffrey Bernstein

Chairman Chairman
American Chamber of Commerce in China American Chamber of Commerce in Shanghai

January 2006

4 American Corporate Experience in a Changing China

 1999

2003

2006 1

American Corporate Experience in a Changing China 5

The Magnitude of Change

S ince the mid 1990s, China has pursued bold

economic reforms, taken significant steps to open
its market, and undertaken other measures to fuel
1
THE MAGNITUDE OF
经济统计变化量　
Perc
rapid economic growth. These actions have dramati-
cally changed China’s economy domestically as well
as globally. Our 1999 to 2005 survey results demon- Real GDP, US$ billion
真实国内生产总值（10亿美元）
strate that these changes have improved the business Real GDP per capita, US$
environment and made China a more attractive place 真实人均国内生产总值（美元）
Real GDP, PPP US$ billion
for investment. 真实国内生产总值，按购买力平价计算（10亿美元）
Real GDP per capita, PPP US$
真实人均国内生产总值，按购买力平价计算（美元）
The following analysis surveys and reviews the
Automobiles per 1000 population
advocacy issues AmCham has been pursuing with the 每千人拥有汽车数量

Chinese and U.S. governments. We believe that this Cell phone subscribers per 1000 population
每千人手机用户
report will provide useful insights into patterns and Broadband lines, million
宽带数量（百万）
trends of interest to members of the business commu- Cost of one-minute phone call from China to U.S., RMB
中国拨叫美国每分钟电话费（人民币元）
nity as they pursue their strategies and plans in China.
Foreign exchange reserves, US$ billion
外汇储备（10亿美元）
Foreign exchange rate, RMB =1 US$
外汇汇率（1美元合人民币）
GDP contribution of SOEs, percent
国有企业对真实国内生产总值的贡献率％
THE MAGNITUDE OF CHANGE GDP contribution of privately owned companies, percent
私营企业对真实国内生产总值的贡献率％
The numbers are staggering. Rather than repeat a Employment in agriculture sector, percent of total employment
第一产业从业人员数量（占总劳动力数量的百分比）
story others have told so well, we have selected a
Employment in manufacturing sector, percent of total employment
few revealing statistics that illustrate the magnitude 第二产业从业人员数量（占总劳动力数量的百分比）
of change in China from 1999 to 2005 (Exhibit 1). Employment in services sector, percent of total employment
第三产业从业人员数量（占总劳动力数量的百分比）
Average annual Shanghai manufacturing salary, RMB
上海制造业年平均工资（人民币元）
Average annual Beijing manufacturing salary, RMB
A FUNDAMENTAL SHIFT IN 北京制造业年平均工资（人民币元）
Average annual Beijing financial industry salary, RMB
CHINA’S APPROACH TO FOREIGN 北京金融行业年平均工资（人民币元）
Average annual Henan agricultural industry salary, RMB
INVESTMENT 河南省农业领域年平均工资（人民币元）
Urban population, percent of total population
城镇人口（占总人口的百分比）
Given how quickly China is changing, the primary Rural population, percent of total population
strategic value of studying past patterns lies in 农村人口（占总人口的百分比）

better understanding how change itself is handled Petroleum consumption, million barrels per day
日均原油消费（百万桶）
in China and how changes affect U.S. companies Petroleum consumption, percent of world demand
原油消费占世界消费总额百分比
here. Because China’s policy agenda has always
Oil imports, million tons
played a central role in shaping its business 石油进口数量（百万吨）
environment, we have interpreted survey data in Oil imports, percent of global exports taken by China
中国石油进口占世界贸易总量的百分比
light of the political climate as well as shifts in
China steel consumption (apparent), million tons
economic conditions. To be successful in China, 中国的直接钢材消费量（百万吨）
companies must take a view regarding the trajectory China steel consumption, percent of world consumption
中国钢材消费占世界总量的百分比
of change and the likely range of future possibilities. Number of patents granted in China
中国授予的专利数量
Our pool of AmCham-China and AmCham Number of lawyers in China
中国律师数量
Shanghai members is a solidly representative
1 2005, 2 2003, 3 2000, 4 VOIP (VOIP网络IP电话）

sample of American companies in China. Each Sources: National Bureau of Statistics of China, Ministry of Information Industry of China, US Department of En
资料来源： 中国国家统计局，美国能源部和美国中央情报局纪实年鉴，英国石油，清风檐法律网站(Lawbreeze.ne

6 American Corporate Experience in a Changing China

 CHANGE - 1999-2004 90
　－　
1999-2004年
cent
Compounded annual
1999 2004 growth rate, percent
综合年增长率%

1,085 1,9311 12.2% 1999 2005

862 1,4901 11.6

5,191 8,462 10.2

4,141 6,529 9.5

1.0 22.0 85.6

3.4 111.4 101.1

2.16 31.65 71.0

15 2.44 -30.7

155 610 31.5

8.28 8.071 -2.5% Change

38.5 32.32 -4.2

61.5 67.72 2.4

50.1 49.1 0.0

23.0 21.6 -1.2

1999-2005
( 1) d
26.9 29.3 1.7
3 2
18,935 25,713 10.7

16,5723 20,8662 8.0

36,5323 64,9642 21.1

4,7333 6,4972 11.1

30.9 41.8 6.2

69.1 58.2 -3.4

4.36 6.52 8.4

5.75 8.4 7.9

111.3 168.4 8.6

5.9 8.2 6.8

122.6 265.1 16.7

15 25 10.8

100,156 190,328 13.7

25-30%
61,761 102,000 10.6

nergy, CIA Factbook, BP, Lawbreeze.net, Worldsteel.org

t)，世界钢铁组织(Worldsteel.org)，　 中国信息产业部

American Corporate Experience in a Changing China 7

A Fundamental Shift in China’s Approach to Foreign Investment

year, almost half of respondents are manufacturing medium-sized companies. In addition, many are
companies, 25 to 30 percent are service companies, companies started in China by entrepreneurs, rather
and the remainder are engaged in industries ranging than by more established American companies
from transportation to energy and retailing. Typically, entering a new market.
more than a third are small companies and less than
Traditionally, China has used foreign investment to spur
a quarter have more than 500 employees in China
economic and technological development. Through-
(Exhibit 2).
out the period of economic reform and opening since
Although these numbers have not changed much 1979, China’s high savings rate, generally over 40
over the years, the nature of the companies has percent, has freed China from being overly dependent
evolved. In the late 1990s, many of the respondents on foreign direct investment for funding. The impor-
with lower headcounts were beachhead operations of tance of foreign direct investment has been first, to
medium and large MNCs. Today, by contrast, many of direct capital to economically viable projects; second,
the companies with lower headcounts are small and to facilitate the transfer of management skills; and
third, to encourage technology
transfer. From this perspective,
2 NUMBER OF EMPLOYEES foreign direct investment has
৽Ꮛཽၫ
been primarily for the purpose
Percent ‫ڻ‬ॊ‫܈‬ᒋ
of upgrading whole industries
1999 2005
100% = 450 companies
which otherwise were operat-
100% = 130 companies
100% = 130 ଜ໩ጓ 100% = 450 ଜ໩ጓ ing far below global
More than 2000 standards, transforming them
ިਭ2000 More than 500 into modern, advanced
501-2000 5 ިਭ500
8
22 industries capable of generat-
1-50 ing sustainable employment
40% over the long term. China’s
50%
1-50 policies regarding where and
32 27
51-500 how foreigners could invest
101-500 11 in China have always sup-
51-100
ported its economic develop-
Source: 1999 AmCham-China Member Questionnaire and 2005 AmCham-China and AmCham-Shanghai Member Questionnaire ment goals. Respondent
ᓾ೯౶Ꮞ; 1999ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳ૺ2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
companies have adapted their
legal structures to reflect
3 policy changes regarding
TYPE OF LEGAL ENTITY - 1999 and 2005
जേဣᄏࡼተါ!.!1999ฤਜ਼2005ฤ permissible legal structures
Percent ॊܰᐴ‫ڻ‬ॊ‫܈‬ၫᒋ and corresponding operating
Joint venture Representative office WFOE rights and constraints for
ᒦᅪ੝ᓾ৛ႊ ࡔ‫ࠀܭ‬ ᅪ࿜ࣖᓾ໩ጓ foreign companies. Initially,
78%
70% and particularly in the 1980s
60 and 1990s, China required
49 most companies to establish
37
33 33% joint ventures with Chinese
27
partners to ensure manage-
11 ment skill transfers and a
share in the profits for the
1999 2005 2005 1999 2005 2005 1999 2005 2005
all all <2years all all <2years all all <2years Chinese side. In 1999, 78
ཝ‫!ݝ‬ཝ‫<!!ݝ‬2ฤ ཝ‫!!ݝ‬ཝ‫<!!ݝ‬2ฤ ཝ‫!!ݝ‬ཝ‫<!!ݝ‬2ฤ percent of respondents had
* 1999 respondents 100% = 130 companies; 2005 respondents 100% = 450 companies
* 1999ฤ୻၊ࢯ‫ࡊૄ݀އ‬ᆰ௳ᑗ!100% = 130ଜ৛ႊ<!2005ฤ୻၊ࢯ‫ࡊૄ݀އ‬ᆰ௳ᑗ!100% = 450ଜ৛ႊ
joint ventures while only 33
Source: 1999 AmCham-China Member Questionnaire and 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ; 1999ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳ૺ!2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
percent had wholly foreign-
owned enterprises (WFOEs).

8 American Corporate Experience in a Changing China

 500
( 2)

80 90
90

1999
78% 33%

1979
40%

1999 2005

51% 2005
49% 33%
11% ( 3)

4
2002-2003 LEGISLATION RELATED TO MERGERS AND ACQUISITIONS
2002-2003ฤਈ᎖໩ጓ݀৪ࡼजേजਖ
Date Title Issued by
྇໐ ෗߂ ‫ۆ‬ቲ‫ݝ‬ඡ

November 2002 “Notice regarding the transfer of state shares and legal China Securities Regulatory Commission
2002ฤ11Ꮬ person shares of listed companies to foreign parties” (CSRC), Ministry of Finance (MOF) and State
Đਈ᎖ሶᅪ࿜ᓞཱུ࿟ှ৛ႊਪᎌ৹ਜ਼जཽ৹ᎌਈᆰᄌࡼᄰᒀđ! Economic and Trade Commission (SETC)
ᒦਪᑺପ્)CSRC*-‫ݤ‬ᑶ‫)ݝ‬MOF*!
ਜ਼ਪଜள଍ඏጵᆕᏋ્)SETC*

December 2002 “Takeover provisions for listed companies” CSRC

2002ฤ12Ꮬ Đ࿟ှ৛ႊ၃৪਌ಯ‫ێ‬ज!đ ᒦਪᑺପ્

December 2002 “Provisional measures for administration of domestic securities CSRC and the People’s Bank of China (PBOC)
2002ฤ12Ꮬ investment by qualified foreign institutional investors" ᒦਪᑺପ્ਜ਼ᒦਪཽ෍ፖቲ)PBOC)
Đ੝ৃஹᅪ૦৩ᄾᓾᑗஹดᑺཡᄾᓾ਌ಯ᏷ቲ‫ێ‬जđ

January 2003 “Tentative provisions on the use of foreign investment SETC, MOF, State Administration for Industry
2003ฤ1Ꮬ to restructure state-owned enterprises” and Commerce (SAIC) and the State
Đಽ፿ᅪᓾখᔝਪᎌ໩ጓ᏷ቲਖࢾđ Administration of Foreign Exchange (SAFE)
ਪଜளඏᆕ-!ᅪୣ‫ݝ‬-!ਪଜ৔࿜ᔐ௜)SAIC*ਜ਼ਪଜ
ᅪ૏਌ಯ௜)SAFE*

April 2003 “The provisional regulations on mergers and acquisitions Ministry of Commerce, SAIC, SAFE, and the
2003ฤ4Ꮬ of domestic enterprises by foreign investors” State Administration of Taxation
Đᅪ࿜ᄾᓾᑗ৪݀ஹด໩ጓ᏷ቲ‫ێ‬जđ ࿜ᇗ‫ݝ‬-৔࿜ᔐ௜-ᅪ૏਌ಯ௜Ljਜ਼ਪଜၼᇗᔐ௜

Source: Ministry of Commerce and EIU

ᓾ೯౶Ꮞ; ᒦਪ࿜ᇗ‫ݝ‬ਜ਼ள଍ኧଜቧᇦᒦቦ)EIU*

American Corporate Experience in a Changing China 9

A Fundamental Shift in China’s Approach to Foreign Investment
With the passage of time, it became obvious that both
foreign and domestic companies in sectors that
opened more rapidly to WFOEs performed better
than those in relatively restricted sectors; competition
turned out to be the best mentor. For their part, many
foreign companies now have substantial operating
experience in China and are prepared to compete
without a local partner.
After WTO accession, establishing a WFOE became
progressively easier in many sectors. Between 1999
and 2005, the portion of respondents with a WFOE
nearly doubled and the percent of respondents with a
joint venture fell 51 percent. In 2005, 49 percent of
respondents that had been in China less than two years
had a WFOE, 33 percent had a representative office,
and only 11 percent had a joint venture (Exhibit 3).
In the early 2000s, China’s central government
leadership began to emphasize and accelerate
restructuring in the state sector, particularly in the
Northeast rust belt. In 2002 and 2003, a wave of
legislation made it easier for foreign companies to
acquire Chinese companies or their assets (Exhibit 4).
The State Assets Supervision and Administration
Commission, the designated equity owner of most
of China’s state assets, began to encourage foreign
equity investment in state-owned enterprises
(SOEs). Between 2003 and 2004, inbound acquisi-
tions increased from 10 percent to 30 percent of
foreign direct investment (FDI) (Exhibit 5). In
2004, 13 percent of survey respondents acquired a
5 INBOUND FDI AND FOREIGN
ACQUISITIONS - 2001-2005
ဣଔᅪਪᒇ୻ᄾᓾਜ਼၃৪!2001-2005ฤ
US$ billion, Percent ࡝ᆡ;10ጸගᏄ-!‫ڻ‬ॊ‫܈‬
Inbound acquisitions*
ஹด၃৪
All other foreign direct investment
໚Ⴧᅪਪᒇ୻ᄾᓾ
53.51
52.73
100% = $40.76 46.84
billion
82% 89 91 90
18 11 9 10
2000 2001 2002 2003
* Direct acquisitions of local companies by international companies and financial investment groups
* ‫ۻ‬ਪଔ૦৩ਜ਼஘ྌᄾᓾૹᅍᒇ୻၃৪ࡼ‫۾‬ᅉ໩ጓ
Source: Asian Capital Journal, M&A Asia, MOFCOM and Hong Kong Trade Development Council
ᓾ೯౶Ꮞ;Ė዇ᒴᓾ‫۾‬ė-Ė!዇ᒴ݀৪ė-!ᒦਪ࿜ᇗ‫ݝ‬ਜ਼ሧভඏጵखᐱၞ
10 American Corporate Experience in a Changing China
Chinese company or its assets and an additional 27
percent had considered it. These trends are con-
tinuing this year with 28 percent of respondents
indicating they are likely or highly likely to acquire
a local company in 2005 (Exhibit 6).
Although the legal infrastructure governing foreign
acquisitions of domestic assets in China has im-
proved substantially, companies seeking to acquire
and restructure SOEs nevertheless continue to face
challenges negotiating and executing specific deals
(for example, lack of transparency, difficulty con-
ducting due diligence, wide discrepancies between
government and third-party valuations). In
addition, many of the companies that are offered as
investment targets are not strong performers and
often come with hidden liabilities. Unlike in the
1980s and 1990s, however, when companies were
forced into joint ventures, today’s investors have a
range of options, such as simply acquiring a
company’s assets.
The huge inflow of FDI into China since WTO
reflects not only China’s large and continued
economic growth, but also a significant increase in
market accessibility. Before China’s entry into
WTO, market access restrictions were recognized as
a top barrier to profitability (Exhibit 7). In 1999,
only 24 percent of respondents felt they were
successful at achieving market access. In 2001,
companies expected a range of improvements in
market access, and by 2003, many of these benefits
were realized (Exhibit 8). More than two-thirds of
respondents have indicated that they expanded
their product and service offerings in China be-
tween 2002 and 2005 (Exhibit 9).
In addition to opening its market, China has
granted foreign investors full access to many of its key
60.60 competitive advantages: low cost, high quality,
reliable labor force; stable exchange rate; and
robust supply chain logistics and infrastructure.
China’s implementation of WTO commitments
70 during the transition period has enabled American
companies in China to enjoy a sustained increase
30 in revenues and profitability and a more open
market. It is not surprising that confidence in the
2004 central government’s willingness and ability to
implement WTO accession commitments is in-
creasing (Exhibit 10).
 21 (
7) 1999 24%
2002 2003 2001
( 4) 2003
- ( 8)
2003- 2002-2005
2004 ( 9)
10% 30%( 5) 2004
13%
27% 2005
28%
( 6)
6 ACQUISITIONS OF LOCAL CHINESE COMPANIES
OR THEIR ASSETS - 2004-2005
࣪ᒦਪ‫۾‬ᅉ໩ጓ૞໚ᓾ‫ࡼޘ‬၃৪!2004-2005ฤ!Percent ‫ڻ‬ॊ‫܈‬ᒋ

100%= 362 companies 100%= 364 companies

100%= 362 ଜ৛ႊ 100%= 364 ଜ৛ႊ

Yes Highly likely 11

13% ऻ‫ޟ‬భถ
ᎌ
Likely 17
No, but considered ᎌభถ
඗ᎌ-!ࡣఠ൅ਭ 27

Uncertain 26
‫ݙ‬ཀྵࢾ

No, didn't consider

඗ᎌ-!࠭ᆚఠ൅ਭ 60 Unlikely 46
‫ࡍݙ‬భถ

2004 2005
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ; 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
80 90
7
MARKET ACCESS ISSUES - 1999-2001
ှ‫ޝ‬ᓰྜྷᆰᄌ!1999-2001ฤ
Percent ‫ڻ‬ॊ‫܈‬ᒋ

Market access restrictions top-3

barrier to profitability-1999
ှ‫ޝ‬஠ྜྷ၊ࡵሢᒜ.፬ሰ໩ጓ቉ፄࡼ 30%
3ৈᓍገᑇ‫ڏ‬.1999ฤ

Successful at achieving market access-1999

߅৖஠ྜྷှ‫ޝ‬.1999ฤ 24

Market access restrictions top 3 challenge-2000

ှ‫ޝ‬஠ྜྷ၊ࡵሢᒜ.3ऱෂᓍገᄞᐵ.2000ฤ 38

Negatively affected by business scope

restrictions-2000 66
ፐᆐ࿜ጓഌᎮሢᒜऎ၊ࡵሿ૵፬ሰ.2000ฤ

Source: 1999, 2000, 2001 AmCham-China Member Questionnaire

ᓾ೯౶Ꮞ; 1999, 2000, 2001ฤࣞᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

American Corporate Experience in a Changing China 11

A Fundamental Shift in China’s Approach to Foreign Investment
China’s financial stability has been an important
factor in attracting foreign investment. From the
time it began opening its market to foreign investors
in the 1980s, China has carefully managed its foreign
exchange reserves and current account with the
objective of avoiding excessive foreign currency debt
that might lead to an emerging market debt crisis
such as experienced by some Latin American and some
Asian sovereign borrowers. Capital controls were
tight. All foreign debt was approved, registered and
tracked. Individual enterprises were required to
balance imports and exports. Taken together, these
measures posed a significant challenge for foreign-
invested enterprises that wished to produce for the
domestic market, rather than for export markets.
In the mid-to-late 1990s, when China was trying to
combat inflation and slow economic growth by
restricting bank lending, it became very difficult for
foreign companies to borrow in local currency,
forcing them to rely on internally generated cash
flow or to make capital injections. In 1999, 61
percent of respondents were bringing in new capital
and 37 percent expressed an interest in borrowing
more in RMB. With WTO entry, foreign exchange
balancing requirements at the enterprise level were
dropped. In addition, more and more foreign banks
began to obtain RMB licenses that enabled them
to address their corporate customers’ RMB financ-
ing needs. In 2006, full liberalization will occur,
enabling foreign bank branches to do business in local
currency with both local and foreign customers.
8
ᒦਪଝྜྷီඏᔝᒅࡼᎌਈ፬ሰ
Expections Of Positive
Impact Of WTO - 2001
࣪ĐྜྷီđჅࡒ౶ࡼ૩૵፬ሰࡼ໐ᆃ!.!2001ฤ!
Percent, 100% = 172 companies
‫ڻ‬ॊ‫܈‬ᒋ-!100% = 172!ଜ৛ႊ
Increased business scope
౫ࡍ೫ጓᇗपߧ
Demand growth
ጓᇗኊཇᐐ‫ޠ‬
Increased investment options
ᐐଝᄾᓾऱါ
Ability to manage distribution
ሾ၉དྷࡸࡼ਌ಯถೆ
Source: 2001 AmCham-China Member Questionnaire and 2003 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ; 2001ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳ૺ!3114ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
12 American Corporate Experience in a Changing China
China’s capital controls have evolved as its
economy has developed: the focus has shifted from
encouraging accumulation of foreign currency to
preventing irregular inflows and in some cases
encouraging outflows. In recent years, Chinese
companies have been allowed to retain more of
their foreign currency and some companies are
being encouraged to invest overseas. Finally, the
foreign exchange regime itself has shifted from a
narrow U.S. dollar peg to a peg against a basket of
currencies within a wider trading band. Although
the initial appreciation of the RMB was modest,
the systemic change is important. It is reasonable
to expect the trend toward a more flexible, market-
based system to continue, benefiting companies
active in international trade and investment.
China’s leadership continues to take a pragmatic
and flexible albeit cautious approach to its eco-
nomic policy and the market. Each year, more than
90 percent of respondents reply that they believe
these reforms are improving the climate for Ameri-
can business (Exhibit 11). Overall survey results
suggest, on the one hand, that while China still
remains in many ways a difficult place to do
business, the regulatory and operating environment
continues to improve. On the other hand, market-
based challenges such as management-level human
resource constraints and increased competition
emerged, putting pressure on margins. While there
is wide variation by industry and locality, these
general trajectories of better market access, an
THE WTO FACTOR
Changes To Company
Operations In Wake Of WTO - 2003
Đྜྷီđගਪ໩ጓᏴખᏥ፦ࡼ‫ܤ‬છ!.!2003ฤ!!
Percent, 100% = 254 companies
‫ڻ‬ॊ‫܈‬ᒋ-!100% = 254!ଜ৛ႊ
Increasing products/services
81% provided in China 67
ᐐଝ೫Ᏼᒦਪࡼ‫ޘ‬ອ৙።0ॲᇗดྏ
83 Increased revenues 73
໩ጓ၃ፄᄋ঱
67 Increased investment in China 81
ᐐଝ೫࣪ખᄾᓾ
Expanded distribution network
52 64
౫ࡍ೫ሾ၉ᆀ൥
 d

( 10)

80

9 INCREASED PRODUCTS AND SERVICES

OFFERED IN CHINA-2002-2005
Ᏼખ‫ޘ‬ອਜ਼ॲᇗดྏࡼᐐଝ.2002-2005ฤ
Percent ‫ڻ‬ॊ‫܈‬ᒋ
= Significantly increased
ࡍ७ࣞᐐଝ 74% 74 72
67
13
24 22
20

d 50 47 61 50

90

2002 2003* 2004 2005

* SARS epidemic
* ၊ऻ࢜ጽ༽፬ሰ
Source: 2003, 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ; 2003, 2004, 2005ฤࣞᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳!

10 CENTRAL GOVERNMENT'S ATTITUDE

TOWARDS WTO - 2003-2005
1999 61% ᒦਪᑶঀ࣪Đྜྷီđࡼზࣞ!.!2003-2005ฤ
Percent ‫ڻ‬ॊ‫܈‬ᒋ

100%= 237 companies

100%= 237!ଜ৛ႊ 202 262
37% Willing, able, and prepared to implement
changes in the spirit of the WTO agreement
ᏒፀĂถ৫݀ጯᔪੑᓰ۸‫ږ‬ᑍီඏᔝᒅ቏ፇ 22% 18
ࡼறခ஠ቲখু 35

Willing, but ill-equipped or unprepared to 42

implement changes 47
ᏒፀখুLjࡣถೆ‫ݙ‬ᔗ૞ᆚᓰ۸ੑ 31

Willing to follow only the letter of the WTO

accession requirements 23
ᒑᏒᔥ၆ྜྷီᔊෂߌํ 18 25
Actively seeking loopholes
2006 ஧భถ࢐ਖ‫ܜ‬ 11 15
8
Unwlling to implement the required changes 2 2 1
‫ݙ‬Ꮢ஠ቲ‫ܘ‬ገࡼখু 2003 2004 2005

Source: 2003, 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire

ᓾ೯౶Ꮞ; 2003-!2004-!2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

American Corporate Experience in a Changing China 13

China’s Role in Corporate Strategy

improving legal and regulatory environment, and in China as part of their global strategy, to serve
ever stronger market-based competition remain in global customers, to gain experience and as a
place. They reflect consistent and deliberate policy preemptive investment. Indeed in 1999, when
decisions over a twenty-five year period. asked how long it took them to become profitable,
a number of respondents wrote humorous com-
ments in the margins of the survey. For many,
profitability seemed to be a secondary concern
CHINA’S ROLE IN CORPORATE compared with the home office’s desire to establish
STRATEGY a presence in China.

Serving the China market has consistently been Today, China is viewed as a strategic market that is
American companies’ primary motivation for expected to contribute to a company’s bottom
establishing operations here (Exhibit 12). line. With China’s phenomenal economic growth
AmCham members cite the growing size of the and market reform story, it should be no surprise
market, increasing demand for 11 CHINA'S ECONOMIC REFORMS ARE IMPROVING
sophisticated products and THE CLIMATE FOR AMERICAN BUSINESS...
services, and an increasingly open ᒦਪࡼள଍খু࣪ගਪ໩ጓࡼ፬ሰ;.ฝཱྀᆐᒦਪᔢதೝฤࡼ
market as their reasons for ள଍খুᏴࣶࡍ߈ࣞ࿟খ࿖೫ගਪ໩ጓᏴખࡼ࿜ጓણஹ@
producing goods and services in Percent ‫ڻ‬ॊ‫܈‬ᒋ!
China for the China market 100%= 208 companies
(Exhibit 13). These are the same 100%= 208 ଜ৛ႊ 254 236 352

reasons 26 percent of respon- To a very great extent 8

ऻ‫ޟ‬መᓎ
17 18 17
dents are also locating their
27
regional headquarters in China
To a great extent
(Exhibit 14). ੪ࡍ߈ࣞ࿟ 46 51 44

Although producing for the

58
China market has always been To some extent
ጙࢾ߈ࣞ࿟
the number one reason for 32
31
37
establishing operations here, Not at all 6 0 2 7
ጙ࢛ጐ‫ݙ‬
back in 1999 entering China was 2002 2003 2004 2005
also considered a strategic Source: 2001, 2000 AmCham-China Member Questionnaire and 2003, 2004, 2005 AmCham-China an AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;2001,2000ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳Lj2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
investment: companies invested

12
TOP THREE REASONS FOR ENTERING CHINA - 1999 and 2005
஠ྜྷᒦਪှ‫ࡼޝ‬၅ገྯৈᏇፐ!.!1999ਜ਼2005ฤ
Percent ‫ڻ‬ॊ‫܈‬ᒋ

1999 2005
100%= 110 companies 100%= 345 companies
100%= 110!ଜ৛ႊ 100%= 345!ଜ৛ႊ

Produce goods and services for Produce goods and services for
China market China market 83
60% ᆐᒦਪှ‫ޝ‬ᄋ৙‫ޘ‬ອਜ਼ॲᇗ
ᆐᒦਪှ‫ޝ‬ᄋ৙‫ޘ‬ອਜ਼ॲᇗ
Produce goods and services in
Part of global strategy China for export to other markets
ᔫᆐཝཆᐵ൒ࡼᔝ߅‫ݝ‬ॊ 37 52
Ᏼᒦਪᒜᐆ‫ޘ‬ອ0ॲᇗ
ጲ߲ాࡵ໚Ⴧှ‫ޝ‬
To serve global customers in China
Ᏼᒦਪᆐཝཆఱઓᄋ৙ॲᇗ 27 Serve as regional headquarters 26
ᔫᆐ࢐ཌᔐ‫ݝ‬
Preemptive investment
༔ᐴှ‫ޝ‬ሌ૦ 17 Export to China
ሶᒦਪ߲ా
23

Source: 1999 AmCham-China Member Questionnaire and 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;!2:::ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳Lj2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

14 American Corporate Experience in a Changing China

 d

25
d
90%
( 11)

( 12)

13
NUMBER ONE GOAL FOR CHINA OPERATION
ᒦਪጓᇗࡼ၅ገ෹‫ܪ‬
Percent, 100% = 345 companies ‫ڻ‬ॊ‫܈‬ᒋ-!100%=345ଜ৛ႊ
( 13)
Serve as regional headquarters other
ᔫᆐ࢐ཌᔐ‫ݝ‬ ໚჈
Produce goods or services in 26%
China for other (non-U.S.,
non-China) markets 5 3 ( 14)
Ᏼᒦਪᆐ໚჈ှ‫ऻ)ޝ‬ᒦਪLj! 5
ऻගਪ*ᒜᐆ‫ޘ‬ອ૞ᄋ৙ॲᇗ
11
Export to China
ሶᒦਪ߲ా
14 62%

Produce goods or services in Produce goods

China for the U.S. markets or services in China 1999
Ᏼᒦਪᆐගਪှ‫ޝ‬ᒜᐆ‫ޘ‬ອ૞ᄋ৙ॲᇗ for the China market
Ᏼᒦਪᆐᒦਪှ‫ޝ‬ᒜ
ᐆ‫ޘ‬ອ૞ᄋ৙ॲᇗ
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞǖ2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

14 SECONDARY GOALS IN CHINA

ᒦਪጓᇗࡼࠨገ෹‫ܪ‬
Percent identifying as top-3 goal, 100% = 345 companies
‫ۻ‬೰ᆐᔢᓍገྯৈ෹‫ܪ‬ᒄጙࡼ‫ڻ‬ॊ‫܈‬-!100% = 345!ଜ৛ႊ
1999
Produce goods and services for
China market 62 21 83%
ᆐᒦਪှ‫ޝ‬ᒜᐆ‫ޘ‬ອਜ਼ᄋ৙ॲᇗ
Produce goods and services in China
for other (non-U.S., non-China) markets
Ᏼᒦਪᆐ໚჈ှ‫ऻ)ޝ‬ගਪ-ऻᒦਪ*ᒜᐆ 5 47 52
‫ޘ‬ອ૞ᄋ৙ॲᇗ
Produce goods and services in China
for U.S. market 14 27 41
ᆐගਪှ‫ޝ‬ᒜᐆ‫ޘ‬ອ૞ᄋ৙ॲᇗ
Serve as regional headquarters
ᔫᆐ࢐ཌᔐ‫ݝ‬ 5 21 26

Export to China
11 12 23 = Number one goal
ሶᒦਪ߲ా
! ၅ገ෹‫ܪ‬
Other = Secondary goal
໚჈ 32 5 ! ࠨገ෹‫ܪ‬
d
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞǖ2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

American Corporate Experience in a Changing China 15

China’s Role in Corporate Strategy

that most companies experience year-on-year rev- except in 2003, when the SARS epidemic hit
enue growth (Exhibit 15). In addition, for the last China, most manufacturing respondents indicate
3 years, three-quarters of respondents have been that they have consistently increased the volume of
profitable (Exhibit 16). In 2005, 26 percent of goods exported from China (Exhibit 17).
respondents in China for less than two years were
The growing U.S. trade deficit with China partially
profitable and 52 percent were breaking even or
represents a shift of the Asian regional trade surplus
experiencing only small losses.
with the U.S. from other countries to China,
China’s role as an export base has grown rapidly reflecting China’s ever-increasing role as a regional
since China entered the WTO, although producing assembly platform. Over 60 percent of Chinese
in China to export to the U.S. or other markets is exports to the U.S. come from foreign-invested
still a distant second reason for having operations enterprises. Furthermore, imported raw materials
in China. In 2003, exporting from China was an and components account for over 30 percent of
important goal for only 27 percent of companies. the production cost of Chinese exports. The Asian
By 2004, this grew to 52 percent. Furthermore, regional contribution to the global U.S. trade
deficit is actually declining, despite the increase in
18 the deficit with China. In 1994, Asia accounted for
U.S. TRADE DEFICIT - 1994-2004
ගਪඏጵภ‫!ތ‬.!1994-2004ฤ 65 percent of the global U.S. trade deficit. In
Percent ‫ڻ‬ॊ‫܈‬ᒋ 2004, Asia accounted for only 44 percent of the
U.S. global trade deficit. In that same period, the
100% = US$195,326 million 100%= US$701,513 million
100% = 95,326‫ڻ‬ᅺගᏄ!!!!!!100% = 701.513 ‫ڻ‬ᅺගᏄ share of China in the U.S. global trade deficit grew
China from 20 percent to 24 percent (Exhibit 18). The
20% 24
ᒦਪ increase in the U.S. deficit with China grew very
substantially in dollar terms, but the increase with
20
Asia ex-China the rest of the world was three times as great. This
዇ᒴ-‫۞ݙ‬౪ᒦਪ 45
16
reflects dramatic growth in the combined deficit
North America ۱ගᒴ 9 with Canada, Mexico, OPEC countries, and the
6
OPEC ๏๽య 5
6 16 European Union.
OECD ளਜ਼ᔝᒅ
Other ໚჈ 18 15
China is the United States’ third largest trading
1994 2004
Source: US Bureau of Economic Analysis
partner behind Canada and Mexico and the fastest
ᓾ೯౶Ꮞ;ගਪள଍ॊᇜ௜
growing market in the world for U.S. exports.
Total trade between the U.S.
15 REVENUE GROWTH - 2000-2005 and China was $231.4
၃ྜྷࡼᐐ‫!ޠ‬- 2000-2005ฤ billion in 2004. U.S.
Percent ‫ڻ‬ॊ‫܈‬ᒋ exports to China were $34
100% =146 companies billion, representing an 81
100% =146 ଜ৛ႊ 155 231 213 334 percent increase over the
Increased substantially level in 2001, the year
ᐐ‫ޠ‬७ࣞ੪ࡍ 20 26 44 52 44
China acceded to the WTO,
Increased somewhat and a 265 percent increase
ᐐ‫ޠ‬७ࣞᎌሢ 48 39
over the 1999 level.
Remained the same 37 33 42
ۣߒ‫ܤݙ‬ 21 16
Decreased somewhat 6
၃ྜྷᎌჅሆଢ଼ 14 9 7 8
9 5 8 5
Decreased substantially 2 4 0 1
၃ྜྷࡍ७ሆଢ଼ 1999 2000 2002 2003 2004
to to to to to
2000 2001 2003 2004 2005

Source: 2000, 2002 AmCham-China Member Questionnaire and 2003-2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;2000, 2002!ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳Lj2003-2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

16 American Corporate Experience in a Changing China

 20% 24%
( 18)

( 15) 3
( 16) 2005
2 26%
52%

2004 2,314
340
2001 81% 1999
2003 27% 265%

16 PROFITABILITY - 2002-2004
2004
ಽྥ!- 2002-2004ฤ
52% Percent ‫ڻ‬ॊ‫܈‬ᒋ
2003
100%= 254 companies
100% =254ଜ৛ႊ 236 376
Very profitable 9% 15
ಽྥ੪঱
16

Profitable
( 17) ᎌጙࢾಽྥ 65 57 53

Break even, or small loss

ߒຳ૞ᎌ࿩೟౛Ⴜ 22 23 26
Large loss 4 4 6
౛Ⴜ੪ࡍ 2002 2003 2004
Source: 2002 AmCham-China Member Questionnaire and 2003, 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;2002!ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳Lj2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

60% 17
INCREASED VOLUME OF EXPORTS FROM CHINA
- MANUFACTURING COMPANIES - 2002-2005
࠭ᒦਪ࣪໚Ⴧਪଜ߲ాऄᐐ‫༽ޠ‬ౚ!.!ᒜᐆ໩ጓ!.!2002-2005ฤ
Percent ‫ڻ‬ॊ‫܈‬ᒋ
30%
61% 62

50

36

1994
65% 2004

2002 2003* 2004 2005

44% * SARS epidemic
* ၊ऻ࢜ጽ༽፬ሰ
Source: 2002 AmCham China Member Questionnaire and 2003-2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;2002!ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳Lj2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

American Corporate Experience in a Changing China 17

The Emerging Margin Squeeze
THE EMERGING MARGIN SQUEEZE
Profitability and revenue growth have not always
meant that companies were earning favorable
margins. Of our 1999 respondents who were
profitable, only 14 percent were earning margins
above their corporate hurdle rate. The percent of
companies earning margins greater than worldwide
margins (42 percent in 2005) has remained level
since an initial increase in the post-WTO period.
During the same period, the number of companies
with China margins lower than worldwide averages
(30 percent in 2005) has also increased slightly
(Exhibit 19). Furthermore, in 2005 the percent of
respondents reporting improving margins dropped
for the first time since China joined WTO. New-
to-market companies cite increases in margins
much less frequently than in previous years. This
may reflect margin squeeze due to intensified
19
CHINA MARGINS VERSUS WORLDWIDE
MARGINS - 1999-2004
ᒦਪှ‫ޝ‬ಽྥൈਜ਼ཝཆಽྥൈࡼ‫!୷܈‬.!1999-2004ฤ
Percent ‫ڻ‬ॊ‫܈‬ᒋ
100%= 115 companies
100%= 115 ଜ৛ႊ 251
Significantly higher ঱߲੪ࣶ 3%
10 14 13
Somewhat higher ൒঱
Comparable 29
ሤ‫ࣶݙތ‬
Somewhat lower
࿤ࢅጙቋ 25
Significantly lower
ࢅ੪ࣶ 33
1999
Source: 1999 AmCham-China Member Questionnaire and 2003-2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;1999!ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳Lj2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
20
FACTORS NEGATIVELY INFLUENCING MARGINS - 2005
፬ሰಽྥൈࡼሿ૵ፐႤ!- 2005ฤ
Percent, 100% = 450 companies ‫ڻ‬ॊ‫܈‬ᒋ-100% = 450!ଜ৛ႊ
Price pressure from major customers
౶ᔈᓍገఱઓࡼଥৃኹೆ
Changes in market price
ှ‫ޝ‬ଥৃ‫ܤ‬છ
Changes in salary and wages
Ꮛ৔৔ᓾਜ਼၃ྜྷࡼ‫ܤ‬છ
Changes in commodity prices
࿜ອଥৃࡼ‫ܤ‬છ
Changes in other input costs
໚჈ገႤॅ፿ࡼ‫ܤ‬છ
Changes in marketing and sales expenses
ှ‫ޝ‬ᅎਓਜ਼ሾ၉ॅ፿ࡼ‫ܤ‬છ
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
18 American Corporate Experience in a Changing China
competition that makes it difficult to pass on raw
material and energy price increases. In 2005, 56
percent of respondents overall and 65 percent of
manufacturer respondents indicated that price
pressure from customers negatively affected margins.
Broadly speaking, downward pressure on margins is
caused by competitive forces (for example, price
pressure from major customers, changes in market
price, changes in salary and wages) (Exhibit 20). It
is not surprising that with most companies citing
increased business activities in China since 2001
and plans to expand in 2005 (Exhibit 21), compe-
tition from foreign firms, including competition
from imports, is increasing (Exhibit 22). Compa-
nies also continue to experience increased competi-
tion from PRC companies (Exhibit 23). Because
domestic companies often compete on price, the
margin squeeze has been particularly intense in
industries with significant
overcapacity. The current
investment boom – by both
foreign and local investors –
is intensifying competition
and will make it difficult to
181 290 sustain continuous margin
14 improvements.
28 29 28 Conversely, the forces
driving increasing margins
29 28 illustrate how China is
31
developing into a more
19 16 18
sophisticated market.
10 11 12
Respondents indicate that
2002 2003 2004
China margin increases are
driven by market factors
(e.g., higher value-added
products, increases in
economies of scale, changes
in market) and improve-
ments in the regulatory
56%
environment (e.g., changes
42
in tariffs, changes in
41 regulation) (Exhibit 24).
39
Moreover, increased produc-
tivity and efficiency gains
35
have more than offset the
31 continuously rising labor
costs in China.
 1999
14%

2005 42%

2005 30%( 19) ( 24)

2005 d

21
EXPANSION - 2005
ጓᇗ౫ᐱ༽ౚ!.!2005ฤ
Percent, 100%= 345 companies ‫ڻ‬ॊ‫܈‬ᒋ-!100%= 345!ଜ৛ႊ

2005 China top FDI destination

ᒦਪᔫᆐᓍገᄾᓾ෹ࡼ࢐ 79%
Expanded overall business activities in 2004
82
2004ฤ౫ᐱ೫ᑳᄏጓᇗ૚ࣅ
56% 65%
Expanded capacity in 2004 58
2004ฤ౫ᐱ೫ည‫ޘ‬ถೆ
Increased products and services in 2004
2004ฤᐐଝ೫‫ޘ‬ອਜ਼ॲᇗดྏ
72
Increased volume of imports in 2004
2004ฤᐐଝ೫஠ా೟ 38

Likely to expand capacity in 2005 84

2005ฤᎌᆃ౫ࡍည‫ޘ‬ถೆ
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

22 COMPETITION FROM FOREIGN FIRMS

( ౶ᔈᅪਪ໩ጓࡼீᑱ
20) Percent ‫ڻ‬ॊ‫܈‬ᒋ

2001 100%= 102 companies

100%= 102!ଜ৛ႊ 252 215 351
Increased substantially 21 13 14 15
ࡍ७ᄋ঱
2005
42 45 55
Increased somewhat
൒ᎌᄋ঱ 57
( 21)
Remained the same 40 38 28
ۣߒ‫ܤݙ‬ 21
( Decreased 0 5 3 2
ᎌჅଢ଼ࢅ 2002 2003 2004 2005
22)
Source: 2002 AmCham-China Member Questionnaire and 2003, 2004, 2005 AmCham China Member Questionnaire
( 23) ᓾ೯౶Ꮞ;2002!ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳Lj2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

American Corporate Experience in a Changing China 19

Improved Performance After Year Two

The high-tech manufacturing sector clearly demon- percent and 37 percent, respectively). Price pressure
strates how China’s market development is affecting from customers and changes in market prices are
corporate profitability. High-tech manufacturers the primary factors squeezing margins (60 percent
are more likely to have better than worldwide and 46 percent). High-tech manufacturers also face
margins than the overall survey population (39 fierce competition for skilled and technical workers,
percent versus 33 percent). These companies’ and 45 percent of these respondents indicate that
margins are more sensitive to market development changes in salaries and wages are driving down margins.
forces than the overall survey population. They
were more likely to experience either increasing (57
percent) or decreasing (24 percent) margins in 2004
than the overall survey population (51 percent IMPROVED PERFORMANCE AFTER
increasing; 16 percent decreasing). Their margins YEAR TWO
are positively influenced by shifts in product mix
(e.g., more sophisticated and higher value-added Survey results consistently indicate that companies
products) and increases in economies of scale (42 that have been in China longer perform better than
new arrivals. Given that
23 COMPETITION FROM PRC FIRMS shifts in product mix and
౶ᔈᒦਪ໩ጓࡼீᑱ changes in economy of scale
Percent ‫ڻ‬ॊ‫܈‬ᒋ
are the two leading factors
100%= 102 companies positively influencing
100%= 102!ଜ৛ႊ 252 215 351
Increased substantially margins, it is not surprising
ࡍ७ᄋ঱
14 14 15
33 that between years two and
five, significantly more
35 45 55
Increased somewhat companies report increasing
൒ᎌᄋ঱
44 revenues (Exhibit 25) and
identify themselves as
Remained the same
ۣߒ‫ܤݙ‬
39 38 28 profitable or highly profit-
17
Decreased 12 able (Exhibit 26).
ᎌჅሆଢ଼ 6 3 2
2002 2003 2004 2005 Typically, most respondents
Source: 2002 AmCham-China Member Questionnaire and 2003, 2004, 2005 AmCham-China Member Questionnaire
ᓾ೯౶Ꮞ;2002!ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳Lj2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳ report improvements in

25 REVENUE GROWTH BY LENGTH OF TIME IN CHINA

၃ྜྷᐐ‫ޠ‬Ꭷ౶ખဟମ‫ࡼ࣢ޠ‬ਈᇹ
Percent ‫ڻ‬ॊ‫܈‬ᒋ
2003 2004 2005
100%= 23 49 136 companies 24 52 159 49 83 237
ଜ৛ႊ
Increased Increased Increased 10
substantially 17 42 39 substantially 61 45 substantially
ࡍ७ᐐଝ ࡍ७ᐐଝ 29 ࡍ७ᐐଝ 46 40
Increased somewhat Increased somewhat 19
൒ᎌᐐଝ 22 Increased somewhat ൒ᎌᐐଝ 6
൒ᎌᐐଝ 8
0 2
Remained the same 4 9 Remained the same
ۣߒ‫ܤݙ‬ Remained the same 4 ۣߒ‫ܤݙ‬
25 ۣߒ‫ܤݙ‬
40 Decreased 31 44
Decreased Decreased 35 ᎌჅି࿩
57 4 63
ᎌჅି࿩ ᎌჅି࿩ 50 22
17 N/A 9
N/A 7 6 5 ᆚᄋ৙
N/A 6 7
ᆚᄋ৙ 2 10
12 10 ᆚᄋ৙ 9 8 6
Years in China 4 5 3
Ᏼᒦਪጓᇗఎᐱฤ॑ <2 2-5 6+ <2 2-5 6+ <2 2-5 6+

Source: 2003, 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire

ᓾ೯౶Ꮞ;2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

20 American Corporate Experience in a Changing China

 39% 45%
d
33%

2004 57%
24%
51%
16%
42%
37%
( 25)
( 26)
60% 46%

24 FACTORS POSITIVELY INFLUENCING MARGINS - 2005

࣪ಽྥൈᎌ૩૵፬ሰࡼፐႤ!.!2005ฤ
Percent, 100% = 450 companies ‫ڻ‬ॊ‫܈‬ᒋ-!100% = 450ଜ৛ႊ ( 27)
Shift in product mix 40%
‫ޘ‬ອஉ৩ࢯᑳ
Changes in economy of scale
ਖෝள଍ࡼ‫ܤ‬છ 37
( 28)
Changes in market price
ှ‫ޝ‬ଥৃࡼ‫ܤ‬છ
22

Changes in tariffs 16
ၼൈ‫ܤ‬છ
Changes in regulations
जਖࡼ‫ܤ‬છ 15

Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire

( 29)
ᓾ೯౶Ꮞ;2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

26
PROFITABILITY BY LENGTH OF TIME IN CHINA
፫ಽ༽ౚᎧ౶ખဟମ‫ࡼ࣢ޠ‬ਈᇹ
Percent ‫ڻ‬ॊ‫܈‬ᒋ

2003 2004 2005

100%= 23 49 136 companies 24 52 159 49 83 237
ଜ৛ႊ
Very profitable 4 6 Very profitable Very profitable 6 5
13 12 18 ಽྥ੪঱
ಽྥ੪঱ ಽྥ੪঱ 21
21
Profitable 39 Profitable
፫ಽ Profitable 31 ፫ಽ 48
፫ಽ
67 51
Break even or 63 61
small loss Break even or 52
35 Break even or small loss
ߒຳ૞൒ᎌ౛Ⴜ small loss 39 ߒຳ૞൒ᎌ౛Ⴜ
ߒຳ૞൒ᎌ౛Ⴜ 29 37
Large loss
౛Ⴜ੪ࣶ 22 27 Large loss Large loss 21
17 18 16
0 ౛Ⴜ੪ࣶ 8 ౛Ⴜ੪ࣶ 10
Years in China 1 2
Ᏼખఎᐱጓᇗฤ॑ <2 2-5 6+ <2 2-5 6+ <2 2-5 6+
Source: 2003, 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

American Corporate Experience in a Changing China 21

Persistent Challenges Evolving

year-on-year margins (Exhibit 27). Companies that
have been in China more than two years are more
likely to have increasing margins than new entrants
(Exhibit 28). Companies that have been in China six
or more years are more likely to have China margins
that are greater than their average worldwide margins
compared to respondents that have not been in
China as long (Exhibit 29).
PERSISTENT CHALLENGES EVOLVING
The ranking of top operational challenges has
scarcely changed since our first questionnaire in
1999; however, respondents report improvements
27 COMPANIES WITH YEAR-TO-YEAR MARGIN
IMPROVEMENTS - 1999-2004
ಽྥൈᓆฤᄋ঱ࡼ໩ጓ!.!1999ᒗ2004ฤ
Percent ‫ڻ‬ॊ‫܈‬ᒋ
72%
70
62
45
1999-2000 2000-2001
Source: 1999 AmCham-China Member Questionnaire and 2003-2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;1999ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳Lj2003-2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
in four major perennial challenges: bureaucracy,
unclear regulations, lack of transparency, and
inconsistent regulatory interpretation (Exhibit 30).
In 2005, management-level human resource chal-
lenges became the number one issue. Respondents
agree that in the aggregate, management-level
human resource challenges continue to worsen as
companies expand and the need for management
talent grows. This appears likely to remain a
concern for some years to come.
The 2004 and 2005 survey results point toward a
shift in the ranking of top operational challenges
corresponding to a company’s length of time in
China. For most companies in China for less than
two years, initial learning curve
challenges – such as unclear
regulations, bureaucracy,
obtaining necessary licenses,
lack of credit information,
and customs clearance delays
– rank the highest.
60
Companies that have been
in China longer indicate
that human resource con-
straints are the top challenge,
although unclear regulations
and bureaucracy continue to
2001-2002 2002-2003 2003-2004 be ranked very high. Com-
panies that have been in

28 CHANGES IN MARGINS BY LENGTH OF TIME IN CHINA

ಽྥൈᎧ౶ખဟମ‫ࡼ࣢ޠ‬ਈᇹ
Percent ‫ڻ‬ॊ‫܈‬ᒋ

2003 2004 2005*

100%= 23 49 136 companies 34 52 159 16 74 223
ଜ৛ႊ
Increased 0 Increased 6
substantially Increased substantially
13 substantially 20 15
ࡍ७ᄋ঱ 20 22 26 ࡍ७ᄋ঱ 21 21
ࡍ७ᄋ঱
Increased somewhat Increased somewhat 31
൒ᎌᄋ঱ ൒ᎌᄋ঱
49 Increased somewhat 40
37 ൒ᎌᄋ঱ 56 40 40
50
48
Remained the same
ۣߒ‫ܤݙ‬ Remained the same
ۣߒ‫ ܤݙ‬44
26 Remained the same 23 20
24 ۣߒ‫ܤݙ‬
40 19
Decreased 30 22
ଢ଼ࢅ Decreased 19 19
15 14 Decreased 10 ଢ଼ࢅ 16
Years in China ଢ଼ࢅ 4
0
Ᏼખጓᇗఎᐱฤ॑ <2 2-5 6+ <2 2-5 6+ <2 2-5 6+
Source: 2003,2004,2005 AmCham-China and AmCham-Shanghai Member Questionnaire * does not include n/a responses
ᓾ೯౶Ꮞ;2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳ * ‫۞ݙ‬౪ᆚᄋ৙ࡊ‫ࡼښ‬ᆰ௳

22 American Corporate Experience in a Changing China

 1999

2004 2005
( 30)
2005

2
30
CONSISTENT OPERATIONAL CHALLENGES - 1999-2005
ᏴખጓᇗჅෂ೹ࡼߒኚቶᄞᐵ!.!1999-2005ฤ
Percent ‫ڻ‬ॊ‫܈‬ᒋ
= Improving খ࿖ᒦ Perceived change
= Deteriorating इછᒦ ໩ጓঢ၊ࡵࡼ‫ܤ‬છ

2005 rank 2005ฤ๝ኔ 2004 2005

1 Management-level human resources
਌ಯ‫ཽށ‬ೆᓾᏎᕣच
2 Bureaucracy
ਉ೥ᄏᒜ
3 Unclear regulations
जਖ‫ීݙ‬ཀྵ
4 Lack of transparency
ལचᅀීࣞ
5 Inconsistent regulatory interpretation
जਖஊျ‫ݙ‬ጙᒘ
6 Corruption 21% 22%
ঁ‫ھ‬
7 Difficulty enforcing contract terms 17% 21%
ᒊቲ੝ᄴᄟ౒౩ซ
8 Local protectionism 6
࢐ऱۣઐᓍፃ

Source: 1999 AmCham-China Member Questionnaire and 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;1999ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳Lj2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

29
CHINA MARGINS VERSUS WORLDWIDE MARGINS BY TIME IN CHINA
໩ጓᏴખಽྥൈਜ਼ཝཆಽྥൈࡼ࣪‫܈‬Ꭷ౶ખဟମ‫ࡼ࣢ޠ‬ਈᇹ
Percent ‫ڻ‬ॊ‫܈‬ᒋ

2003 2004 2005

companies
100%= 23 49 136 ଜ৛ႊ 24 52 159 49 83 237
Significantly higher ঱߲੪ࣶ 4 9 Significantly higher 13 Significantly higher 4 5
4 13 10 10 ঱߲੪ࣶ 14
Somewhat higher ൒঱ 4 ঱߲੪ࣶ
Comparable ૥‫۾‬ሤᄴ 13 15 Somewhat higher 19 26
Somewhat higher 13 20 ൒঱
൒঱ 27 20
Somewhat lower ൒ࢅ 4 Comparable 13
49 Comparable ૥‫۾‬ሤᄴ 0
Significantly lower ࢅ੪ࣶ 26 ૥‫۾‬ሤᄴ 26 14
22 Somewhat lower 11
൒ࢅ 25
Somewhat lower
൒ࢅ 27 Significantly lower 17
15 9 14
Significantly lower 4 ࢅ੪ࣶ
Not applicable ᆚถᄋ৙ 71 ࢅ੪ࣶ 12 16
9 8 14
24 Not applicable 53
ᆚถᄋ৙ 8
Not applicable 35 10
26 ᆚถᄋ৙ 26 26
11 17
12
Years in China 2
0
Ᏼખጓᇗఎᐱฤ॑ <2 2-5 6+ <2 2-5 6+ <2 2-5 6+

Source: 2003, 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire

ᓾ೯౶Ꮞ;2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

American Corporate Experience in a Changing China 23

Persistent Challenges Evolving

China for six or more years cite bureaucracy, lack of working overseas, recruiting senior managers re-
transparency, corruption, and developing manage- mains a top challenge for one-fifth of respondents.
ment-level human resources as their top issues. Retaining management-level human resources is a
top challenge for 18 percent of respondents. As one
AmCham members have been consistently optimis-
might expect, employee poaching is rife. Respon-
tic about the progress in the business environment
dents who struggle with retention indicate that the
and their general five-year outlook (Exhibits 31).
challenges are increasing.
This optimism has been justified by the gradual
but steady progress in opening the domestic market Rising wages and salary expenses also threaten
and by improved revenues and profits even while China’s competitiveness. In 2005, 41 percent of
confronting greater competitive pressures. respondents indicated that changes in wages and
salary expenses negatively affected margins. The
Human Resource Challenges problem seems worse in Shanghai, with 45 percent
of companies reporting that rising wages and salary
China’s high-quality, relatively
low-cost labor force has been 31
FIVE-YEAR OUTLOOK FOR BUSINESS IN CHINA
key to its economic develop-
ᆚ౶ᇋฤᏴખጓᇗᐱᆃ
ment and a main source of its Percent ‫ڻ‬ॊ‫܈‬ᒋ
attractiveness as an investment
destination. However, parallel 100%= 160 companies
100%= 160!ଜ৛ႊ 173 254 236 397
to China’s economic develop-
ment and increasing foreign
Optimistic
investment, the demand for ಘ਋ 45 41 48 55 49
internationally capable Chi-
nese managers has increased
significantly. Shortages abound Cautiously optimistic
and labor costs are increasing டဇಘ਋ 46 51 45 40 43
rapidly, particularly in Neutral
‫ݙ‬ཀྵࢾ
Shanghai and Beijing. Slightly pessimistic
8 6 5 5 6
1 2 2 0 2
൒መ‫ۯ‬਋
2000 2001 2003 2004 2005
As in most competitive Source: 2001, 2000 AmCham-China Member Questionnaire and 2003,-2005 AmCham-China and AmCham-Shanghai Member Questionnaire
markets, management-level ᓾ೯౶Ꮞ;!2001, 2000ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳Lj2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

human resource constraints

have become a persistent and
serious problem in China
(Exhibit 32). In 2004, 70
percent of respondents said
that management-level
human resource challenges
negatively affected their
businesses. In 2005, manage-
ment-level human resources
was ranked the number one
challenge. Although it is
now possible to circumnavi-
gate household registration
32
HUMAN RESOURCE CHALLENGES . 2004-2005
ཽೆᓾᏎࡼᄞᐵ!.!2004-2005ฤ
Percent ‫ڻ‬ॊ‫܈‬ᒋ
Companies listing management-level human
resource constraint as top-3 challenge - 2000
ཱྀᆐ਌ಯ‫ཽށ‬ೆᓾᏎᕣचဵሢᒜ໩ጓखᐱࡼᔢࡍ 56%
3ৈᄞᐵᒄጙࡼ໩ጓ.2000ฤ
Companies negatively affected by management-
level human resource constraints - 2001 63
၊ࡵ਌ಯ‫ཽށ‬ೆᓾᏎᕣचᆰᄌሿ૵፬ሰࡼ໩ጓ.2001ฤ
Management-level human resources
negatively affected business - 2004 70
਌ಯ‫ཽށ‬ೆᓾᏎᕣचᆰᄌ࣪ጓᇗᐆ߅ሿ૵፬ሰ.2004ฤ
Changes in wages and salary expenses
negatively affecting margins - 2005 41
৔ᓾਜ਼቟஘ᑽ߲ࡼ‫ܤ‬છ࣪ಽྥൈᐆ߅ሿ૵፬ሰ.2005ฤ

regulations that inhibit Management-level human

resources ranked as #1 challenge - 2005 26
worker mobility, and many ‫ڳ‬਌ಯ‫ཽށ‬ೆᓾᏎᆰᄌ೰ᆐᄿ੓ᄞᐵ.2005ฤ

Chinese professionals have Source: 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
returned from studying and ᓾ೯౶Ꮞ;!2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

24 American Corporate Experience in a Changing China

 d

5
( 31) 2005 41%

45%

38%
48%
d

33 HUMAN RESOURCE CHALLENGES

BY LENGTH OF TIME IN CHINA
ཽೆᓾᏎᆰᄌࡼᄞᐵᎧᏴખఎᐱጓᇗဟମ‫༽܈࣪ࡼ࣢ޠ‬ౚ
Percent ‫ڻ‬ॊ‫܈‬ᒋ

Attracting management-level All ཝ‫ݝ‬ 19

human resources <2 years =2ฤ 15
2-5 years 2-5ฤ 20
ᇢ፛਌ಯ‫ݣཽށ‬ 6+ years 6+ฤ 20
20+ years 20+ฤ 11

Developing management-level All ཝ‫ݝ‬ 24

human resources <2 years =2ฤ 15
๸ዸ਌ಯ‫ݣཽށ‬ 2-5 years 2-5ฤ 20
6+ years 6+ฤ 27
20+ years 20+ฤ 19
( 32) 2004 Retaining management-level All ཝ‫ݝ‬ 18
human resources <2 years =2ฤ 15
70% ۣഔ਌ಯ‫ݣཽށ‬ 2-5 years 2-5ฤ 19
6+ years 6+ฤ 18
20+ years 20+ฤ 16
Source: 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;!2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
34
2005
34
CHANGES IN HUMAN RESOURCE CHALLENGES
ཽೆᓾᏎᄞᐵࡼ‫ܤ‬છ
Percent* ‫ڻ‬ॊ‫܈‬ᒋ

Attracting management-level Improving ஠‫ݛ‬ 32

human resources Worsening ᅓ‫ݛ‬
ᇢ፛਌ಯ‫ݣཽށ‬ 39

Developing management-level Improving ஠‫ݛ‬ 21

human resources
Worsening ᅓ‫ݛ‬ 18
๸ዸ਌ಯ‫ݣཽށ‬

Retaining management-level Improving ஠‫ݛ‬ 17

human resources
ۣഔ਌ಯ‫ݣཽށ‬ Worsening ᅓ‫ݛ‬ 55

18% * Companies who rank management-level human resource challenges as top-5 challenge
* ‫ڳ‬਌ಯ‫ཽށ‬ೆᓾᏎᆰᄌ೰ᆐ6ৈᔢᓍገᄞᐵᒄጙࡼ৛ႊ
Source: 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ; 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

American Corporate Experience in a Changing China 25

Persistent Challenges Evolving

expenses have squeezed their margins, versus 38 will partially alleviate short-term human resource
percent in Beijing. Manufacturers are particularly constraints, but ensuring China maintains its com-
hard hit, with 48 percent saying their margins are petitive advantage in labor will require longer-term
negatively affected by wage and salary increases. improvements to its education and pension systems.

Human resource constraints become a more signifi- Corruption and local protectionism
cant challenge the longer a company has operated
in China (Exhibit 33). In the first two years, As China’s economy continues to develop, compa-
challenges associated with establishing business nies are expanding beyond first-tier markets
operations outrank human resource challenges. (Beijing, Shanghai and Guangzhou) (Exhibit 35).
However, during years two to five, attracting, The longer a company has operated in China, the
developing and retaining human resources emerge more likely it is to expand geographically. One in
as the highest-ranking challenges. Companies in six new entrants has a physical presence in one or
China for six or more years indicate that develop- more secondary cities. Most manufacturing compa-
ing managers is their top human resource challenge. nies already have a physical presence in secondary
Even companies that have been in China for more cities, and many plan to expand to tertiary cities
than twenty years indicate that attracting and and beyond (Exhibit 36).
retaining talent are still top challenges.
As companies expand into and beyond secondary
Although human resource challenges affect so many cities, they face many of the same challenges that
companies, respondents are split as to whether they overwhelmed investors when China first opened
are improving or worsening (Exhibit 34). Within up. Chinese officials and executives in major cities
the realm of human resource challenges, retention of along the coast have moved further up the learning
management-level employees appears to be a more curve in terms of understanding international
pressing problem than recruiting and developing business norms and how to collaborate with
talent. A mere 17 percent of responders felt that foreign investors than officials and executives in
retaining employees was becoming less of a problem, secondary cities. For companies that have been in
while 55 percent noted that retention was becom- China more than six years, 68 percent of which
ing a greater problem. Increasing labor mobility have a physical presence in secondary cities, corrup-
tion ranks as the number
35 EXPANSION INTO SECOND TIER CITIES three operating challenge.
ሶऔ଀߃ှ౫ᐱጓᇗࡼ༽ౚ Local protectionism ranks
Percent, 100% = 236 companies ‫ڻ‬ॊ‫܈‬ᒋ-!100% = 236!ଜ৛ႊ very high as well.
Physical presence in second Expansion strategies - 2004 Survey respondents consis-
tier cities - 2004 ጓᇗ౫ᐱᐵ൒.2004ฤ
ဣଔ஠ᓘऔ଀߃ှࡼ৛ႊ.2004ฤ tently agree that local
No presence beyond Increase protectionism and corrup-
Beijing, Shanghai, and geographic diversity
Guangzhou of China
tion are worsening. Chinese
44%
ᒑᏴ۱யLj࿟਱ਜ਼ਓᒳྯ࢐! investments laws and regulations often
10+ years ࿸ೂ೫૦৩ ᐐଝᏴᒦਪৎਓम
10ฤጲ࿟
࢐Ꭾࡼᄾᓾ leave considerable room for
16
Expand into
interpretation and adminis-
61
secondary cities trative discretion. Local
6-9 years 42% ጓᇗ౫ᐱ஠ྜྷऔ଀߃ှ
17 protectionism persists as
6-9ฤ
Expand beyond government officials try to
secondary cities 45
create a favorable environ-
20 ሶऔ଀߃ှपᆍጲᅪ౫ᐱ
5 ment for those for whom
2-5 years
Less than 2 years they are responsible. In
2-5ฤ
࿩᎖2ฤ
Source: 2004 AmCham-China and AmCham-Shanghai Member Questionnaire 2005, respondents also
ᓾ೯౶Ꮞ;!2004ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
expressed significantly less

26 American Corporate Experience in a Changing China

 ( 33)

68%
20
f
d

( 34)

17%

55% 2005

( 37) 14%

36 PHYSICAL PRESENCE BEYOND TIER-ONE

MARKETS* - 2004
Ᏼጙ଀ှ‫ޝ‬ጲᅪࡼဣଔ࿜ጓᅠᐱ!- 2004ฤ
Percent, 100% = 236 companies ‫ڻ‬ॊ‫܈‬ᒋ-!100% = 236!ଜ৛ႊ
( Physical presence Planned expansion Planned expansion
in secondary cities into secondary cities beyond secondary cities
35) ဣଔ஠ᓘऔ଀߃ှ ଐચ୓ጓᇗ౫ᐱࡵऔ଀߃ှ ଐચ୓ጓᇗ஠ጙ‫ݛ‬౫ᐱ
ᒗऔ଀߃ှपᆍጲᅪ
Manufacturing companies 64% 53 43
ᒜᐆጓ৛ႊ
Service companies 72 43
ॲᇗቯ৛ႊ 44
Companies in China <2 years
஠ྜྷᒦਪ࿩᎖3ฤࡼ৛ႊ 17 20 15

Companies in China <5 years

35 33 19
஠ྜྷᒦਪ࿩᎖6ฤࡼ৛ႊ
Companies in China 6+ years 68 41 28
஠ྜྷᒦਪ7ฤጲ࿟ࡼ৛ႊ
Average = 47 Average = 39 Average = 25
ຳ௿ᒋ!>!47 ຳ௿ᒋ!>!39 ຳ௿ᒋ!>!25
Source: 2004 AmCham-China and AmCham-Shanghai Member Questionnaire * Beijing, Shanghai, Guangzhou
ᓾ೯౶Ꮞ; 2004ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳ * ۱யLj࿟਱Ljਜ਼ਓᒳ
( 36) d

American Corporate Experience in a Changing China 27

Persistent Challenges Evolving

trust in local governments to implement WTO Technology challenges

agreements than in the central government (Exhibit In the 1980s and 1990s, to invest in China, com-
37). Only 14 percent of respondents indicate that panies had to transfer advanced technology to joint
they believe that local governments have the skill ventures or local Chinese licensees on terms favoring
and will to implement WTO agreements. Finally, the Chinese partner or party, which was generally
corruption remains a challenge that the Chinese pre-selected for the foreign party. WTO accession
government, despite all efforts, has been unable to forced the abandonment of technology transfer
conquer. requirements, and a more balanced technology
licensing regulatory environment is facilitating the
introduction of advanced
37
CHINA'S ATTITUDE TOWARDS WTO - 2005 technology into the market.
ᒦਪ࣪Đྜྷီđࡼზࣞ!.!2005ฤ! With respect to technology,
Percent ‫ڻ‬ॊ‫܈‬ᒋ many sectors are now at or
100%= 282 companies close to global levels, and
100%= 282 ଜ৛ႊ 276 273
the focus of the
Willing, able, and prepared
to implement changes 14 government’s industrial
16
in the spirit of the WTO agreement policy has shifted to sup-
ᏒፀĂถ৫݀ጯᔪੑᓰ۸‫ږ‬ᑍီඏᔝᒅ! 35%
቏ፇࡼறခ஠ቲখু porting research and
28
28 innovation. In this context,
Willing, but ill-equipped or 34
unprepared to implement changes attention has shifted from
Ꮢፀဣဗ‫ࡣুܤ‬ᓰ۸‫ݙ‬ᔗ૞඗ᎌᓰ۸ the crude mechanisms of the
31
22
1980s and early 1990s to
Willing to follow only the letter of
the WTO accession requirements 28 intellectual property rights,
ᒑᏒᔥ၆Đྜྷီđᔊෂߌํ
standards and certification
25 28
which today are priority
Actively seeking loopholes 20
஧భถ࢐ਖ‫ܜ‬ 8 policy concerns.
8
1 2
Unwilling to implement
the required changes Central Functional/ Local IPR protection
government industry ministries government
‫ݙ‬Ꮢ஠ቲ‫ܘ‬ገࡼখু (e.g., MOFCOM
NDRC)
(e.g., MII,
Construction)
(e.g., city,
provincial)
Dramatic progress has been
ᒦያᑶঀᔏ੝‫ݝ‬ඡ ᓜጓቶ0ቲጓ਌ಯ‫ݝ‬ඡ
)ಿྙ;࿜ᇗ‫ݝ‬-खখᆕ* )ಿྙ;ቧ‫ݝޘ‬-୐࿸‫)*ݝ‬ಿྙ;ှ଀-ဏ଀ᑶঀ*
࢐ऱ଀ᑶঀ made in revising the
trademark, copyright, and
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ; 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳ patent laws to comply with
WTO norms, and efforts
38 have been made, particularly
CHINA IPR PROTECTION - 2003-2005
ᒦਪ࣪ᒀဤ‫ޘ‬ཚࡼۣઐ!.!2003-2005ฤ by the central government,
Percent ‫ڻ‬ॊ‫܈‬ᒋ to improve enforcement of
100%= 219 companies
intellectual property rights
100%= 219 ଜ৛ႊ 210 331 (IPR). But it is still clear
Totally ineffective 21 21 15 that at a commercial level,
ᅲཝᇄ቉
IPR enforcement is ineffec-
tive (Exhibit 38). Moreover,
Ineffective 63
65 companies whose products
቉ਫ୷‫ތ‬ are counterfeited in China
70
and then exported to other
markets report more serious
Effective 20 damage to their overall
ᎌ቉ 16
9
2003 2004 2005
operations (Exhibit 39).
Source: 2003, 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire Large companies with
ᓾ೯౶Ꮞ; 2003,2004,2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
significant revenues from

28 American Corporate Experience in a Changing China

 ( 40)
80 90
( 41)

2004 12

2005
( 42)
80 90 39
EXTENT OF IPR INFRINGEMENTS AND IMPACT - 2005
2005
Percent
100%= 128 companies
100%= 128 18 28
d Causes material damage 5%
to global operations
24

50
Causes material damage 46
to China operations
41

25
No or minimal impact
49
35
25

Limited to Counterfeits Counterfeits

China market exported exported
throughout Asia beyond Asia

Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire

2005

( 38)
40
SATISFACTION WITH COOPERATION OF PRC
OFFICIALS IN OFFICIAL ACTION AGAINST
IPR VIOLATORS - 2005
2005
( Administrative action Court action
Percent, 100%= 55 companies
Percent, 100%= 55 companies
39) 100%= 55
100%= 55

Not satisfied Not satisfied

43
57% 48 52%

Satisfied Satisfied

Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire

2005

American Corporate Experience in a Changing China

29
Persistent Challenges Evolving

China operations often undertake proactive brand
protection programs that involve assisting and
encouraging enforcement authorities by gathering
and providing evidence of infringement. Given that
most companies that pursue administrative or
court action are not satisfied with the level of
cooperation from relevant PRC officials (Exhibit 40),
it is not surprising that relatively few of our respon-
dents have pursued civil or criminal prosecution
through the court system (Exhibit 41).
An important Supreme Court judicial interpreta-
tion in December 2004 lowered the threshold for
criminal liability reflecting the government’s
commitment to improve the situation, but as of
mid-2005, opinion was divided among respon-
dents as to whether this would result in concrete
improvements. (Exhibit 42)
cal capacity and market savvy to set the standards
that others adopt. There is much work still to be
done in this regard, however; for example, few
foreign companies are able to fully participate in
standards committees (Exhibit 44).
China continues to encourage technology transfer
and establishment of research facilities, but it is
clear that weak IPR enforcement is a material
deterrent to both (Exhibits 45 and 46). It is
noticeable and not altogether surprising that the
negative impact of IPR infringement and technical
44
PARTICIPATION IN CHINESE
TECHNICAL STANDARDS COMMITTEES
- 2004-2005
Ᏼᒦਪଆၣ‫ܪ‬ᓰᆕᏋ્ᒦࡼ‫ݬ‬Ꭷ߈ࣞ
.!2004-2005ฤ
Percent ‫ڻ‬ॊ‫܈‬ᒋ

A second controversial area for high-tech compa- 100%= 236 companies

384
100%= 236 ଜ৛ႊ
nies is standards and certification. The proportion Yes, as full voting member 5 2
of respondents who believe China’s technical ဵLjᔫᆐᎌኡ௟ཚ્Ꮛ 14
Yes, as non-voting member 29
standards and certification processes negatively ဵ-ᔫᆐᇄኡ௟ཚ્Ꮛ 18
affect their operations in China has decreased only No, but want to
slightly in the last three years, though it has never ॥-ࡣᏒፀଝྜྷ

been as large as those affected by IPR infringement No 66 66

(Exhibit 43). ॥

Some voices within China argue that having given

up tariff protection, China could use new domestic
standards and certification to protect local
industry. Forcing foreign
41
market entrants to adopt
41
Chinese standards would
establish Chinese intellec-
tual property at the stroke
of a pen. It is more likely, of
course, that failure to adopt
international standards
would result in an isolated
market with uncompetitive
and out-of-touch technical
standards. The more encour-
2004 2005
Source: 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ; 2004,2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
PURSUED ADMINISTRATIVE OR COURT ACTION
AGAINST IPR VIOLATORS - 2005
࣪༪बᒀဤ‫ޘ‬ཚቲᆐᑗࡼቲᑶਜ਼जേࡅဗ!.!2005ฤ
Pursued administrative action Pursued court action
Percent, 100%= 132 companies Percent, 100%=135 companies
ቲᑶᅆ஼ जേႫႛᅆ஼
‫ڻ‬ॊ‫܈‬ᒋ-!100%= 132 ଜ৛ႊ ‫ڻ‬ॊ‫܈‬ᒋ-!100%= 135 ଜ৛ႊ
Yes Yes
ဵ ဵ
16%
39%

aging and positive trend in 61

many industries is a move 84

toward adoption of interna- No No

॥ ॥
tional standards. Many
expect that China will one Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
day possess the technologi- ᓾ೯౶Ꮞ;!!2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

30 American Corporate Experience in a Changing China

d

( 45 46)

(
43) d
42
EFFECT OF LEGAL REFORM ON IPR
ᒀဤ‫ޘ‬ཚजേजਖখুࡼᔫ፿
Percent, 100%= 411 companies ‫ڻ‬ॊ‫܈‬ᒋ-!100%= 411!ଜ৛ႊ

To what extent do you believe the Chinese People’s Supreme Court judicial
interpretation lowering the threshold for criminal liability (issued December 2004)
will improve the IPR environment for your business?
ฝཱྀᆐ2004ฤ12Ꮬᒦਪᔢ঱ཽ෍जᏔ‫ࡼݚۆ‬ႊजஊျᒦਈ᎖ଢ଼ࢅߌ࡛ቮူᐊྀඡୁࡼᄟᆪLj
Ᏼࣶࡍ߈ࣞ࿟ถখ࿖ᒀဤ‫ޘ‬ཚۣઐࡼણஹ@

To a great extent
્ᎌ੪ࡍ߈ࣞࡼখ࿖
No basis to comment 4%
ᇄຶ൙૥߻
29

32 To some extent
્ᎌጙࢾ߈ࣞࡼখ࿖

13
Will not change
the situation 22
‫્ݙ‬খ‫ܤ‬ሚᓨ
Will provide only
marginal improvements
ᒑ્ᎌ൒ᆈখ࿖
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ; 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

43
IMPACT OF CHINA'S TECHNICAL STANDARDS
AND CERTIFICATION PROCESSES ON CHINA
OPERATIONS - 2003-2005
ᒦਪଆၣ‫ܪ‬ᓰਜ਼ཱྀᑺ߈ኔ࣪Ᏼખጓᇗࡼ፬ሰ!.!2003-2005ฤ
Percent ‫ڻ‬ॊ‫܈‬ᒋ
100%= 227 companies
100%= 227!ଜ৛ႊ 236 376
Strongly negative 7 6 3
ऻ‫ޟ‬ሿ૵
Negative 19 24
25
ሿ૵
16
22
Positive
( 28
૩૵

44) d
No impact 59
ᇄྀੜ፬ሰ 51
40

2003 2004 2005

Source: 2003, 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;!!2003,2004,2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

American Corporate Experience in a Changing China 31

Persistent Challenges Evolving

standards is higher among high-tech respondents respondents reported increased control of distribu-
than among the general body of respondents tion and in 2004 and 2005, half reported improve-
(Exhibit 47). For high-tech companies in ment or continued improvement.
particular, China’s poor IPR protection is influenc-
ing investment decisions (Exhibit 48). Forty-five U.S. Visa Policy
percent of high-tech respondents have slowed,
Despite recent increases in the number of visas
decreased, or may decrease investments because of
issued in 2004 compared to the previous two years
IPR issues. The number is higher for investments
(Exhibit 51), respondents feel the U.S. visa policy
that involve transfers of intellectual property (53
continues to place U.S. companies at a
percent overall and 71 percent for high-tech
disadvantage. Most companies feel that it is more
manufacturers) and movement of research facilities
difficult for Chinese to travel to the U.S. than to
(46 percent overall and 73 percent for high-tech
other countries (Exhibit 52). As a result, most
manufacturers).
avoid arranging meetings in the U.S. for suppliers,
This means that the negative impact of China’s customers, and employees (Exhibit 53). One in six
poor IPR protection on investment is higher respondents has lost significant sales or business
among the companies China
45
most wants to attract. The IMPACT OF CHINA'S POOR IPR PROTECTION
conclusion must be that the ON INVESTMENT - 2005
remarkable progress of ᒦਪᒀဤ‫ޘ‬ཚۣઐ‫ݙ‬ೆ࣪ᄾᓾࡼ፬ሰ!.! 2005ฤ!
Percent, 100% = 405 companies ‫ڻ‬ॊ‫܈‬ᒋ-!100% = 405!ଜ৛ႊ
technological improvement
of the Chinese economy has Could trigger decrease 5%
ᎌభถࡴᒘᄾᓾି࿩ 2 9 9
occurred in spite of serious 6 6
Has triggered decrease
drags, and would be even ጯளࡴᒘᄾᓾି࿩ 28
Has slowed investment 29
more striking if those ጯளࡴᒘᄾᓾहદ 38
negative factors were materi-
ally ameliorated.
No impact 65
Distribution ᇄྀੜ፬ሰ 56
47
Challenges
Increasing control of Intellectual
Overall Movement of
distribution, in terms of investment levels property transfers research facilities
ᔐᄏᄾᓾၺຳ ᒀဤ‫ޘ‬ཚᓞཱུ ዐ௅࿸ဗᓞጤ
both reaching customers
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
and controlling costs, has ᓾ೯౶Ꮞ; 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

been a key concern for many

of our respondent compa- 46 R&D IN CHINA - 2004-2005
nies (Exhibit 49). Twenty- Ᏼખࡼዐखᄾྜྷ!.!2004-2005ฤ
seven percent of manufac- Percent, 100%= 450 companies ‫ڻ‬ॊ‫܈‬ᒋ-!100%= 450ଜ৛ႊ
turer respondents indicate
that changes in distribution Have R&D center 7%
ᎌዐखᒦቦ
costs are negatively affecting
Increased China-based R&D in 2004
their margins. Most respon- 37
2004ฤᐐଝ೫ᒦਪࡼዐखᄾᓾ
dents have reported success Likely to invest in R&D in 2005 47
in increasing control of their భถᏴ2005ฤ஠ቲዐखᄾᓾ

distribution networks, even Lack of IPR protection influences*

before China granted formal
distribution rights in De-
cember 2004 (Exhibit 50).
In 2002 and 2003, most
movement of R&D facilities 44
ལचߠॊࡼᒀဤ‫ޘ‬ཚۣઐ፬ሰࡵᓞጤዐख࿸ဗࡵᒦਪ*
* Slowed pace, triggered decrease, or could trigger decrease
* ႥࣞहൻLjି࿩૞భถି࿩࣪ዐखࡼᄾྜྷ
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ;2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

32 American Corporate Experience in a Changing China

 ( 47) 2004 2005
( 48)
45%

53%
2004
71%
( 51)

53%
47 IMPACT OF IPR INFRINGEMENTS AND CHINESE
73% d TECHNICAL STANDARDS ON HIGH-TECH
MANUFACTURERS - 2005
知识产权侵权和中国技术标准对高科技企业的影响　－　
2005年
Percent 百分比值

China IPR infringements cause material damage to global operations

中国知识产权侵权对全球业务造成实质性损害
High-tech respondents*
参加问卷调查的高科技企业* 12%
All respondents
所有参加问卷调查的企业 9%

China IPR infringements cause material damage to China operations

中国知识产权侵权对在华业务造成实质性损害
High-tech respondents*
参加问卷调查的高科技企业* 25%
All respondents
所有参加问卷调查的企业 20%

Negative impact of China's standards and certification process

中国现行技术标准和认证体系的负面影响
High-tech respondents*
参加问卷调查的高科技企业* 45%
All respondents
所有参加问卷调查的企业 27%

* Aerospace, Engineering/Technical Consulting Services, Health Care Equipment, Information Technology and Communications
Equipment, Information Technology and Internet Services, Pharmaceuticals
* 航空业，　 工程业／技术咨询服务，　 医疗卫生设备，　信息技术和通讯设备，　 信息技术和网络服务，　 医药制造业　
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
资料来源： 2005年中国美国商会和上海美国商会会员调查问卷

(
48 IMPACT OF IPR INFRINGEMENTS ON HIGH-TECH
49)
MANUFACTURING* INVESTMENT - 2005
27% ᒀဤ‫ޘ‬ཚ༪ཚ࣪঱పଆᒜᐆጓᄾᓾࡼ፬ሰ+!.!2005ฤ
Percent, 100% = 49 companies ‫ڻ‬ॊ‫܈‬ᒋ-!100% = 49ଜ৛ႊ

Causes material damage to global operations

࣪ཝཆጓᇗᐆ߅ဣᒠቶႼ਴ 12%
Causes material damage to China operations
࣪Ᏼખጓᇗᐆ߅ဣᒠቶႼ਴ 25
Poor IPR protection has influenced
overall investment decisions 45
ᒀဤ‫ޘ‬ཚۣઐ‫ݙ‬ೆ࣪ᔐࡼᄾᓾଐચ‫ޘ‬ည೫፬ሰ
( 50) Poor IPR protection has influenced
technology transfers to China 71
2004 12 ᒀဤ‫ޘ‬ཚۣઐ‫ݙ‬ೆ፬ሰࡵ࣪ᒦਪ஠ቲଆၣᓞཱུ
Poor IPR protection has influenced
investment in research facilities 73
ᒀဤ‫ޘ‬ཚۣઐ‫ݙ‬ೆ፬ሰࡵ࣪Ᏼખዐख࿸ဗࡼᄾᓾ
2002
* Aerospace, Engineering/Technical Consulting Services, Health Care Equipment, Information Technology and Communications
Equipment, Information Technology and Internet Services, Pharmaceuticals
2003 * ੋహጓ-!৔߈ጓ0ଆၣᓽኯॲᇗ-!ጛ೦ᆦည࿸۸-!ቧᇦଆၣਜ਼ᄰ኶࿸۸-!ቧᇦଆၣਜ਼ᆀ൥ॲᇗ-!ጛጇᒜᐆጓ!
Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ; 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

American Corporate Experience in a Changing China 33

Moving Forward

relationships because of visa issues (Exhibit 54). factors driving high levels of foreign direct invest-
Approximately 10 percent of survey respondents ment and sustained value creation. AmCham-
shared stories of how visa challenges disrupted their China and AmCham Shanghai remain committed
business. These range from lost contracts because to building collaborative relationships with the
purchasers could not get visas to attend technical Chinese and U.S. governments. Further, our
training or view facilities in the U.S., to meetings members express strong confidence in China as a
that had to be cancelled or moved to other place to do business. We believe that China needs
locations. Many manufacturers fear that customers, to pursue relentlessly the full implementation of its
particularly capital equipment purchasers, are WTO commitments and embrace market opening
developing a preference for EU suppliers because of in order to enjoy the full benefits of participation
difficulties getting visas to travel to the U.S. in the global market economy. Our members are
eager to continue a forward-looking constructive
dialogue. Looking to the future, we are hopeful
that as the economic and trade relationship
MOVING FORWARD
The Chinese domestic policy 49
DISTRIBUTION NETWORKS - 2004-2005
discussion is currently ሾ၉ᆀ൥!.!2004-2005ฤ
framed around the two Percent of companies ৛ႊ‫ڻ‬ॊ‫܈‬ᒋ
themes of sustainable
Difficulty controlling or engaging in distribution
economic development and negatively affects business 2004 50%
2004ฤซጲ఼ᒜ૞஑ྜྷሾ၉དྷࡸ࣪ጓᇗᐆ߅ሿ૵፬ሰ
building a harmonious
Ability to control distribution improving 2004
society. We are now in a 2004ฤ఼ᒜሾ၉དྷࡸࡼถೆᎌჅখ࿖ 36
transitional period in which Ability to control distribution improving 2005
28
a new leadership is taking 2005ฤ఼ᒜሾ၉དྷࡸࡼถೆᎌჅখ࿖

stock of progress and Changes in distribution costs

negatively affected margins 19
problems, consulting widely, ሾ၉ᄾྜྷࡼ‫ܤ‬છ࣪ಽྥൈࡒ౶ሿ૵፬ሰ

and moving toward policy Changes in distribution costs

positively affected margins 9
adjustments that will em- ሾ၉ᄾྜྷࡼ‫ܤ‬છ࣪ಽྥൈࡒ౶૩૵፬ሰ

phasize more even income Difficulty controlling

distribution is a top-5 challenge 6
distribution, more investment ซጲ఼ᒜሾ၉དྷࡸဵᔢᓍገࡼ5ৈᄞᐵᒄጙ
in education and public Source: 2004, 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
ᓾ೯౶Ꮞ; 2004,2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳
health, better environmental
protection, and more
50
balanced but probably CONTROL OF DISTRIBUTION NETWORKS
slightly slower growth. We ࣪ሾ၉ᆀ൥ࡼ఼ᒜ
Percent ‫ڻ‬ॊ‫܈‬ᒋ
do not know whether this
will be successful. In the past, 100%= 152 companies
100%= 152 ଜ৛ႊ 197 170 245
however, as shown by these
15 9 10
surveys and our members’ Increase greatly 23
experiences, China’s ᎌ੪ࡍᄋ঱
38
pragmatic, flexible, cautious 41
Increase somewhat 49
macroeconomic policy has ൒ᎌᄋ঱ 55
been effective over time.
51
We view China’s economic 47
Remain the same 35
reforms and market ۣߒ‫ܤݙ‬ 21
opening, and the program of Decrease 1 1 2 2
ିྦྷ 2002 2003 2004 2005
policy adjustment now Source: 2002 AmCham-China Member Questionnaire and 2003-2005 AmCham-China and AmCham-Shanghai Member Questionnaire
underway, as fundamental ᓾ೯౶Ꮞ; 2002ฤᒦਪගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳Lj2003, 2004, 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

34 American Corporate Experience in a Changing China

 ( 52)

( 54) 10%

52 DIFFICULTY FOR PRC NATIONALS

TO TRAVEL TO U.S. COMPARED
WITH OTHER COUNTRIES - 2005
Ꭷषᆰ໚Ⴧਪଜሤ‫܈‬ᒦਪ৛෍ংගषᆰࡼ
51 NON-IMMIGRANT VISAS ISSUED BY ౩ซ߈ࣞ!.!2005ฤ!
U.S. CONSULATES IN CHINA Percent ‫ڻ‬ॊ‫܈‬ᒋ
ගਪᓘખഌူ໽खࡼऻጤ෍໽ᑺ
100%= 408 companies
Thousands ࡝ᆡǖ໻॑ 100%= 408 ଜ৛ႊ Considerably easier
ऻ‫ྏޟ‬ጵ
295 No basis to judge
ᇄ૥߻ᔫ๨ࣥ Somewhat easier
247 ሤ࣪ྏጵ
228 2
6
186 13 The same
10
ጙዹ

Substantially Somewhat
more diffcult 39 more difficult
ऻ‫ޟ‬౩ซ 30 ሤ࣪౩ซ

2001 2002 2003 2004

Source: US Goverment Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire

ᓾ೯౶Ꮞ;!ගਪೊ‫ې‬ᑶঀ ᓾ೯౶Ꮞ; 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

53 54 LOST SIGNIFICANT SALES OR

NEGATIVELY AFFECTED BY
DIFFICULTY IN OBTAINING U.S. BUSINESS RELATIONSHIPS DUE TO
VISAS - 2005 VISA ISSUES - 2005
难以获得赴美签证问题的负面影响　－　
2005年 ፐ໽ᑺᆰᄌᐆ߅ሾ၉ਜ਼ጓᇗਈᇹ
Percent 百分比值 መᓎႼပ!.!2005ฤ!
Percent ‫ڻ‬ॊ‫܈‬ᒋ
N/A 100%= 401 companies
未能告知 100%= 401 家公司
N/A 100%= 406 companies
ᆚถসᒀ 100%= 406 ଜ৛ႊ
17 34
No
50% ඗ᎌ
53% Yes
30 是
No 16
否
Yes
ᎌ

Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire Source: 2005 AmCham-China and AmCham-Shanghai Member Questionnaire
资料来源： 2005年中国美国商会和上海美国商会会员调查问卷 ᓾ೯౶Ꮞ; 2005ฤᒦਪගਪ࿜્ਜ਼࿟਱ගਪ࿜્્Ꮛࢯ‫އ‬ᆰ௳

American Corporate Experience in a Changing China 35

List of Exhibits

expands, both governments will manage the inevi-

table trade frictions in a professional manner. As
our two countries are increasingly interdependent
and our economies more intricately interwoven, a
stable and mutually respectful relationship is of
paramount importance.

List of Exhibits:
1. The Magnitude of Change: 1999-2004 30. Consistent Operational Challenges, 1999-2005
2. Number of Employees 31. Five-Year Outlook for Business in China
3. Type of Legal Entity, 1999 and 2005 32. Human Resource Challenges, 2004-2005
4. 2002-2003 Legislation Related to Mergers and Acquisitions 33. Human Resource Challenges by Length of Time in China
5. Inbound FDI and Foreign Acquisitions, 2001-2005 34. Changes in Human Resource Challenges
6. Acquisitions of Local Chinese Companies or Their Assets, 2004- 35. Expansion into Second Tier Cities
2005 36. Physical Presence beyond Tier-One Markets, 2004
7. Market Access Issues, 1999-2001 37. China’s Attitude towards WTO, 2005
8. The WTO Factor 38. China IPR Protection, 2003-2005
9. Increased Products and Services Offered in China, 2002-2005 39. Extent of IPR Infringements and Impact, 2005
10. Central Government’s Attitude Towards WTO, 2003-2005 40. Satisfaction with Cooperation of PRC Officials in Official Action
11. Effect of China’s Economic Reforms on Companies against IPR Violators, 2005
12. Top Three Reasons for Entering China, 1999 and 2005 41. Pursued Administrative or Court Action against IPR Violators,
2005
13. Number One Goal for China Operations
42. Effect of Legal Reform on IPR
14. Secondary Goals in China
43. Impact of China’s Technical Standards and Certification
15. Revenue Growth, 2000-2005 Processes on China Operations, 2003-2005
16. Profitability, 2002-2004 44. Participation in Chinese Technical Standards Committees, 2004-
17. Increased Volume of Exports from China: Manufacturing 2005
Companies, 2002-2005 45. Impact of China’s Poor IPR Protection on Investment, 2005
18. U.S. Trade Deficit, 1994-2004 46. R&D in China, 2004-2005
19. China Margins Versus Worldwide Margins, 1999-2004 47. Impact of IPR Infringements and Chinese Technical Standards
20. Factors Negatively Influencing Margins, 2005 on High-Tech Manufacturers, 2005
21. Current and Planned Expansion, 2005 48. Impact of IPR Infringements on High Tech Manufacturing
22. Competition from Foreign Firms Investment, 2005
23. Competition from PRC Firms 49. Distribution Networks, 2004-2005
24. Factors Positively Influencing Margins, 2005 50. Control of Distribution Networks
25. Revenue Growth by Length of Time in China 51. Non-Immigrant Visas Issued by U.S. Consulates in China
26. Profitability by Length of Time in China 52. Difficulty for PRC Nationals to Travel to U.S. Compared with
Other Countries, 2005
27. Companies with Year-to-Year Margin Improvements, 1999-2004
53. Negatively Affected by Difficulty in Obtaining U.S. Visas, 2005
28. Changes in Margins by Length of Time in China
54. Lost Significant Sales or Business Relationships Due to Visa
29. China Margins Versus Worldwide Margins by Length of Time in Issues, 2005
China

36 American Corporate Experience in a Changing China

1 1999-2004 32 2004-2005
2 33
3 1999 2005 34
4 2002-2003 35
5 2001-2005 36 2004
6 2004--2005 37 2005
7 1999-2001 38 2003-2005
8 39 2005
9 2002-2005 40 2005
10 2003-2005 41 2005
11 42
12 1999 2005 43 2003-2005
13 44 2004-2005
14 45 2005
15 2000-2005 46 2004-2005
16 2002-2004 47 2005
17 2002-2005 48 2005
18 1994-2004 49 2004-2005
19 1999-2004 50
20 2005 51
21 2005 52 2005
22 53 2005
23 54 2005
24 2005
25
26
27 1999- 2004
28
29
30 1999-2005
31

American Corporate Experience in a Changing China 37