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2009 Special Report on the State of Business in South China

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AmCham South China: Investment budgets down 40% in 2009, but companies remain optimistic about their future in China

Despite downturn, AmCham members remain committed to May 12 earthquake reconstruction as investments in Sichuan stay strong

GUANGZHOU, People’s Republic of China – March 3, 2009 – The American Chamber of Commerce in South China (AmCham South China) today released the results of its annual Special Report on the State of Business in South China, providing a fact-based account of contemporary trends in the business environment that remains under the shadow of the worldwide financial crisis.

This year, 551 companies participated in the study, with collective revenues of more than $26 billion and employing more than 500,000 individuals in China.

Investment rates have been shown to have decreased to nearly 60% of last year’s reported 1-year budgets, and by nearly 40% for 3-year investment budgets. Regardless, budgeted volume remains strong: rather than the minimum of $16 billion cumulative 3-year investment budget reported in 2008, in 2009 the cumulative 3-year budget reached a more modest $10 billion. Furthermore, budgeted investment rates for greater than $50 million remain nearly identical to 2008’s results, indicating that major strategic investments are relatively unaffected by the current crisis.

Additionally, approximately 92% of companies reported that they were already profitable or would be within the coming two years, although the number of companies who are profitable but not meeting budget expectations has increased by 13% since 2007.

Continuing a trend observed for the prior three years, this year 72.5% of companies reported that providing goods or services to the Chinese market was their top priority—consistent with the Chinese government’s efforts to move away from an emphasis on exports and increase domestic consumption.

60% of companies investing in South China are also investing in Sichuan, consistent with AmCham South China’s “3-year plan to aid earthquake reconstruction,” which involved driving domestic reinvestment, in addition to incoming FDI, into earthquake-effected Sichuan and the surrounding areas.

While only 70% of study participants indicated that they felt the business environment had improved in the preceding 12 months, more than 85% felt that the business environment was “good/acceptable,” “very good” or “outstanding.”

Similarly, although “Chinese government regulatory issues” continues, for the fourth consecutive year, to be ranked the top business challenge for companies, “economic slowdown in China and other countries” were identified as the biggest source of negative effects on business operations now and for the foreseeable future.

When asked about the sharp decrease in investment budgets, AmCham South China President Harley Seyedin replied, “There are simply fewer dollars to go around, and competition for that smaller supply is very fierce in Asia Pacific.”

Mr. Seyedin went on to suggest that, “Fortunately, investment promotion is something that China has proven to be very good at. I do believe that while companies are struggling with the crisis, reinstating some of the proven methods to drive investment—tax breaks, tax holidays, incentive programs, for example—would help to secure more investment for China, employ more Chinese workers, and support the government’s stimulus efforts. It makes a lot of sense.”

About the 2009 Special Report on the State of Business in South China

The 2009 Special Report on the State of Business in South China is a quantitative study of the business environment, conducted for the past four consecutive years by Hewitt Associates on behalf of AmCham South China. This year, 551 companies participated in the study, with collective China revenues of more than $26 billion and employing more than 500,000 individuals in China. The Special Report is available free of charge on AmCham South China’s website and in hard copy by request.

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