U.S. companies in China mostly oppose tariffs, survey shows

By John Ruwitch

SHANGHAI (Reuters) - Most U.S. businesses operating in China oppose using tariffs as a weapon to solve their problems ranging from market access to poor protection of intellectual property rights, a survey suggested on Thursday.

Nearly 69 percent of the 434 respondents to the annual China Business Climate Survey of the American Chamber of Commerce in Shanghai opposed tariffs, while 8.5 percent backed them.

The survey, conducted April 10 to May 10, reflects the mix of concerns and realities for American businesses in China at a time of heightened uncertainty as the Trump administration raises the ante in its trade war with Beijing.

President Donald Trump accuses China of unfair trade practices that benefit its firms while hobbling U.S. companies and creating an outsized trade deficit for the United States.

Washington raised the stakes in its trade war with China on Tuesday, proposing 10 percent tariffs on an extra $200 billion worth of Chinese imports, from food products to tobacco, chemicals, coal, steel and aluminum.

"One should give the Trump administration credit for getting China's attention because for many years there have been extended discussions about market access issues that plague foreign companies here in China, and the progress has been pretty slow," said Ken Jarrett, president of AmCham in Shanghai.

However, extrapolating from the survey findings, Jarrett said multilateral negotiations were a preferable approach.

"Now that the U.S. government has China's attention I think actually there's no alternative but to try to go back to the negotiating table," said the former U.S. Consul General in Shanghai.

While U.S. firms still face challenges in China, 34 percent of respondents felt state policies toward foreign firms had improved, up from 28 percent last year, the survey showed.

Those that felt policies had worsened for foreign firms fell to 23 percent from 33 percent last year. Sixty percent said the regulatory environment lacked transparency, on par with 2017.

Protection of intellectual property rights and licencing requirements were the top two regulatory challenges.

The Trump administration has complained that U.S. companies are forced to hand over key technology to access China's market.

Twenty-one percent of firms in the survey said they felt pressure to transfer techology, with aerospace and chemicals firms leading the way at 44 percent and 41 percent respectively.

China's Cybersecurity Law, which took effect last year, had disrupted businesses, the survey said, while VPN policies made work harder for 56 percent of companies.

GUARDED OUTLOOK

While tariffs were not popular, 42 percent of respondents favoured investment reciprocity as a way to push for change in market access, up from 40 percent last year.

However, those opposed to reciprocity grew to 16 percent from 9 percent last year, and the number of unsure respondents slipped to 31 percent from 44 percent.

"Despite the relative optimism our members feel guarded about the future," AmCham said.

Concern about preferential treatment for Chinese firms and pressure for U.S. technology transfers is "stoking demand for reciprocity in the U.S.-China trading relationship, even if our members generally oppose the use of retaliatory trade tariffs".

The biggest operational challenge was rising costs, an issue cited by 95 percent of respondents. More than 85 percent said domestic competition was a challenge.

The proportion of companies expecting to be profitable in China was basically flat at about 77 percent, the survey showed, but firms also signalled a slight pullback in investment.

Fifty-three percent of firms increased investment in 2017, down from 55 percent the year before, highlighting a trend of reduced investment growth since a 2012 peak, when 74 percent of respondents said they had boosted investment in China.

(Reporting by John Ruwitch; Editing by Clarence Fernandez and Darren Schuettler)