Multinational firms planning to invest less in China because of market access barriers, slowing growth, American Chamber of Commerce in China reports; China's economy expanded 7.4% year-over-year in Q1, the slowest pace in 18 months

Cindy Allen

BEIJING , April 22, 2014 (Thomson Reuters Corp.) – Multinational firms are planning to invest less in China because of market access barriers and slowing growth in the world's second-largest economy, a U.S. business lobby said on Tuesday.

China's economy expanded 7.4 percent year-on-year in the January-March quarter, its slowest pace in 18 months.

Concerns over market access and slower growth are greater this year than they were in the past, the American Chamber of Commerce in China said in its annual report on the business climate in China.

"We refer to market access barriers as one of the primary reasons for lowered investment," Chamber Chairman Greg Gilligan told reporters at a briefing on the report.

"With slower growth, our member companies do not reflect less need for investment, but perhaps less need for investment based on the old economic model that was more reliant on exports and infrastructure spending," Gilligan said.

At a plenum meeting of the Communist Party last November, China announced ambitious reforms that signaled the shift of China's economy from infrastructure- and export-fuelled growth towards a slower, more balanced and sustained expansion.

The annual report, which the Chamber uses to lobby both the Chinese and U.S. governments, placed industrial policies that support Chinese state-owned enterprises atop the list of complaints.

"State-owned enterprises have increased their control over certain sectors of the economy in recent years, and government support for SOEs was overwhelmingly citied by AmCham China member companies as the most negative industrial policy, being chosen more frequently than all the other options combined," the Chamber said in the report.

The United States has a massive trade deficit with China, which maintains a tight grip on state-owned businesses.

The report also said that 40 percent of the lobby's member firms felt they were targeted by Chinese media, increasing perceptions that foreign investment is becoming less welcome.

Other concerns included fear of retribution if companies defend their interests through the Chinese legal system, and the report noted moderate or low progress on a host of perennial issues, from government procurement to intellectual property rights protection.

Despite the deep-seeded worries over market access, the Chamber was optimistic about renewed negotiations on a U.S.-China bilateral investment treaty.

The world's two biggest economies agreed in July to restart stalled talks on the investment treaty. Previously, Beijing had agreed to negotiations only if certain Chinese industries, especially in its service sector, were exempt.

Tim Stratford, a co-chair on the Chamber's legal committee and a former U.S. trade negotiator, said the Chinese government's commitment to return to talks reflected "a lot of study."

"It was not a casual undertaking on their part. Given all the work that has gone into these negotiations already and given the momentum behind them ... we are feeling optimistic that the negotiations will be successful," Stratford said.

"It's hard to say how long that will take, but it is not something that will be done in a few months," he said.

(Reporting by Michael Martina; Editing by Chris Gallagher)

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.