AsianFin -- Nearly half of U.S. businesses operating in China have redirected planned investments to other regions over the past year, the highest share on record, according to the American Chamber of Commerce in Shanghai (AmCham Shanghai).
The survey, released Wednesday, reflects growing unease among American firms amid geopolitical tensions, a slowing Chinese economy, and intensifying competition from domestic players.
The study, which surveyed 254 member companies across a range of industries, found that 47% of respondents had diverted investment initially earmarked for China, primarily toward Southeast Asia, followed by the Indian subcontinent, including Bangladesh. By contrast, only 12% of companies ranked China as their top investment destination, marking a historic low since AmCham began asking the question in 2017.
“For a company, 90 days is just way too short,” said Eric Zheng, president of AmCham Shanghai, referring to the recent 90-day extension of the U.S.-China trade truce. “At least we don’t need to deal with even higher tariffs for now, but the issue is not going away. It’s still here,” he added, underscoring the challenges businesses face in long-term supply chain planning.
The survey comes on the heels of heightened trade tensions. U.S. President Donald Trump announced sweeping “Liberation Day” tariffs last year, sparking a tit-for-tat escalation with China. While some tariffs were temporarily rolled back in mid-May, and a 90-day truce was agreed to last month, the AmCham report highlights that the uncertainty continues to weigh heavily on companies’ strategic planning.
Geopolitical tensions and domestic rivals
According to the report, 66% of respondents cited U.S.-China geopolitical tensions as the primary challenge facing their business over the next three to five years. “Hopefully the two governments will work together to sort out their differences and there will be a deal soon,” Zheng said, stressing that even temporary pauses in trade hostilities do little to alleviate long-term planning concerns.
Rising competition from Chinese firms emerged as the second-most significant challenge, overtaking concerns about China’s economic slowdown. The survey found that U.S. companies were outpaced by local competitors in six of eight business categories, particularly in speed to market and artificial intelligence adoption. Forty-one percent of respondents said Chinese firms were more advanced in AI, with that number climbing to 62% in retail and consumer sectors. U.S. firms, meanwhile, reported a competitive edge primarily in product quality and development.
“Domestic competition is no longer just about price; it’s about innovation, speed, and AI integration,” said Jeffrey Lehman, chair of AmCham Shanghai. He noted that U.S. tariffs on Chinese goods, which now average nearly 58%, and China’s retaliatory duties of roughly 33%, further complicate operations, especially when essential materials originate from the U.S.
The redirection of investment is not limited to manufacturing. Firms are strategically repositioning operations to reduce risk and capitalize on emerging markets. Southeast Asia remains the most attractive alternative, offering lower production costs and growing consumer demand. The Indian subcontinent, including Bangladesh, ranks second, while the U.S. and Mexico are much lower on the list.
Several companies, especially in advanced technology sectors, have announced high-profile investments in the U.S., aligning with Washington’s “onshoring” initiatives aimed at bringing production back to domestic soil. However, for many supply chains, moving entire operations is a long-term process, and the short-term tariff pauses offer limited relief.
Despite the geopolitical and competitive pressures, some metrics showed improvement over the past year. Seventy-one percent of surveyed companies posted profits, up from last year’s record lows, and 57% reported year-on-year revenue growth, compared with 50% previously. Yet projections remain cautious: only 45% expect revenue growth in 2025, potentially a new record low. Sixty-four percent of respondents said renewed U.S.-China tariffs could drag on revenue.
The AmCham survey also revealed that operating margins in China are lagging behind global benchmarks for many U.S. firms. Only 28% reported that their China margins were higher than their worldwide operations, while 33% said their performance in China was worse.
Regulatory environment shows improvement
Amid the challenging business landscape, respondents noted progress on the regulatory front. Nearly half (48%) of companies said regulations were transparent for their industry, up from 35% in 2024. The share reporting that regulatory opacity hindered operations dropped 12 percentage points to 16%, while those indicating that foreign and local firms were treated equally rose to 37%.
China has intensified efforts to attract and retain foreign investment in recent years. Policies have included greater engagement with companies, clearer guidelines for sectors like biotechnology, and improved government procurement rules. Yet 14% of respondents still reported a worsening business environment, with the tech sector experiencing the greatest challenges at 31%.
Confidence about the five-year business outlook in China hit a record low for the fourth consecutive year, with only 41% of U.S. companies expressing optimism—a decline of six percentage points from 2024. Political uncertainty, combined with fierce domestic competition and slowing economic growth, continues to weigh on long-term planning.
Zheng emphasized that companies are not necessarily abandoning China entirely but are hedging their bets, reallocating investments to safer or more predictable markets while keeping a foothold in the Chinese economy. “It’s about risk management,” he said. “Companies recognize the size and potential of China, but they’re adjusting strategies to avoid overexposure.”
Broader implications for U.S.-China trade relations
The report underscores how trade tensions, domestic competition, and regulatory uncertainties are reshaping global investment patterns. For China, retaining foreign capital may become more challenging if political frictions and competitive pressures persist. Meanwhile, U.S. companies are increasingly considering alternative markets, particularly in Southeast Asia and South Asia, to diversify supply chains and reduce dependence on China.
“The landscape is shifting,” Lehman said. “Companies are weighing profitability, operational efficiency, and long-term stability. China remains a key market, but risk mitigation is now central to investment decisions.”
As U.S.-China relations continue to fluctuate, the survey suggests that both governments’ actions will remain pivotal in shaping business sentiment. While regulatory improvements and policy support are steps in the right direction, political and market uncertainties leave companies cautious, even as they continue to participate in China’s massive consumer and industrial markets.
