USCBC 2013 China Business Survey – The Verdict is “Tempered Optimism”

International managers must learn to deal with a more mature, independent Chinese economy – and that won’t be easy.

USCBC 2013 China Business Environment Survey Results:
Tempered Optimism Continues Amid Moderating
Growth, Rising Costs, and Persistent Market Barriers

Sign up for the ChinaSolved newsletterThe US China Business Council has published its annual “China Business Environment Survey” results, and it is a mixed bag for international managers in China. The Council keeps using the phrase “tempered optimism”- but that seems to be a euphemism for “new reality that Westerners must deal with.”

The Council puts on a brave face and mines the data for bits of good news, but the upshot is that the problems facing international managers in China are A) daunting and B) not going away any time soon.

Growing Pains are over. Now it’s just Pain.

Here are the top 5 challenges that international managers reported in China:
Top 5 Challenges

1. Costs
2. Competition with Chinese
3. Administrative licensing
4. HR – Recruitment & Retention
5. IPR Enforcement

While the results aren’t exactly a revelation, they do carry an important message. Of the main complaints, the only one that we can expect any kind of relief from is #5 – IPR Enforcement, and that is tied directly to #2. Copyrights and IP protection will get better as Chinese companies develop their own portfolio of patents and IP worth protecting – and you can expect that Western companies will be a top target for enforcement measures.

The New Mature China

The dust from the go-go post-opening land rush has settled, and the days of conflicting regulations, untested territory and general chaos are largely over. They have, however, been replaced with an inhospitable environment of high costs, HR bottlenecks and a permanent un-level regulatory landscape. The low-hanging fruit is gone, and the report hints at the ugly reality – deep-pocketed MNCs can no longer count on being able to spend their way to success in China. As the authors point out several times, the days of “explosive” revenue growth are over. Foreign firms are still making money in China – but at a more stable, less attractive clip.

China Market Maturing – But Not Into What We Had Hoped For

The growth spurt is over and the Chinese economy is emerging from an awkward teen into a mature economy. As often happens in real life, however, the youngster has not grown up quite the way we had hoped. The final version is a little more independent, has some disagreeable political ideas, and tastes that differ from ours.

Bad News –

China has always been a tough market, but now it appears that high prices, unstable HR trends and unfair regulatory treatment for foreigners have been baked in – don’t look for relief any time soon. That means it’s on you to come up with solutions and work-arounds. Analysis leads to adjustment – and you are the one who must adjust your behavior and tactics to meet a more confident and developed China.

Good News –

The chaos and unpredictability of rapid growth are things of the past. The good news is that we know the bad news. There is still money to be made in China – the percentage of survey respondents reporting China profits hit a record high (though so did the number of respondents pulling up stakes and leaving).

Better Potential News –

Chinese privates face most of the same challenges that Westerners do, and if global markets ever start growing again the international companies in China will have a new bargaining chip to play – helping Chinese firms flee their own hyper-competitive territory and expand overseas.

For now, however, China is still the fastest-growing economy on the board. Learn to play and plan to pay. It’s not getting easier any time soon.

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