Recruiting in China

BEIJING - Intellectual property rights and power shortages are problems in both Shanghai and Beijing but the outlook for business in both cities remains overwhelmingly positive, says the "White Paper 2005 American Business in China" released September 1.

The white paper, the seventh annual report of its kind, was jointly prepared by the American Chamber of Commerce in China (AmCham) and the American Chamber of Commerce in Shanghai, and outlined the current state of business for a number of industries, ranging from manufacturing, trade and distribution to services. Released annually, the paper is the result of surveys and consultation among nearly 2000 member businesses of both chambers.

City-specific challenges for Beijing, Shanghai
It also points out a number of city-specific challenges faced by Beijing and Shanghai as they develop a more international business environment. Despite growing government attention, intellectual property rights protection remains a prominent problem in both cities. While progress has been made, AmCham says the lack of protection is forcing business to reconsider plans in both Shanghai and Beijing. A lack of enforcement by local governments was cited as a major issue.

Energy supply is also a concern. Both cities faced shortages this summer and had to "borrow" power from neighboring areas. The stop-gap measure kept both cities operating, but long-term solutions are needed, says AmCham.

Still, said James Green, AmCham Shanghai's director of government relations, the biggest challenge is human resources. "Finding, training and keeping management," Green said. "It's a hot, hot labor market and people are in high demand."

In Beijing, said AmCham, there has been progress in reducing red tape for businesses and transparency is better. There is, however, an acute lack of water and growing traffic woes that may hamper the city's ability to meet long-term goals. Air quality in the city is also a problem. The number of airborne particles rose last year and, the report points out, the Chinese Academy of Social Sciences ranked Beijing 14th among China's cities on that count.

Shanghai businesses tended to focus on the practical side of business and lifestyle. A stable supply of electricity was a concern alongside slow Internet connections, which make it difficult to do business online. One concern, which affects Beijing as well, is a lack of regulations for distribution companies: "... lack of progress on distribution rights is especially noteworthy in Shanghai."

As in Beijing, intellectual property rights are a concern but they may have a more direct impact in a city looking to attract high technology businesses to its 140 foreign-invested research and development centers. Many companies don't expand beyond a representative office "for fear of losing proprietary information and technology."

Other concerns for Shanghai businesses included daily-life issues. Health care was a top concern, as was traffic safety. Education for expatriates also posed a challenge: businesses said their employees had trouble finding spots in accredited foreign schools at reasonable fees. Ultimately, however, the outlook is positive, said AmCham Shanghai chairman Jeffrey Bernstein.

US firms upbeat
A huge majority of US businesses operating in China reported increases in annual revenues last year, according to the white paper. About 86% of respondents said they posted higher revenues in 2004 compared to the previous year; and 68% were "profitable" or "very profitable" last year.

The nationwide survey also showed that US companies had great confidence in China's business environment. "The vast majority of survey respondents, 93%, report that China's economic reforms have improved the climate for US businesses, and 92% said their five-year business outlook in China is 'optimistic' or 'cautiously optimistic'," the white paper said.

At the same time, US businesses are facing increasing competition from both local companies and foreign rivals. Profitability in 2004 was slightly lower that in the previous two years, indicating more challenges. "We attribute the leveling margin to both improved markets elsewhere and to US firms' financial performance in China more closely tracking their global performance as China revenues grow," the white paper said.

It explained that factors such as price pressure from major customers, as well as changes in market and commodity prices, and salaries, are driving down margins. But the white paper added this was minor compared to the continuity of higher profitability since China joined the World Trade Organization. Despite increasing challenges, most US companies said they would increase business activities in China.

Emory Williams, chairman of AmCham China, said the annual white paper made suggestions not only to the Chinese government but also to the US administration. For example, he said, the US government should relax restrictions on issuing visas to Chinese. According to the chamber's survey, visas issued to Chinese nationals were up 23% compared to the previous year, but still lower that the level before September 11, 2001.