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Cablegate: U.S. Businesses Still Bullish On South China

VZCZCXRO0931
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0201 0930839
ZNR UUUUU ZZH
R 020839Z APR 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 7023
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS GUANGZHOU 000201

SIPDIS

SENSITIVE
SIPDIS

STATE PASS USTR CHINA OFFICE
STATE FOR EAP/CM

E.O. 12958: N/A
TAGS: ECON ETRD EINV ELAB CH
SUBJECT: U.S. Businesses Still Bullish on South China


(U) This document is sensitive but unclassified. Please protect
accordingly

1. (SBU) Summary: U.S. companies are optimistic about the economic
outlook for south China, according to the American Chamber of
Commerce in South China's (Amcham) annual survey of firms. However,
some results suggested their outlook was slightly less rosy than a
year ago, with fewer firms stating that the investment environment
had improved over the year before. U.S. firms continue to be
focused on south China's domestic market, while the number engaged
in services rose sharply; most firms today say that their main
objective in setting up in China is to take advantage of domestic
opportunities. Regulatory issues were again the most frequent
complaint, followed by rising labor costs. The survey also
suggested that complacency among firms about the threat of avian
influenza appears to be growing. End summary.

Note: Amcham will release the results of its survey on April 8.
Please do not disclose this information until that date. End note.


Upbeat on South China Economic Outlook
--------------------------------------

2. (SBU) U.S. companies in south China remain upbeat about the
region's economic outlook, according to Amcham's 2008 survey of more
than 400 firms. The survey found that 87 percent of firms rated the
business environment in south China as "good/acceptable," "very
good" or "outstanding." However, this represented a small decline
from 2007 when 92 percent rated the environment in one of those
categories. Further suggesting a slightly less optimistic outlook
than a year ago, fewer firms said the business environment had
improved over the last 12 months. In the 2007 survey, 72 percent of
firms said that it had "improved greatly" or "improved somewhat."
However, that percentage dropped to 60 percent this year.

3. (SBU) Amcham firms continue to make money in south China with
little change in the percentage of firms reporting that they are
profitable. In 2008, 75 percent of firms said they were already
profitable and approximately 90 percent will be profitable within
two years or less.

4. (SBU) Investment results also suggest a strong positive outlook
on the region's economy. The results showed that 15 percent of
firms invested more than US$50 million in south China in 2007. But
according to last year's survey, only eight percent had planned to
invest that much. Business conditions during the last year appear
to have justified levels of investment that were higher than
originally planned.

Targeting the Domestic Market and Services
------------------------------------------

5. (SBU) U.S. businesses continue to be focused primarily on the
domestic south China market and are increasingly engaged in
services. Their number one goal overall for south China is to
"produce goods and services in south China for the China market,"
and the most commonly cited reason for setting up operations in
south China instead of other parts of the country was "opportunities
in south China's domestic market." The increase in firms engaged in
services was one of the most dramatic changes from 2007, rising more
than seven percentage points to 58 percent.

Regulatory Concerns and Rising Labor Costs
------------------------------------------

6. (SBU) The problems facing U.S. firms in the region are little
changed. "Regulatory issues (Chinese government)" was the number
one challenge cited by companies, reflecting the lack of
transparency, widespread corruption, and weakness of rule of law in
south China. Rising labor costs was the second most common
complaint, replacing lack of qualified talent; the tight labor
market is still a key concern, but the emphasis has shifted to
cost.

AI Complacency Grows
--------------------

7. (SBU) U.S. businesses are growing more complacent about the
threat of avian influenza (AI), even though south China continues to
be a hotspot for AI and other infectious diseases. Only 17 percent
of firms said they had made specific preparations for an outbreak,
down from 46 percent in 2005.

GOLDBERG

© Scoop Media

 
 
 
 
 
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