U.S. firms lower China expectations as growth slows, scrutiny rises

Wed Nov 12, 2014 8:15am EST
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By Matthew Miller

BEIJING (Reuters) - U.S. companies, which have led Western investment in China over the last 35 years, are scaling back their expectations and business plans in the face of slowing growth, heightened competition and increased regulatory scrutiny from Beijing.

"Clearly, there's moderating optimism," said John Frisbie, president of the U.S.-China Business Council (USCBC). "There’s also a lot of policy uncertainty in the business community."

The USCBC estimates U.S. business in China is worth about $350 billion a year, a figure that includes exports, as well as domestic and offshore sales by U.S. affiliates located in China.

That market may be growing at about 10 percent a year, but with China’s top-line gross domestic product growth expected to slow to 7.4 percent this year, the message from executives speaking on the sidelines of an APEC regional summit in Beijing was that many big investors are holding fire on fresh commitments.

U.S. foreign direct investment for the first nine months of this year declined 24.7 percent, China's Commerce Ministry said, while the American Chamber of Commerce in China noted in its annual survey that U.S. firms are "increasingly cautious".

"The world knew, and always should have known, that an economy of this size is not going to grow from 12 to 15 percent for eons," said Douglas Oberhelman, Chief Executive Officer of Caterpillar Inc (CAT.N: Quote), which operates 26 factories and, with distributors, employs 25,000 people in China.

China's massive real estate-driven investment boom, which at its height outpaced economic growth by more than three times, has created a glut for heavy equipment and mining machines, spurring cut-throat pricing among many local manufacturers.

Caterpillar, despite recording flat sales, is "not in a de-investment mode", Oberhelman said. The Illinois-based company's China operations remain profitable, while local capacity remains "in line with where we want to be", he added.   Continued...

A man talks on his phone near a new residential compound in Taiyuan, Shanxi province, May 11, 2014.   REUTERS/Jon Woo