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    Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019.

    Aly Song | Reuters

    BEIJING — More U.S. companies are finding it harder to make money in China than before the pandemic, raising concerns that businesses may not stay long.

    According to an annual survey released Thursday by the American Chamber of Commerce in China, 19% of member companies surveyed in 2023 said their earnings margins, before interest and taxes, were higher in China than they were globally.

    That’s up from 12% in 2022, when many businesses were subject to stringent Covid-19 controls in China.

    But the figures are well below the 22% to 26% share of U.S. companies that said margins were higher in China than they were globally in prior years from 2017 to 2021.

    “It is concerning when our member companies are not profitable,” Michael Hart, AmCham China president, told reporters Thursday. “They will not stay long if they are not profitable.”

    “This is a wake-up call for the Chinese government,” he said.

    China’s economy grew rapidly over the last few decades to become the second-largest in the world behind the U.S.

    But China’s growth has slowed in recent years due to the three-year pandemic, a slump in the massive real estate market and a drop in exports.

    The slowdown and corresponding declines in domestic sentiment have prompted calls for Beijing to stimulate the economy further. While authorities have announced a slew of measures to support growth, it’s unclear whether there’s interest in large-scale stimulus as China tries to transition away from reliance on real estate to other industries.

    You don’t come to China to break even, so we’d like to see more of our members profitable

    Michael Hart

    AmCham China, president

    The AmCham China survey found that 49% of members said profit margins in China last year were comparable to those globally, up one percentage point from 2022 and the same as reported in 2019.

    One-third of respondents said their China margins were lower than they were globally, a drop from 40% that said so in 2022 but up from 30% in 2019.

    Hart noted the improvement in 2023 compared to 2022. “Of course, you don’t come to China to break even, so we’d like to see more of our members profitable,” he said.

    There were 343 respondents in a variety of industries who responded to the survey, which was conducted from Oct. 19 to Nov. 10.

    For 2023, 39% of members said they expected an increase in China revenue compared to the previous year — an increase from the 32% in 2022.

    In particular, nearly half of consumer sector businesses said they anticipated 2023 China revenues to increase from the prior year.

    Staying in China, but not expanding

    Half the survey respondents said China was among their top three investment destinations globally, up 5 percentage points from an all-time low in 2022.

    “One of the reasons that companies are very interested in China is R&D” and innovation, Hart said, noting factors such as China’s massive market and leadership in specific industries such as electric cars.

    However, U.S. companies generally remain cautious about investing in China, amid slower growth and heightened geopolitical tensions.

    Nearly half of the respondents said they either plan to decrease investment in China operations, or do not intend to expand investment in the country, the AmCham survey found.

    The majority of U.S. companies surveyed said they intend to keep manufacturing in China, but those who said they are considering relocating such capacity outside the country rose to 12% in the last two years, up from around 8% previously.

    Foreign direct investment in China fell by 8% to 1.13 trillion yuan ($160 billion) in 2023, the lowest level in three years, according to Ministry of Commerce data. It did not specify how much the U.S. invested in China.

    A separate survey released last week from the German Chamber of Commerce in China found that among 566 respondents, the top reasons not to invest in China — or to decrease investments — were low expectations for market expansion or expectation of slower growth in the country.

    More than 80% of respondents said China’s economy faces a downward trajectory, the majority expected it would take one to three years for it to “regain a robust economic development.”

    The German Chamber’s survey was conducted from Sept. 5 to Oct. 6. It found that by far, the main reason for respondents to increase investment in China was to remain competitive there.

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