Amidst the geopolitical competition between the United States and China, tariff pressures, and overcapacity issues, American companies are showing a historic low willingness to invest in China. Experts believe that this decrease in investment plans signifies a structural shift in the medium to long term, as American companies carefully weigh the risk and returns of new investments in China.
According to the “2025 China Business Environment Survey” released by the US-China Business Council, 88% of the 130 surveyed companies expressed concerns about the Chinese economy between March and May this year. Only 48% of companies plan to increase investment in China this year, significantly lower than the 80% reported last year.
Among the surveyed companies, 27% have either relocated or plan to move some of their operations out of China, compared to only 19% in 2024. Looking at the business outlook in China over the next five years, 29% of companies hold a pessimistic view, marking a historical high in the survey.
Since the initiation of the tariff war by the Trump administration on April 2 this year, followed by intermittent bilateral negotiations between the United States and China, American businesses in China have faced ten major challenges, three of which are directly related to geopolitics. The “US-China relations” have topped the list for two consecutive years, while “tariffs” have climbed from eighth place last year to second place. Eighty-eight percent of companies stated that their businesses have been affected by the tension in US-China relations.
On the other hand, the slowing Chinese economy and overcapacity issues are further squeezing the profit margins of American companies. Inadequate protection of intellectual property rights in China remains one of the top ten challenges. Most companies believe that there has been no significant improvement in the overall intellectual property environment this year compared to the previous year.
Commenting on the situation reflected in the report, Professor Yeh Yao-yuan from the University of St. Thomas in the United States stated that many American companies are reluctant to continue investing in China, and some are even considering pulling out, indicating a trend of decoupling between the US and China. The primary reasons include high tariffs between the US and China and China’s unfriendly market mechanisms towards foreign businesses, which often involve risky collaborations with state-owned enterprises and potential technology theft.
As per the report, the percentage of companies incurring losses over the past three years is significantly higher than in the period from 2016 to 2022. Only a quarter of the surveyed companies expect profitability in China in 2025 to exceed the global average, while slightly more (28%) anticipate lower-than-average profits in China.
Yeh Yao-yuan mentioned that before the US-China trade war, many American companies invested in China and might have made profits despite facing challenges. However, the situation has worsened significantly post-trade war, with risks outweighing potential profits, exacerbated by US legislation such as the chip act.
“In business terms, they are calculating the ratio between risk and return. Before the trade war, there was high risk but at least they could make profits; post-trade war, they might not even make profits, so why bother investing?” he said.
Professor Sun Guo-xiang from Nanhua University in Taiwan stated that the escalating US-China trade war in 2018 and 2019 has already increased costs for American companies exporting products back to the US from China. The current contraction in investment is a result of multiple factors, including the hardening US policies towards China under both the Trump and Biden administrations, China’s slowing economic growth, weakening consumer power, rising global awareness of risks associated with dependence on a single market, and supply chain disruptions.
Sun Guo-xiang believes that the trend revealed in the report by the US-China Business Council, indicating a record low in new investment plans by American companies in China, is likely not a short-term fluctuation but a prelude to a medium to long-term structural change.
He pointed out that this trend reflects three aspects: first, de-risking instead of complete decoupling, where American companies will gradually reduce reliance on sensitive areas and increase backup production sites; second, this is based on the continuing influence of US policies on exports, controls, and tax policies regarding China, with new investment plans potentially continuing to decline if China retaliates further; third, with India and Southeast Asia absorbing some overflow investments, new capital allocation by American companies to China might gradually shift to these emerging markets over the next decade.
The report indicates that only 28% of surveyed companies believe they would struggle to maintain competitiveness globally if they lose the Chinese market; 38% consider China a key component of their global business operations, and another 25% view operations in China as essential.
Yeh Yao-yuan noted that China remains a vast consumer market, and not all American companies are pulling out, such as Tesla. If the Chinese government is willing to open some channels for them to operate without requiring partnerships with state-owned enterprises, there would still be attractiveness for them; however, American companies currently have uncertainties in their minds.
Sun Guo-xiang mentioned that some American companies’ production bases, suppliers, and research centers have been deeply rooted in China for many years. Due to high costs, these roots cannot be replaced or withdrawn in the short term. Currently, American companies are making rational calculations to diversify risks, no longer seeing China as the most attractive destination for new investments but still considering it as a strategic market not easily abandoned. Therefore, the reduction in new investments while maintaining existing operations in China may become a new normal for American companies in China.