U.S. Companies Sour on Operating in China

Doing business in China has long been a delicate proposition for U.S. companies. As geopolitical tensions continue to mount, it appears those once willing to deal with the risks aren’t reaping big enough rewards.

The hostilities between China and the United States have grown to the point that companies have started to scale back what were once big bets on the world’s most populous nation. A survey last year conducted by the U.S.-China Business Council indicated that U.S. companies are dealing with more “uncertainty, lost sales and rising costs” as a result of the icy relationship between the global rivals. Meanwhile, China’s own domestic agenda is taking a toll on the ability of companies to remain competitive there, according to the USCBC report. “American companies that conduct business in China continue to encounter systemic challenges around market access and barriers to investment, opaque rules and uneven regulatory enforcement, and rising compliance requirements, particularly around data security and privacy,” the report noted.

Recent actions by the Chinese government have only served further discourage U.S. business interests. In 2023, for instance, Chinese authorities initiated a series of raids seeking evidence of espionage on the part of foreign consulting firms operating in China. Major players such as Bain, McKinsey and Boston Consulting Group saw clients of its Chinese offices head for the exits in the aftermath.

The climate for executives in China doesn’t sound all that inviting, either. As an example, commercial disputes can trigger Kafkaesque bans on them leaving the country. It only takes a court siding with a local company’s request, which is decided in a secret hearing, to detain executives with no prior warning as they’re boarding flights out of the country. (Sounds a lot like being taken hostage, right?) It came to light last month, for instance, that a British business executive has been in custody in China since 2018 on charges of spying. And if that’s not sufficiently worrisome, the former president of one of the country’s biggest private banks has received a death sentence for a range of alleged offenses, including accepting bribes.

So, how are publicly traded companies adjusting to a worsening business climate in China? Apple has identified alternatives to building its popular iPhones there and has already moved 25% of that manufacturing activity to India. For its part, Walmart has cut its Chinese imports by about a quarter in the last five years. For the first time in 20 years, the U.S. imported more goods from Mexico than from China in 2023.

But at least one name brand is boosting its exposure to China. McDonald’s is looking to open thousands of new restaurants across the country. Apparently, the fast-food pioneer is still “loving it” there.