American companies in China are seeing record-low profits, with business confidence at an all-time low amid U.S.-China tensions and a slowing Chinese economy, according to a report published Thursday by a U.S. business group.

Out of 306 companies polled, a record-low 66% were profitable in 2023, according to the China business report published by the American Chamber of Commerce in Shanghai.

The report also found that only 47% of respondents were optimistic about their business outlook in China over the next five years, the lowest in the survey’s history of more than two decades.

Beijing and Washington have been at odds in recent years over issues like trade and manufacturing, as well as China’s claims over the South China Sea.

China is also grappling with a slowing domestic economy, with lackluster consumer demand and deflationary pressures persisting even post-COVID.

The geopolitical tensions between both countries was the top challenge to businesses’ operations in China, the report found.

“It’s a balance between risk and reward,” said Eric Zheng, president of AmCham Shanghai, during a news conference ahead of the report’s publication.

“The perceived risks of doing business in China have gone up in the past few years, but at the same time the market is slowing down, with soft demand and overcapacity,” he said.

Many businesses are now redirecting investments to other regions such as Vietnam, Malaysia and South Asia, Zheng said.

A record high of 25% of companies polled cut investment in China in 2023, AmCham’s report found, largely driven by concerns over China’s slowing growth.

While just over half of U.S. companies expect their revenue to increase over last year, only 37% are expecting growth in China to outpace global growth in the coming three to five years.

The AmCham report came a day after the European Union Chamber of Commerce in China published a report with similar sentiments on the increasing risks of doing business in China. The report highlighted a lack of implementation on promised reforms and an increasingly politicized business environment.

The European Chamber’s report found that for some European companies, the risks of investing in China were beginning to outweigh the returns.

“We are concerned about there being a tipping point now, and therefore we have a call for action to the Chinese government to turn the tide,” said Jens Eskelund, the European Chamber’s president, at a news conference on Wednesday.

“China is becoming no longer a top priority but increasingly a top three or top five destination,” he said. “We believe that the relative attractiveness as a location will continue to deteriorate unless we address some of these concerns.”

The European business group called on China to prioritize economic growth and reform, and to boost investor confidence by leveling the playing field for all companies in the country.

(AP)