American companies in China are prospering as they gain more access to domestic markets despite the ongoing trade frictions between the two countries, according to an American Chamber of Commerce (AmCham) survey released yesterday.

China's increasing market growth and improved regulatory environment have contributed to more AmCham-member companies producing for the domestic market and trying to become wholly foreign-owned enterprises (WFOEs), said the report, which is based on seven years of annual AmCham polls in China.

About 38 percent of respondents in 2000 cited market access restrictions as a top-three barrier to profitability, while 66 percent reported negative effects from business scope restrictions.

However, from 2002 to 2005, two-thirds of the respondents were successful in expanding products and services offered in China.

"Market access, while it still is a challenge, has become much easier," Teresa Woodland, co-chair of AmCham's public policy development committee, said at a news briefing to release the report.

She said the issue had dropped off the list of the companies' top-10 challenges of doing business in China.

Members were also increasingly more likely to have WFOEs, with 60 percent reporting to have one in 2005, versus 33 percent in 1999. Conversely, the percentage of AmCham members with joint ventures dropped to 27 percent in 2005, versus 78 percent six years prior.

"That really exemplifies how things have changed here. Companies really do have a lot more options," Woodland said.

According to the survey, companies in recent years have also been able to introduce more products and services to the Chinese market.

About 83 percent of respondents in 2005, versus 60 percent in 1999, listed producing goods and services in China for the local market among their top three reasons for entering China.

For the last three years, three-quarters of companies surveyed were making a profit, more than in previous years, according to the survey.

However, competition-based issues have been the top challenge faced by AmCham members in China. This trend is putting pressure on profit margins.

In 2005, 70 percent of respondents reported increased competition from both foreign and local companies.

On Tuesday, the US Trade Representative Office (USTR) released its first top-to-bottom review of Sino-US trade in five years.

The review has positive comments on trade growth between the two countries in the past five years, but Washington also blamed China for its large trade deficit.

AmCham-China President Charles Martin said the chamber mostly agrees with the report's conclusions, noting US-China commercial relations are quite robust.

As illustrated in the chamber's report, China is opening its markets while US firms as well as the US and China economies are benefiting, he said.

The US figures released last week showed the US trade deficit with China had risen 24.5 percent last year to US$201.6 billion. China reported that its surplus with the United States last year was US$114.2 billion because of different statistical standards.

The USTR report said it would take a tougher stance and set up a taskforce to ensure China abides by trade laws.

In terms of boosting US business in China, however, the US "must move to a much higher level of trade promotion on behalf of small- and medium-sized companies,” Martin said.

Federal and state governments and industry and trade associations need to open offices in China to promote their products, he said.

"There is a large communication gap at present. China's marketplace is hungry, but our SMEs need help to feed it,” he said. "US efforts are modest compared to those of the EU and inadequate given the opportunities available.?

Martin suggested using the WTO's dispute resolution process only as a last resort.

"That process is lengthy and difficult and should be used only when other efforts have failed, he said.

He noted that bilateral negotiations, such as those used to solve last year's textile dispute, were fast and mutually beneficial.

Even so, Martin said important problems remain in areas such as IPR enforcement and transparency. "Much more needs to be done in these areas,” he said. "They require commitments of substantial Chinese resources.”

(China Daily February 17, 2006)