VZCZCXRO0931
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0201 0930839
ZNR UUUUU ZZH
R 020839Z APR 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 7023
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASH DC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS GUANGZHOU 000201 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR CHINA OFFICE 
STATE FOR EAP/CM 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV ELAB CH
SUBJECT: U.S. Businesses Still Bullish on South China 
 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly 
 
¶1. (SBU) Summary: U.S. companies are optimistic about the economic 
outlook for south China, according to the American Chamber of 
Commerce in South China's (Amcham) annual survey of firms.  However, 
some results suggested their outlook was slightly less rosy than a 
year ago, with fewer firms stating that the investment environment 
had improved over the year before.  U.S. firms continue to be 
focused on south China's domestic market, while the number engaged 
in services rose sharply; most firms today say that their main 
objective in setting up in China is to take advantage of domestic 
opportunities.  Regulatory issues were again the most frequent 
complaint, followed by rising labor costs.  The survey also 
suggested that complacency among firms about the threat of avian 
influenza appears to be growing.  End summary. 
 
Note: Amcham will release the results of its survey on April 8. 
Please do not disclose this information until that date.  End note. 
 
 
Upbeat on South China Economic Outlook 
-------------------------------------- 
 
¶2. (SBU) U.S. companies in south China remain upbeat about the 
region's economic outlook, according to Amcham's 2008 survey of more 
than 400 firms.  The survey found that 87 percent of firms rated the 
business environment in south China as "good/acceptable," "very 
good" or "outstanding."  However, this represented a small decline 
from 2007 when 92 percent rated the environment in one of those 
categories.  Further suggesting a slightly less optimistic outlook 
than a year ago, fewer firms said the business environment had 
improved over the last 12 months.  In the 2007 survey, 72 percent of 
firms said that it had "improved greatly" or "improved somewhat." 
However, that percentage dropped to 60 percent this year. 
 
¶3. (SBU) Amcham firms continue to make money in south China with 
little change in the percentage of firms reporting that they are 
profitable.  In 2008, 75 percent of firms said they were already 
profitable and approximately 90 percent will be profitable within 
two years or less. 
 
¶4. (SBU) Investment results also suggest a strong positive outlook 
on the region's economy.  The results showed that 15 percent of 
firms invested more than US$50 million in south China in 2007.  But 
according to last year's survey, only eight percent had planned to 
invest that much.  Business conditions during the last year appear 
to have justified levels of investment that were higher than 
originally planned. 
 
Targeting the Domestic Market and Services 
------------------------------------------ 
 
¶5. (SBU) U.S. businesses continue to be focused primarily on the 
domestic south China market and are increasingly engaged in 
services.  Their number one goal overall for south China is to 
"produce goods and services in south China for the China market," 
and the most commonly cited reason for setting up operations in 
south China instead of other parts of the country was "opportunities 
in south China's domestic market."  The increase in firms engaged in 
services was one of the most dramatic changes from 2007, rising more 
than seven percentage points to 58 percent. 
 
Regulatory Concerns and Rising Labor Costs 
------------------------------------------ 
 
¶6. (SBU) The problems facing U.S. firms in the region are little 
changed.  "Regulatory issues (Chinese government)" was the number 
one challenge cited by companies, reflecting the lack of 
transparency, widespread corruption, and weakness of rule of law in 
south China.  Rising labor costs was the second most common 
complaint, replacing lack of qualified talent; the tight labor 
market is still a key concern, but the emphasis has shifted to 
cost. 
 
AI Complacency Grows 
-------------------- 
 
¶7. (SBU) U.S. businesses are growing more complacent about the 
threat of avian influenza (AI), even though south China continues to 
be a hotspot for AI and other infectious diseases.  Only 17 percent 
of firms said they had made specific preparations for an outbreak, 
down from 46 percent in 2005. 
 
GOLDBERG