U.S. Companies in China Say Labor Costs Pose Top Business Risk

U.S. companies operating in China cited rising labor costs as the biggest risk to their business in the country for the first time, an annual survey by the American Chamber of Commerce in China showed.

Among 325 business surveyed, 47 percent said rising labor costs were their biggest risk, just above the number that said slowing economic growth in China was the major concern, the China Business Climate Survey said. More than a quarter of respondents said they had been the victim of data theft.

The report’s findings highlighted the fact that China’s labor pool has shrunk by almost 33 million in five years even as industry added 30 million jobs. New premier Li Keqiang this month promised to open the economy more to market forces as leaders seek to shift away from exports toward domestic consumption to drive growth.

“As China enters a new period geared toward higher-quality GDP growth, our member companies are adjusting to structural shifts in the economy,” AmCham China Chairman Greg Gilligan wrote in the report.

Shortages of employees and mangers, as well as the cost of labor, had never before appeared as top-five concerns, AmCham China said.

China’s pool of 15- to 39-year-olds, which supplies the bulk of workers for industry, construction and services, fell to 525 million last year, from 557 million five years earlier, according to data compiled by Bloomberg News from the U.S. Census Bureau’s international population database.

The number employed in industry rose to 147 million from 117 million in the five years through September.

Intellectual Property

About 72 percent of companies responding to the survey this year said enforcement of intellectual property rights was either ineffective or totally ineffective, an increase from 59 percent in 2012 and 58 percent in 2011.

Twenty-six percent said they had been the victims of data theft, and more than a third of companies said that IPR infringements originating in China damage their operations in the country.

The increased concern about intellectual property comes after U.S. security company Mandiant Corp. reported last month that China’s army may be behind a computer hacking group that has attacked at least 141 companies worldwide since 2006.

Asked about the survey today, Foreign Ministry spokesman Hong Lei said China opposes being accused of wrongdoing “without investigation and without basis.”

“This is completely irresponsible,” Hong said. “We hope the relevant side doesn’t politicize economic and trade issues.”

Most companies in the survey say their China operations are successful, with 71 percent of respondents saying sales rose from a year earlier and 44 percent saying profit margins from China were either substantially or slightly higher than worldwide operating margins.

Just under 80 percent of companies were optimistic or slightly optimistic about the two-year outlook for their companies in China.

To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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