U.S. firms in China decry local favoritism as market improves

SHANGHAI (Reuters) - More U.S. companies in China are reporting revenue growth so far in 2017 but remain concerned that Beijing's policies and regulations unfairly favor local competitors, according to a survey released on Wednesday.

An annual report released by the American Chamber of Commerce (AmCham) in Shanghai found that 73.5 percent of the 426 companies surveyed reported revenue growth in 2016, up from the 61 percent recorded in 2015.

The U.S. business lobby, which conducted the survey between April 11 and May 7, said this reflected improved economic stability last year.

"These increases reflect a return to previous trends after a particularly poor 2015, not a meaningful improvement in business conditions," AmCham said.

"China remains a difficult market and more efforts are necessary to create a truly level playing field for foreign companies."

Concerns over the health of the Chinese economy have eased this year after higher government infrastructure spending and a property boom helped it to post better-than-expected growth figures starting from the second-half of 2016.

But Beijing has also pushed forward with policies such as "Made in China 2025," which aims to upgrade the country's domestic manufacturing base, and has undertaken a series of state-driven company mergers aimed at creating national champions.

These moves were among the U.S. companies' top concerns, AmCham said. More than half of respondents, especially in healthcare, said Chinese policy favored local firms over foreign ones, and 33 percent said policies towards foreign firms had worsened.

China's new cybersecurity law, which took effect on June 1 and mandates companies store all data within China and pass security reviews, was one example of unfair treatment as it restricted participation by foreign firms in China's cloud market, the business lobby said.

"There is a growing asymmetry between the access that Chinese companies enjoy in other markets and the access foreign companies have in China," it said.

U.S. companies were also worried about a lack of regulatory transparency, including inadequate protections for intellectual property. Forty percent of respondents believed that the U.S. government should use investment reciprocity to help firms gain better access to China, it said.

Respondents reported lower long-term optimism levels for a second year, with 80.2 percent of firms expressing optimism over the next five years, down from a few years prior when the metric consistently was above 90 percent.

Still, most companies were bullish for 2017, with 82 percent forecasting revenue increases, up from 76 percent last year, AmCham said.

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