Rising costs, an uncertain regulatory environment and intellectual property rights violations are among the top challenges for U.S. companies in China, a survey showed.
The annual survey by the American Chamber of Commerce in Shanghai comes a day after U.S. President Barack Obama told Chinese leader-in-waiting Xi Jinping in Washington that China must play by the same trade rules as other major powers.
In a speech to the Chamber of Commerce in Washington on Tuesday, Xi insisted that Beijing had taken steps to address complaints over trade imbalances and intellectual property rights (IPR).
But the AmCham Shanghai survey showed that 69 percent of respondents felt China's enforcement of IPR had either not changed or deteriorated over the past year. The reading was little changed from a similar survey last year.
Strengthening IPR enforcement and protection is needed, especially in industries like healthcare, in which IPR infringement is reported by companies as a significant business hindrance, it said.
In 2010, China launched a campaign against intellectual property rights violations, but progress has been slow with copies of expensive brands of watches, handbags and computer software still widely available.
Asked about the report, Chinese Foreign Ministry spokesman Liu Weimin told reporters that the government is making an effort to improve the environment.
Intellectual property rights protection fundamentally fits our own interests. On this issue, China's efforts aren't made under foreign pressure, but because it is an initiative that suits our own needs, he told a regular media briefing.
We also hope that foreign invested companies can recognize that China is a vast country and that these efforts will take time. But China's determination is very clear.
Operations in China remain profitable but fewer companies expect their sales to rise this year compared with a year earlier, according to the survey conducted on 315 U.S.-based companies operating in China.
The global economic downturn does play into it, but I also stress there is cost, there is competition and the rest, Brenda Foster, president of AmCham Shanghai, told reporters.
About 90 percent of respondents saw rising costs as a hindrance to businesses, while about the same number said finding skilled labor was a challenge.
About 70 percent said legal and regulatory environments had either deteriorated or were little changed.
China is a difficult place in which to do business, in part because the country's legal framework is still in the process of being built, the survey said.
It added that even if the law was fully developed, application and enforcement was uneven, especially in areas outside the major cities of Beijing, Guangzhou and Shanghai.
A separate survey conducted by The Economist Intelligence Unit on multinational companies showed in December that nearly half of the respondents were concerned they would have to give up IPR in exchange for market access, while 46 percent said the regulatory environment would have a significant impact on their China strategy over the next five years.
Last May, a survey by the European Union Chamber of Commerce showed a similar rise in corporate concern over IP protection.
(Additional reporting by Michael Martina in BEIJING)