A McDonald's outlet in the old historical city of Dali is frequented by visitors to the popular city. (Photo : Getty Images)
Some American companies are planning to move out of China after apparently losing their belief that the biggest business opportunity in the world can be found there, a CNBC report said.
This week, a Chinese company has been reportedly negotiating to buy McDonald's China unit and obtain a license to its name, after a similar decision last month by Yum Brand, which will spin off its operations in China into a new company called Yum China.
In November, Coca-Cola also announced plans to sells its bottling business while another company, International Paper, said in March that it plans to spin off its corrugated packaging business in China and southeast Asia.
"The trend is that opening retail business on the ground in China as a foreigner is difficult and expensive," Dan Harris, lawyer at Harris Bricken and author of the China Law Blog, was quoted as saying.
"We have for years tried to push a lot of our clients not to do that, but instead do what McDonald's and Yum Brands are doing, which is ... monetize your name and your knowledge without actually being the one who does all the work to make it work in China," Harris said. "China is a tough, tough market."
Three decades ago, fast food companies entered China, expecting to tap into the rising wealth of the individual Chinese and the growing Chinese consumer market. But some companies, especially, U.S. fast food chains became enmeshed in food safety scandals while others had intellectual property issues.
"We have seen a lot of U.S. companies struggling [with] their China operations," Siva Yam, president of the Chicago-based U.S.-China Chamber of Commerce, said. "The market is much more mature. We have seen a significant drop of U.S. companies going to China. On the contrary, they are coming back here."
According to a survey from the American Chamber of Commerce in China last year, about 32 percent of member companies said they have no plans to expand their investments in China.
The survey, which was published in January, also showed that one-quarter of the respondents have moved or plan to move business operations out of China, and 38 percent from the group are relocating to the U.S., Canada or Mexico.
Analysts said that foreign companies face many challenges in China such as rising labor and land costs, compared to local firms which have the advantage of being familiar with local business, in addition to the government support they receive.
But there are exceptions to the trend as Starbucks announced during its investor conference on Wednesday, Dec. 7, that it plans to open more than 5,000 in the country by 2021, as the market "will eclipse that in the U.S. over time."
Another exception is the U.S. crop exports which continue to do well. Agriculture exports in one of the areas in which the U.S. has a trade surplus with China, meaning it exports more than it imports.
According to the report, many U.S. companies, such as Apple and Caterpillar, invested in China to take advantage of the economic boom. But Caterpillar's sales and revenues have been on a four-year decline while Apple also reported declines of more than 25 percent in sales, against its double-digit growth.
"If you're waiting for the booming Chinese consumer ... it's just not on the way. The upside is just not what some consumer firms were hoping for," Derek Scissors, chief economist at China Beige Book International, said.
Scissors added that China is a maturing economy, with several iPhone rivals, the world's biggest drone maker and strong local e-commerce market.
Geoffrey Sant, a partner in Dorsey & Whitney and a former professor of U.S. law in Beijing, said that U.S. firms have long been required by government to partner with Chinese counterparts to be able to do business in the country.
According to the experts, foreign firms may have to apply a different strategy to do business in China. Scissors said there are business opportunities in other areas such in senior care, environmental protection and asset management, as well as in financial services.
