An increasing number of U.S. companies in China say the enforcement of intellectual property rights has deteriorated in the last year and that the regulatory environment is the biggest hurdle to doing business there, a survey showed on Wednesday.
The annual survey by the American Chamber of Commerce in Shanghai, which bills itself as the "voice of American business" in China, comes as Chinese President Hu Jintao began a state visit to the United States.
China drew a record $105.7 billion in foreign direct investment last year, with inflows rising more than 17 percent from the previous year as global firms piled into the country to tap its vast and growing market.
An increasing number of U.S. companies in China expect higher revenue in 2011, but nearly two-thirds of the respondents in the survey said the regulatory environment had either remained stable or deteriorated over the past year.
Some 71 percent of respondents said that enforcement of intellectual property rights had stayed the same or deteriorated in 2010, up from 61 percent in 2009 and 64 percent in 2008.
Brenda Foster, president of the Shanghai chamber, said U.S. companies have found a way to succeed despite the challenges of the Chinese market.
"Nonetheless, it is essential that the U.S. continues to aggressively engage China to address key business challenges that hinder market access today and could impact future investment," she said in a statement.
China has arrested more than 4,000 people for violating intellectual property rights since November and will enforce tougher punishments to combat the "rampant" problem, a senior government official said last week.
U.S. and European corporations say recent crack downs have had little effect, with complaints about fake brand-name goods being overtaken by claims of Chinese firms assimilating more patent-heavy foreign technology.
High-speed trains, auto designs, mobile phones and windturbines have all been the subject of vitriol about whether Chinese firms have stolen foreign companies' patents or whether the Chinese government has excluded foreign competitors by demanding that they hand over valuable patents and designs.
The International Intellectual Property Alliance, which represents U.S. copyright industry groups, has estimated U.S. trade losses in China due to piracy at $3.5 billion in 2009.
"IPR remains a top concern because U.S. companies perceive a lack of IPR protection and enforcement to be a blow to their competitive advantage and is costing U.S. companies billions of dollars in lost revenue each year," the survey said.
The Board of governors of the American Chamber of Commerce in Shanghai includes top company officials from the Chinese operations of Citibank, FedEx, Goodyear Tire & Rubber, APCO Worldwide, Corning and General Motors.
The American Chamber of Commerce survey was conducted from mid-November to early December 2010 and a total of 346 companies participated, with a 25 percent response rate.
The results showed U.S. companies found it more difficult in 2010 to attract managers, executives, technical staff and other skilled workers compared with 2009, mainly due to increasing competition from domestic firms.
The report said 71 percent of respondents expected their 2011 revenue to increase by at least 10 percent, up from 60 percent in a similar survey last year.
Some 41 percent of respondents said they expected to increase their investment in China in the year ahead by more than 15 percent, double the number of respondents who said the same thing last year.
Nearly 61 percent of the firms in the survey said that they gained market share for their China products or services, up from 40 percent in 2009.
Later on Wednesday, Hu and U.S. President Barack Obama are expected to drop by a meeting at the White House of top executives from the two countries.
"The "in China for China" trend is one we have identified in past surveys and is critical to note," the survey said.
"Opportunities for U.S. companies have the potential to increase dramatically as China's domestic market continues to mature and becomes increasingly driven by explosive middle class growth and a widening consumer base."
Of the three major sectors covered by the survey - manufacturing, services and retail — retail was the strongest performer backed by booming consumer demand.
The services sector underperformed mainly due to operating barriers and limited market access.
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