U.S. firms in China are profitable and optimistic about their growth.

The majority of large U.S. companies operating in China are profitable there, and 97 percent say they are optimistic or somewhat optimistic about prospects for their Chinese business operations over the next five years, according to the members of the U.S.-China Business Council (USCBC). Eighty-one

percent of USCBC's approximately 350 members say they are making profits from their Chinese operations, up from only 57 percent of companies reporting profitability in China in a 1999 Department of Commerce survey. More than half of the companies said profitability rates for their Chinese operations meet or exceed their company's global profit margin.

Almost nine out of 10 companies say China is "at or near" the top of their companies' priorities, up from 71 percent last year. Three-quarters say they intend to boost their investment in China in the coming year. Only 2 percent said they are reducing their investment in China.

"Most U.S. investment in China is in 100 percent U.S.-owned enterprises, not joint ventures with Chinese partners," notes the council, adding that its results are "counter to several common misperceptions about U.S. companies operating in China."

Eighty percent of the companies say they expect revenues in China to increase, while only 1 percent say they expect a decrease in revenues. For 69 percent of USCBC members, revenues in China increased in 2005, while 10 percent experienced no increase in revenues and 5 percent experienced a decrease in revenues. (Eleven percent said revenue from China was "not applicable to my company's operation.")

Fifty-seven percent of the USCBC members with operations in China sell mainly to the Chinese market, with 22 percent using China as a platform to export to Asia and the rest of the world and 18 percent investing in China to export products to the United States.

"U.S. companies are building their sales presence in China by implementing newly granted distribution rights--a key market opening measure and top USCBC priority in 2005," notes the Washington, D.C. trade group. "China's WTO-mandated market openings have clearly benefited American companies. Over 80 percent of respondents cite China's WTO entry as meaningful to their business. U.S. exports to China have more than doubled since China's WTO entry in 2001, growing faster than any other U.S. export market."

But members of USCBC have concerns: their largest being a shortage of qualified personnel, particularly in middle management. Intellectual property rights enforcement also remains a top concern along with getting business licenses and approvals. "Companies run into licensing issues as they seek to act on WTO openings in sectors such as construction, financial services, distribution and product licenses," says USCBC.

U.S. companies are also experiencing growing pressure on their margins due to increased competition from Chinese companies that are "investing in excess capacity," notes USCBC. The survey results are located at http://www.uschina.org/public/docu ments/2006/08/member-prioritiessurvey. pdf.