Higher Costs Make China Less Competitive

Shanghai, China, December 14, 2007—Rising costs may be diluting China’s competitive advantage, according to a survey by the American Chamber of Commerce in Shanghai.

Widespread product piracy was another ongoing problem illustrated by the survey of 1,600 companies.

Some Chinese companies were reportedly planning to move to India or Vietnam.

For many U.S. and other foreign companies, finding, paying for and retaining good employees remains the biggest challenge, the report said.

"More investment has come in and stretched the supply of talent," said Stephanie Liu, human resources director in the Asia Pacific for Armstrong World Industries, a maker of flooring and building products. "There's no sign of easing in the short term.”

Meanwhile, a new labor law, due to take effect next year, has increased uncertainties over hiring and firing practices.

The Labor Contract Law, which takes effect Jan. 1, gives employees who have worked at a company for more than 10 years the right to sign contracts protecting them from being fired without a legitimate reason.

Despite the problems of doing business in China, most companies said they were profitable in 2007 and that their profitability improved.

"Business performance and financial results show many firms are realizing the market potential that China has long promised U.S. companies," the report said.