Are U.S. companies falling out of love with China?

March 19, 2014: 9:32 PM ET
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American firms say air pollution in China is making it difficult to recruit employees from abroad.
HONG KONG (CNNMoney)

American companies operating in China expect slower revenue growth, investment and expansion this year, according to a survey conducted by the American Chamber of Commerce in China.

The tempered expectations underscore just how challenging U.S. firms can find conditions in the world's second biggest economy. The survey found heightened concerns over intellectual property, the safety of proprietary data and government-sponsored campaigns against foreign firms operating in the country.

Forty-one percent of respondents said they felt less welcome in China than before, and only 11% said they felt more at home. Another 41% said they detected no change.

Foreign firms, including pharmaceutical companies, food suppliers and even Apple (AAPL), have been targeted over the past year by state media and regulators.

The annual survey was conducted in November and December last year and drew responses from 365 of the chamber's members.

There were few bright spots.

Rising costs were eating into China's competitive advantage, 82% of respondents said. Almost as many said policies that favor state-owned enterprises were having a negative effect on their businesses.

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More than 55% of respondents said that China's strict Internet censorship was hurting their operations, up from 39% in 2010. Businesses also reported that Beijing was favoring domestic firms in the licensing process.

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As usual, American companies cited intellectual property protections as one of their biggest concerns, with a majority rating China's safeguards as "ineffective or totally ineffective."

"Member companies also show misgivings about the protection of their intellectual property, which can be extracted through technology transfer requirements or simply stolen," the report said.

Pollution is also complicating matters for U.S. firms. Almost 50% of companies said they are having trouble attracting top talent due to smog, up from 19% in 2008.

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Still, businesses remain upbeat about their short term plans in China. Three out of four companies said they were optimistic about the next two years, but fewer firms rated their enthusiasm in the highest category, while more (42%) said they were only "slightly optimistic."

"This year's survey reflects the current realities of operating in China and the associated uncertainty, but also the optimism and confidence ... that the country's leadership is set on reform and that foreign business has an important role in China's future," the group's Gregory Gilligan said in a statement.

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