US companies operating in China are becoming more optimistic about their long-term prospects as tensions between Washington and Beijing ease, although intensifying competition from Chinese firms is emerging as a bigger challenge, according to a new survey by the American Chamber of Commerce in Shanghai.
The organisation's annual China Business Report found that 58 per cent of respondents were optimistic about their five-year business outlook in China, an increase of 17 percentage points from the previous year.
The improvement marks a significant shift after four consecutive years of historically weak confidence among American businesses in the world's second-largest economy.
The survey comes as the United States and China work to stabilise their trade relationship following years of tariff disputes, export restrictions and broader economic tensions.
Business Confidence Recovers
The latest survey indicates a clear improvement in sentiment among US companies operating in China.
The proportion of businesses optimistic about their five-year outlook rose sharply compared with last year, when companies were dealing with renewed tariff threats and uncertainty over the future of bilateral trade.
Jeffrey Lehman, chairman of AmCham Shanghai, described the change as a “mood shift” among members.
The timing of the survey appears important. Last year's responses were collected during a period of heightened US-China trade tensions, while this year's survey followed the May meeting between US President Donald Trump and Chinese President Xi Jinping in Beijing.
Trade Tensions Lose Top Spot
For the first time since 2022, US-China tensions were no longer identified as the biggest challenge facing American businesses in China.
Instead, domestic competition became the leading concern.
Around 68 per cent of respondents placed competition from Chinese companies among their three biggest business challenges, an increase of five percentage points from the previous year.
By comparison, 53 per cent cited US-China tensions among their top three concerns, representing a 13-point decline from the previous survey.
The shift suggests that as geopolitical uncertainty eases, American companies are increasingly focusing on competitive pressures within China's domestic market.
Chinese Competition Intensifies
The survey highlights the growing capabilities of Chinese companies across several areas.
US businesses reported increasing competition from domestic firms in areas such as speed to market, product development and product quality.
Chinese companies have increasingly moved beyond competing primarily on lower costs, developing products and services that can challenge multinational businesses on technology, efficiency and market responsiveness.
For American firms, this means that improved diplomatic and trade conditions do not necessarily translate into an easier operating environment.
Instead, companies may face stronger local competitors even as broader geopolitical risks decline.
Profitability Reaches New High
The improvement in confidence was also accompanied by stronger financial results.
About 78 per cent of surveyed companies said their China operations were profitable last year, the highest proportion recorded by the survey since 2019.
The figure indicates that despite concerns over economic growth, competition and policy uncertainty, a large majority of participating US businesses continue to generate profits from their China operations.
The results could strengthen the case for maintaining a long-term presence in the Chinese market, particularly for companies that have established supply chains, manufacturing operations or large customer bases there.
Investment Sentiment Improves
Investment plans also showed signs of recovery.
Around 28 per cent of respondents said they increased investment in China in 2025, the highest share recorded in four years.
The trend is expected to continue, although companies remain cautious.
For 2026, 31 per cent of respondents said they planned to increase investment, while 14 per cent expected to reduce their investment in China.
The gap indicates that more American companies are preparing to expand than contract their operations, although the relatively modest investment intentions suggest that businesses remain careful about committing significant new capital.
US-China Relations Stabilise
The improvement in sentiment follows efforts by Washington and Beijing to prevent their economic relationship from deteriorating further.
Trump's May visit to China and his meeting with Xi were followed by continued diplomatic engagement between the two governments.
Xi is also expected to travel to the United States later this month, potentially creating another opportunity for discussions on trade and economic issues.
Businesses have closely followed these developments because tariffs, technology restrictions and other policy measures have affected investment decisions and supply-chain planning.
Competition Becomes New Test
The survey presents a more complicated picture of the US business environment in China.
Companies are clearly more confident about the future than they were during the height of recent trade tensions. At the same time, the decline in geopolitical concerns has exposed another major challenge: Chinese companies are becoming more formidable competitors in their own market.
For American businesses, the next phase may therefore be less about simply managing US-China political tensions and more about maintaining competitiveness in a rapidly evolving Chinese economy.
The survey suggests that improved bilateral relations can provide greater certainty, but they will not remove the structural challenges facing foreign companies.
For US firms, China's market remains commercially important, but future growth is likely to depend increasingly on innovation, product quality, speed and the ability to compete with increasingly capable domestic companies.
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