The 2007 Business Outlook Survey was carried out by The Nielsen Company on behalf of the American Chamber of Commerce in Hong Kong. AmCham has commissioned the annual Business Outlook Survey since 1990.

The annual Business Outlook Survey aims to:

• Track AmCham members' views on the business environment in Hong Kong and Mainland China;
• Establish the commitment and business confidence of AmCham member companies in Hong Kong and Mainland China markets over the next three years;
• Determine views and opinions of member companies toward trade and investment issues in Hong Kong and Mainland China;
• Provide an update of Hong Kong and Mainland China operations among AmCham member companies.

The AmCham 2007 Business Outlook Survey was conducted online and questionnaires were emailed out to 814 company representatives and individual members on October 18, 2007. A total of 162 completed questionnaires were collected on or before November 9, 2007. Additional questionnaires received after the deadline were not taken into account. The response rate was 20%, compared to 28% in 2006. The margin of error is 3.9%.

Of the total number of respondents, 50% of AmCham member companies are based in the USA, 27% in Hong Kong, and 9% in the United Kingdom. Our members represent important industry sectors that make up the pillars of Hong Kong's economy. Some of these industries include: Financial Services (13%), Sales/Marketing (12%), Trade Services (10%), Transportation/Logistics (9%), and Manufacturing (7%).

The rating on Hong Kong's business environment this year reveals that member companies continue to share an overall positive level of satisfaction when doing business and investing in the SAR. Survey results indicate that AmCham member companies forecast the business environment will continue to improve in the upcoming year with 72% of the respondents giving 'good' ratings.

The economic outlook for Hong Kong hits a similar high note with three quarters of AmCham member companies giving 'good' ratings for the local economy next year. Survey respondents expect that the favorable business environment will also help boost overall company performances.

In this year's assessment, more AmCham member companies are planning to expand their businesses (59% versus 50% in 2006) and over half (52%) indicated that they have plans to hire more staff over the next three years. Only 4% of the respondents have considerations to gradually downsize their businesses and 4% may reduce their current staffing levels. However, many will operate their businesses as usual (44%) and maintain their current staffing levels (44%) in Hong Kong.

In terms of AmCham member companies with regional headquarters based in Hong Kong (72%), the majority (87%) will stay in the SAR and maintain the current size (54%) of their head offices. Some of these offices are planning to expand (43%) while very few indicated that they may downsize (4%). Of the 28% of member companies with no regional headquarters located in the territory, 9% are thinking of establishing one sometime over the next three years.

After four years that the Closer Economic Partnership Arrangement (CEPA) has been in effect, a considerable number of AmCham member companies (45%) do not find it helpful to their businesses. Even with market access conditions further relaxed for selective industries to date, 58% of the respondents indicated that it does not apply to their industries, 44% said it is not relevant to their businesses, and 16% responded that their companies still do not qualify. CEPA could only capture 22% of AmCham member companies with businesses in Mainland China.

Most member companies that benefit from CEPA say that the effects were 'moderate' (71%) and only a small fraction see advantages being 'large' (9%) to their businesses. The type of CEPA benefits that companies cite when doing business in Mainland China include an improved level of market access (75%), the ability to set up wholly owned foreign enterprises (44%), reduced business entry costs (25%), improved overall return on investments (19%), and reduced costs of compliance to government regulations (13%).

When doing business in Hong Kong, survey results indicate that our member companies are most pleased with the SAR's geographic location (81%), communications network (81%), infrastructure (71%), free flow of capital (65%), and transportation links (65%), which earned the top 'very satisfactory' rating. Of the twenty-four factors accessed, sixteen were rated on or above the average (84%) 'very/somewhat satisfactory' levels.

When survey respondents were asked to rate the level of importance of the same set of factors affecting their decision to invest in the SAR, they indicate that Hong Kong's legal and regulatory systems (53%), communications network (49%), stable government and political system (47%), geographic location (46%), as well as availability of high quality personnel (43%) are 'most important' to them. Of the sixteen factors found to be on or above the average (84%) 'most important/important' levels, ten of them received on or above the average (84%) 'very/somewhat satisfactory' ratings. The 'availability of high quality personnel' needs improvement as it is the only one of the top five 'most important' factors that falls below the average 'very / somewhat satisfactory' level.

According to survey results, over half of the survey respondents indicated that the business forecast for Mainland China will be 'good' for each of the next three years ahead. When our member companies conduct their businesses over the border, figures reveal that there is a slight improvement in their overall satisfaction with the business environment there. This is reflected in a moderate 13% increase (from 57% in 2006 to 70% in 2007) of survey respondents who gave 'very / somewhat satisfactory' ratings.

Of the 87% of AmCham member companies that already have operations in Mainland China, 90% of them plan to make additional investments over the next three years. The locations of choice for their growth will concentrate more on Shanghai (63%), Beijing/Hebei (51%), and some in Guangdong province (26%). By background, these investors are primarily in the financial services (14%), manufacturing (12%), sales & marketing (12%), transportation & logistics (10%), and trade services (9%) sectors.

Of the remaining 13% of member companies who do not have a presence in Mainland China, almost half (48%) plan to break into the market in the next three years. The top three destinations for their initial investments favor Shanghai (80%), Beijing/Hebei (40%), and Guangdong province (10%). When survey respondents were asked what were their main reasons to begin or increase investments in the Mainland Chinese market, many cite domestic market expansion (79%) and the general economic outlook (72%) as important motives while the low cost of doing business (27%), improving regulatory environment (24%), and improving infrastructure (24%) in Mainland China are also considered.

Despite the overall positive business forecasts and growth opportunities in Mainland China, a number of important and specific considerations are also factored into investment decisions. To further improve the business environment in Mainland China, AmCham member companies look forward to greater efforts by the Central Government to tackle corruption (90%), increase the transparency of laws and regulations (88%), and protecting intellectual property rights (87%), as these factors top the list on the 'somewhat/very unsatisfactory' side of the ratings.