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 Rampant product piracy was another persistent problem highlighted in a report released Friday that was based on a survey of the group's 1,600 corporate members.
"Some companies mentioned plans to move offshore to India or Vietnam," said Norwell Coquillard, president of Cargill Investments China, an investment holding company of agribusiness giant Cargill Inc.
Still, he noted that most companies with operations in China were still planning to expand capacity on the Chinese mainland, often while moving factories and offices inland to smaller cities where costs are lower.
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," she said.
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.
Some companies worry that the law might restore the "iron rice bowl" of lifetime employment practiced by China's state sector during the era of central planning that followed the 1949 communist revolution, said Kent Kedl, general manager of the consulting firm Technomic Asia.
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 But Kedl said most U.S. companies had little to fear because their employment policies were general in line with international standards, unlike those of smaller local companies that often dismiss workers en masse to avoid paying bonuses, among other things.
"We don't foresee a huge impact here," he said.
The report also said that the recent spate of product recalls of products ranging from tires to toothpaste due to safety and quality concerns is prompting U.S. businesses to become much more vigilant over how their products are made.
Virtually all the companies surveyed were raising standards, stepping up inspections and requiring more detailed specifications, though few said they would stop using products or materials made in China.
Problems with piracy of technology and products remained more or less unchanged from earlier surveys. Such problems are a perennial headache for both domestic and foreign companies operating in China: U.S. businesses say they lose billions of dollars each year due to the lack of effective enforcement of copyrights, patents and trademarks.
Despite the difficulties of doing business in China's unpredictable, fast changing markets, 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.
[Associated Press; By ELAINE KURTENBACH]
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