For the first time in about 25 years, China is not a top three investment priority for a majority of US firms, with geopolitical tensions and domestic economic issues driving businesses to increasingly focus elsewhere, a new report said.

"A year ago, 60 percent of companies said China was the top or a top 3 investment priority and this year that's fallen to 45 percent," American Chamber of Commerce in China president Michael Hart said. "China is falling in the rankings as a place for people to invest globally. It's still important, but not one of the top destinations for the majority of companies."

That increasingly negative attitude to the world's second-largest economy shows both the scars from the past three years of "zero COVID" policy and the increasingly difficult position businesses are in trying to navigate rising geopolitical tensions.

US lawmakers have been intensifying efforts to find ways to decouple the US from China, as the two nations spar over issues from Taiwan to technology and surveillance.

Reflecting the decline in confidence in China, almost half of US firms that are already in the market plan no new investments, while another 9 percent are planning to cut investment, the chamber's annual survey of its members showed.

While the majority of companies are content to keep their presence in the market unchanged for now and are not looking to decouple, 12 percent said they were already moving their supply chains elsewhere and another 12 percent are considering it.

Those readings were almost double the level of even a year earlier and that change might continue to accelerate, with an important supplier to Apple Inc saying this week that firms are likely to move capacity out of China far faster than many observers anticipate.

For companies considering shifting investment from China, developing countries in Asia and the US were the top target destinations, followed by developed nations in Asia, Mexico and Canada.

Overall, US companies in China turned much more pessimistic over the past year, the data showed, with more than half of firms saying they would not be profitable last year.

More than 20 percent forecast a loss, which would be the worst result since at least 2019, with two-thirds blaming repeated lockdowns and other "zero COVID" restrictions.

"Ending 'COVID zero' was very important, but bringing back sentiment is not as easy," Hart said during a briefing yesterday. "China's going to have to work on a campaign to allow folks to come back, to look around and understand how important the Chinese market is and if there's a positive business environment."

He added that current hurdles, including visa restrictions and the lack of flights, need to be removed before foreigners decide to return.

At the moment, companies are mostly looking to "derisk" their supply chains by investing elsewhere, Hart said, especially after the lockdown in Shanghai last year shut down that city for months and shuttered factories in the surrounding region.

The pipeline of new investment into China is "pretty thin" right now, Hart said.

It generally takes two to three years for a company to make an investment, he said.

However, for the past three years "the door has been shut," with most foreigners unable to travel to the country, stopping that cycle, Hart said.

"We do expect to have a number of global leaders visit China this spring — that might restart this cycle, but it's going to be a two or three-year period before any of those companies make a decision," he said.

About 46 percent of firms think US-China ties would continue to worsen this year, up from 24 percent the previous year, the survey showed.

The rise in tensions between the US and China was the most important business challenge for companies, especially in the technology, research and development sectors, due to the continued conflict over semiconductors, respondents said.

Even leaving international tensions aside, firms' outlook for the Chinese market was also more negative than in previous years, with one-third of respondents pessimistic about the domestic market and prospects for an economic recovery.

The survey was conducted between the middle of October and middle of November last year, with 319 of the chamber's almost 1,000 members replying.