Chinese foreign direct investment is on the rise
Experts expect Chinese FDI to reach $100 billion to $200 billion in next five years.
Nineteen years ago, when Sheldon Day became mayor of Thomasville, Alabama, the biggest issue he faced was the city’s exports: its children.
Last week, Day was one of three featured speakers during the National Committee on U.S. China Relations annual China Town Hall, a national teleconference focusing this year on Chinese investment in America.
Also featured were former Secretary of Treasury Robert Rubin and Rhodium Group founder and leading expert on Chinese investment in America Daniel Rosen.
World Affairs Council of Western Michigan, which hosted the event locally, also hosted an event with Henry Levine, a senior adviser and China expert for Albright Stonebridge Group.
“We had a lot of exports; the exports were our kids,” Day said. “Many of our folks worked in textiles; and right about the time I came in, textile exodus was in high gear.
“Many communities tried to wait it out, but we realized shortly we had to do something.”
So Day and other community leaders sought to bring in outside projects. Their search came at a good time. In 2000, Chinese foreign direct investment, or FDI, was approximately $68 million, according to Rosen.
From 2000 to 2014, Chinese companies invested more than $46 billion, with 80 percent of Congressional districts having some form of investment or Chinese activity. Central Michigan’s 5th Congressional District has the second most FDI in terms of jobs with 5,230, according to Rosen’s Rhodium Group.
Levine, who spoke to a crowd at the University Club of Grand Rapids and more generally about U.S.-China relations, said Gov. Rick Snyder’s focus on ties with China should be applauded. He said according to the San Francisco Federal Reserve, for every dollar made in China, 55 cents of it goes to Americans.
Michigan exports to China totaled $4.2 billion in 2013, third behind Canada and Mexico, according to a report from the Michigan Economic Development Corp. The same report said China is the fastest-growing source of foreign investment, largely in automotive-related industries.
Levine said the wave of Chinese investment in the U.S. does have a positive influence on China-U.S. relations.
The Thomasville investment began with a courting process in 2009, and resulted in a $100 million investment and 300 jobs from Golden Dragon, a copper tubing company. The investment is significant in the city of 5,000.
Rosen said within five years, he wouldn’t be surprised if Chinese FDI approached $100 billion to $200 billion, employing up to 400,000 people —up from today’s 85,000.
Currently, Chinese “stock” of investment over the past several decades is still low compared to other countries. In terms of flow of investment, however, China has jumped into the top three. And the flow from China to the U.S. is catching up to U.S. investment in China because of the recent economic slowdown in China.
“It’s starting to get pretty exciting,” Rosen said. “This is an era in which we’re no longer dealing with a poor, developing country but a China on its feet. That’s taking some getting used to for us.
“It seems it’s just as difficult for China.”
Thomasville beat out 61 other cities for the Golden Dragon investment.
“Most of our China friends view the U.S. as Dallas, Los Angeles, New York or Chicago,” Day said. “We worked very hard as a small town to get them to understand it’s cool to be rural.”
An important part of the process, Day said, is to be ready for FDI, know who is looking, and be genuinely friendly to those looking.
The panelists and Levine agreed the investment in the U.S. is largely because of the stabilizing, and slowing, economy in China.
“There’s no way it returns to the growth of the past,” Levine said, referring to several decades of double-digit economic growth in China. He cited both the country’s investment in infrastructure and reliance on exports bumping toward a ceiling, and a movement toward consumption and services.
Those activities have led to smaller Chinese companies looking at development outside China.
Rosen fielded a question about perceived negatives of Chinese FDI, and answered that many believe Chinese companies will buy American companies and transfer activity back to China. Aside from normal business failings, Rosen said he’s studied thousands of investments and struggled to find one business that was acquired or built with Chinese investment that moved activity across the Pacific.
“Their assets are here to be more profitable than back in China,” he said. “It’s much more common for an acquired company to see an increase in employment.”
The panelists also were in agreement that the U.S. shouldn’t be worried about political influence from Chinese FDI, as more than 80 percent are private Chinese companies purely concerned with economic benefits. The U.S. also has laws that ensure companies all operate in the same way in the United States.
Chinese FDI isn’t only flowing into the U.S., and its non-economic-related importance in so many categories is the reason Levine said there is no country more important in as many ways as China.
“You can’t think about business unless you’re thinking, and hopefully working, with China,” Levine said to the crowd at the University Club. He added health care and environmental and human rights issues are also important, and “we could generate more if we tried.”
U.S.-China relations are the policies that come out in an effort to balance all those competing interests, Levine said.
“As you read about the developments, be aware of the enormous complexities,” he said. “The way it develops has a significant influence on how we can manage that long list.”
Levine also discussed Chinese President Xi Jinping’s visit to the U.S. two weeks ago. He said little progress was made in South China Sea activity and human rights issues, and statements were made by both President Barack Obama and President Xi regarding economic policies.
Despite the promising visit, Levine said tensions still remain at their highest since President Richard Nixon’s visit in 1973.
No matter how high the tensions get, however, Levine and the teleconference panelists are confident armed conflict will be avoided.
“Statements are activity,” he said, “but we’ll have to see how it plays out. Statements are helpful, but tensions remain high.”