Illustration: Craig Stephens
by Billy Huang
by Billy Huang

Chinese investment is saving American factories and manufacturing despite the trade war, even though Trump won’t admit it

  • Despite trade tensions, from Ohio to Kentucky to Louisiana, Chinese FDI is building factories and creating jobs. State governors welcome and court Chinese investment; Trump should start listening to them

The US-China phase-one trade deal, under which Beijing committed to huge purchases of agricultural products, is a shot in the arm for farmers in America’s heartland. But the overall picture still looks grim, especially for Chinese investment in the US.

According to global research firm Mergermarket, purchases of US firms by Chinese buyers has plummeted by 95 per cent, from US$55.3 billion in 2016, to US$3 billion in 2018.

It can be argued that with China purchasing more US farm goods, more jobs will be created, so why bother so much with foreign direct investment? Well, not all jobs are created equal. With FDI, multinationals build plants or research facilities and tend to pay employees better salaries than in the US private sector. For US heartland states suffering job losses for decades, FDI is needed more than ever.

There are big gaps in the discourse on Sino-US economic relations. At the national level, Washington sees Beijing as a rival with a “ 100-year scheme” to unseat the US as the world’s top powerhouse and has spared no effort to impede it. But, at the business level, deals from China, particularly in FDI, have not stopped, and have started to yield great results.

Over the past few months, I had the chance to meet several figures in charge of economic development in the US heartland states. They show great enthusiasm for Chinese investment and I came away with the clear message that Chinese capital has played a great role in local economic growth and continues to be welcome.

Chinese entrepreneur Cho Tak Wong, chairman of major glassmaker Fuyao Group, is also known in the US as the star of American Factory, an intriguing Netflix documentary about him investing in and running a local plant in Dayton, Ohio. Ohio loves him and the state sent a delegation to New York earlier this month to applaud Cho for winning an entrepreneurship award. Cho told me at the dinner that he will employ 300 more people this year on top of the 2,000 employees.
In Kentucky, the Haier Group employs more than 6,000 people after acquiring General Electric’s home appliance unit for US$5.6 billion in June 2016. Chinese-owned Lexmark is also a big employer in the state with 1,600 people. Last August, China’s Phoenix Paper said it would invest US$200 million in Kentucky’s Ballard County to build a paper and pulp recycling facility, creating at least 500 jobs.
In Louisiana, Shandong Yuhuang Chemical is building a US$1.85 billion methanol plant, one of the largest greenfield FDIs by a Chinese company in the US. The project is estimated to create more than 2,700 jobs, plus 2,100 construction jobs at peak building activity.
The successes of China businesses at the US state level can be attributed to the high level of American state government autonomy. The national or federal government can guide or regulate economic development policies in the states only through federal aid and incentives, with no authority to issue orders to the states.
The exceptions are issues related to national security, a card that hawks in Washington have played relentlessly for years against Chinese state-backed companies in sensitive sectors. Growing powers have been bestowed on the Committee on Foreign Investments in the United States (CFIUS) to review transactions, in what looks like a veil for an expansion of federal power over state governments.

It is encouraging to see a host of American governors taking action to counter this. As early as August 2018, the National Governors Association clarified in a statement: “Federal action should be limited to situations in which constitutional authority for action is clear and certain.” It added: “Unless the national interest is at risk, federal action should not pre-empt additional state action.”

These principles should ring true for America and China but, in some cases, the evidence against Chinese companies does not appear to be all “clear and certain”, such as with 5G leader Huawei Technologies and Sany Heavy Industry Co, China’s largest construction equipment maker.
In 2014, Sany’s affiliate company Ralls Corp challenged a decision by the US president to block its wind turbines project in Oregon due to national security concerns — the site was next to a navy base. Ralls won in court but the factory had been demolished long before the verdict was issued.
State governments should join hands to fight the excessive tariffs on Chinese goods because they hurt American businesses too. Last September, Wanhua Chemicals dropped a US$1.25 billion plant project in Louisiana that would have created 1,800 jobs, withdrawing its land use application reportedly due to increased construction costs, with materials from China subject to higher tariffs.

The dangerous mirage of America’s continued prosperity

American politicians who like to turn to the founding fathers to support their political agenda would do well to look to Alexander Hamilton, the treasury secretary who faced the same challenge in the late 1700s as US President Donald Trump does now: the urgent need to revive American’s manufacturing sector.

In his “Report on the Subject of Manufactures”, presented to Congress in 1791, Hamilton urged the newly founded nation to keep investment open to foreigners. He also engineered a revolutionary programme to compensate the British for their loss of property and unpaid debt in the American Revolutionary War. After that, European investment capital poured into America, contributing enormously to the building of the nation.

Hamilton’s vision largely prevailed until Trump came to office. What he is doing is the opposite of making America great. It is time to correct it.

Billy Huang has served media outlets in Beijing, Hong Kong, Singapore and the United States for more than 20 years. [email protected]