China Invests in US to Cut Costs, Avoid Rules – Good or Bad For US Economy?

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If you’ve been registering a pulse over the last year, you’ve surely read a host of stories about how the Chinese economy is plowing along on the road of global market development. The renminbi’s severe devaluation against the dollar (only slightly appreciating over the last half year) is one of a slew of sly tools that Beijing is using to compete ever harder in the market. China’s economic bulldozer is reaching such critical mass, that to many, the country’s global grip seems to be reaching a point of no return. A still-developing but already crucial area that directly helps Chinese growth is direct foreign investment, not only in far-flung places such as Africa and Australia, but increasingly, in the United States.

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To begin with an example: as many of our readers know, China is at the forefront of the wind turbine industry, accounting for almost half of the $45 billion global market. A recent NY Times article points out how companies such as Spain’s Gamesa take their operations into China to get a piece of the action, only to be slowed by Beijing’s strict rules of how to do business. (Namely, a 2005 regulation called Notice 1204, imposed by China’s National Development and Reform Commission that required wind farms to buy equipment of which no less than 70 percent was to be manufactured domestically.) The US is no stranger to tapping Chinese workforces, having done so for over two decades. But now, not only is China subjecting western companies like Gamesa to strict rules, but they are also investing in the US manufacturing sector on their own terms and on American soil.

The world’s largest producer of solar panels, China’s Suntech, now has a 75-person, 117,000-square-foot outpost in the Arizona desert, according to a recent Business Week article. This is one example of a spate of Chinese activity within US borders, which looks positive because it gives US workers jobs but ultimately benefits China’s bottom line by escaping trade barriers, capitalizing on the U.S. government’s alternative energy push, and learning lessons that could help them in their home market, writes David J. Lynch.

This isn’t necessarily new, but is steadily increasing as the US domestic economy continues its malaise while China is constantly looking to boost growth and its global reach. Other ventures mentioned in the article: the contentious investment of $200 million in Mississippi’s Steel Development Co. proposed by China’s Anshan Iron and Steel Group Corp. back in May; and Chinese state-owned Tianjin Pipe (TPCO) planning to build a $1 billion steel pipe mill in Corpus Christi, Tex., that would employ 500-600 people and avoid 63 percent tariffs. (TPCO has been around in the US since 1993, basing its operations in Houston.)

And we can’t forget how, back in Nov. 2010, Pacific Century Motors bought GM’s Saginaw, Mich.-based company Nexteer Automotive from the ailing US automaker, billed as the single largest Chinese investment in the global automotive supplier industry.

What does this mean for US/China/global business? Well, it depends whether the investment is seen as opportunistic encroachment on US economic territory (and, by extension, a big middle finger to free trade regulations, US tariffs and WTO rules while taking advantage of corporate tax breaks), or as a helping hand to quell domestic unemployment here in the states. Some US political and business leaders seem open to this idea. “Chinese companies, thanks to government-backed loans, monopolies, and preferential treatment, are awash in cash and should be a source for investment in the U.S. economy, investment that would help maintain and create jobs in the U.S.,” wrote Jon Huntsman, U.S. ambassador to Beijing, in a WikiLeaks-released cable, quoted in Lynch’s piece. Since the US is indebted to China, this could be one of the ways that American workers benefit from the relationship rather than losing out. However, it may end up that China’s overall benefit from increased investment in the United States’ economy serves the People’s Republic in the long run more than it does sustainable US manufacturing.

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