China Inc. keen on setting up shop in the U.S. despite tensions

Date: Friday, March 31, 2023
Source: Nikkei Asia

NEW YORK -- Foreign companies have for years been shifting production away from China as relations between Washington and Beijing deteriorated. But now even Chinese players -- from major manufacturers to small businesses -- are finding reasons to set up shop in the U.S.

Leo Chan, executive director of the Midwest USA Chinese Chamber of Commerce, helps companies establish or expand manufacturing activities in Ohio. He says he has more than a dozen projects in the pipeline, almost half of which manufacture parts for electric vehicles. The rest, he said, supply consumer goods and industrial products to U.S. clients.

"Compared to 2021, there's definitely a sharp increase of serious inquiries [indicating] they want to set up a factory here in the U.S.," Chan told Nikkei Asia. "I have received more business delegations from China [and am] doing a lot of logistics warehousing."

Chan mostly attributes the uptick to political tensions.

"The number one reason is that U.S. buyers are asking that their supply chain be moved away from China," he said. "It's pretty much across the industry. I think a lot of buyers are saying we cannot afford to have a supply chain that is prone to potential risk."

Trade between the U.S. and China reached a record high $690.6 billion last year, according to the U.S. Bureau of Economic Analysis. The U.S. mainly imported smartphones, automatic digital processing machines, toys and games, with China increasing its imports of soybeans and other foods from the previous year.

This came despite constant talks of decoupling from China. Washington has been increasingly cracking down on China's tech sector, placing restrictions on where Chinese companies can buy land in the U.S., and putting TikTok's operations under scrutiny over fears the app is feeding data to Beijing.

Meanwhile, China has added U.S. defense companies Lockheed Martin and Raytheon Missiles & Defense to its "unreliable entities list," though it has also extended tariff exemptions on a batch of goods.

But Chinese companies still want to be closer to their customers.

"It's part of the long-term reshoring strategy to be closer to the consumers," said Chan.

He said he welcomed six Chinese delegations last year compared with two in 2021. Some companies, he said, are very eager to set up shop immediately, touring existing facilities that they could turn into their own factories in a few months.

John Ling, managing director of LinVest and a veteran broker for Chinese factories moving to the U.S., shared a similar observation.

"I have never seen anything like what I'm seeing now. A lot of Chinese companies have started looking in this direction," said Ling, who used to work for South Carolina's commerce department but now brokers deals nationwide. "[At] any time, I have six to 10 projects that I'm working on at different stages."

A desire to be closer to customers and avoid geopolitical crossfire are not the only factors nudging Chinese manufacturers stateside. One is the unpredictability of government policy in China, as seen in Beijing's approach to the COVID-19 pandemic. Three years of mass lockdowns and other crippling restrictions were followed by a sudden and chaotic end to the policy late last year that left companies reeling.

On top of that, Ling said manufacturing costs in China have gone up "tremendously" while the number of business restrictions and regulations have also been rising.

"The cost differential between the U.S. and China has been narrowed significantly," he said. "The trend is that the U.S. wants to work with partners or countries that [it] feels comfortable with. If you cannot join the dance, then you might be left out."

Washington has also implemented policies to protect certain industries, such as blocking some imports of solar panels from China. This means that if a company does not have a plant in the U.S., it has "zero chance to serve this market," according to Ling.

Similar thinking is playing out in EV batteries, a segment where Chinese companies dominate.

Chan from Ohio pointed to Washington's climate and tax bill passed last August to speed up the country's transition to clean energy.

The Inflation Reduction Act will funnel $369 billion into programs to battle climate change, including tax credits and other incentives for EVs. Tax credits for the vehicles, however, are limited to those assembled in North America. This is aimed at reducing America's dependence on China, which produces 75% of the world's EV batteries, according to the International Energy Agency. But for a lot of Chinese companies, Chan says the IRA is an opportunity to start manufacturing products in the U.S.

Last month, Ford announced it will collaborate with Chinese supplier Contemporary Amperex Technology (CATL) to set up a $3.5 billion EV battery plant in Michigan.

Chinese battery maker Gotion said last year that it will build a $2.4 billion facility in northern Michigan. Taiwan's Foxconn -- which assembles iPhones in China -- plans to build two battery plants in Wisconsin and Ohio.

Chinese interest in investing in the U.S. is not limited to big manufacturing companies.

"The majority of the hotel investments in metropolitan Milwaukee areas are fueled by Chinese [money], mostly regional immigration centers, EB-5 programs and some private investors," said Wenbin Yuan, executive director of the Wisconsin Chinese Chamber of Commerce. "It was probably the largest channel of investments for our area in quite a while."

EB-5 refers to immigrant investor programs that allow foreign investors, their spouses and their unmarried children to become permanent residents in the U.S. through qualifying investments.

Although this type of investment has slowed since the pandemic, Yuan has recently received more inquiries from individuals in China.

"We got some calls from China to learn about small businesses," said Yuan. "They sound like upper middle-class people rather than tycoons. [They want to] come out and relocate their assets so that they can set up some startups and small businesses here or elsewhere overseas."

Yuan explained that those seeking smaller investments in the U.S. generally have their businesses "tied to China" and cannot easily open a branch overseas or buy a plant.

"Most of the midsize and smaller-sized businesses, they have no chance to move in. It's harder to do, especially now," said Yuan. "So less heavy investments, but potentially more effective and smaller investments; that's what we feel from the inquiries."

These types of investments include purchases of local retail stores and small commercial buildings, according to Yuan.

And amid the fraught political atmosphere, local investments have perhaps a better chance of winning public support.

"I think for the general public, there is fear and there is a lot of fear-stoking, and it goes up during elections," said Tom Watkins, president and CEO of TDW and Associates based in Michigan, who advises U.S.-China businesses. "But at the end of the day, when people point to a Chinese company, there is one right down the road from where I live. It's a company that is contributing to the Little League, the Boy Scouts or Girl Scouts [and] to community homeless projects. They're just like any other company."

"All politics are local," Watkins added, explaining that at the state level, people welcome jobs and contributions to local communities.


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