Wednesday , January 17, 2018

Meet Our New Neighbors: Chinese Foreign Direct Investment in the U.S.

Golden Dragon Copper Group

Category: LegalBiz

Meet Our New Neighbors: Chinese Foreign Direct Investment in the U.S.

Contributed By: Scott M. Stevenson
Job Title: The Charlotte Managing Partner
Company: Shumaker, Loop & Kendrick, LLP

Since 2000, Chinese FDI has grown rapidly, reaching nearly $12 billion in 2014 alone. Chinese firms are engaged in areas as varied as construction, energy, entertainment, auto parts, chemicals, real estate, medical equipment, telecommunications and sportswear. Whether a new facility or the acquisition of an existing one, these local operations pay local, state, and federal taxes, provide jobs, push innovation, build trade linkages, and, in the process, touch and improve the lives of countless Americans.

 

The Chinese and Americans involved in these investments are learning about each other, making contacts, and creating a new pillar for a more productive U.S.-China relationship. The early results have often been transformative. A $100 million copper plant near Thomasville, Alabama, where unemployment rates were among the highest in the state, has revived the surrounding area.

 

“The Golden Dragon Precise Copper Group currently employs over 200 people and is in the process of hiring an additional 110, lifting many families off of government assistance and changing the fabric of our community,” according to Thomasville Mayor Sheldon Day, adding that a further expansion would eventually lead to as many as 500 total jobs.

 

Fuyao Glass, which last year bought an idle General Motors plant outside Dayton, Ohio, promises to invest hundreds of millions and bring more than 1,500 jobs to the economically depressed area in the coming years.

 

And the job numbers don’t stop there. These investments support construction jobs to build or re-tool the facilities, jobs at vendors in the supply chain, jobs at neighborhood businesses that benefit from a better local economy. While this report doesn’t capture either these indirect jobs or any part-time positions at the firms themselves, if it did, we know that the total number of jobs provided would be greatly multiplied.

 

For almost 50 years, the National Committee on United States-China Relations has been building constructive relations between our two countries. We undertook this study, New Neighbors, in the belief that American citizens and leaders, at the national, regional, and local levels, all need to better understand the impact of Chinese investments in the United States.

 

With the report’s release, American policymakers and the general public have a new window on the local realities of Chinese investment in the United States. New Neighbors offers, for the first time, a full estimation of the local investment, operations, and employment effects of Chinese FDI.

 

As of today, Chinese firms directly employ more than 80,000 Americans across the country, and that number is poised to quadruple over the next five years. The personal relationships that develop and the understanding that each side derives from these investments help foster a more peaceful and prosperous Asia-Pacific region. Just as when American investors first went to China, peace and prosperity are enhanced when Chinese investors create jobs, improve infrastructure, and work side by side with Americans to build a better America, and a better world.

 

Our New Neighbors

 

Foreign direct investment (FDI) is a vital component of the United States economy today and has been throughout the nation’s history. Investors from abroad are a source of growth, employment, competitiveness, and innovation, and their presence is living proof of America’s commitment to openness, market competition, and putting the interests of consumers above the welfare of corporations.

 

Companies from China have not historically played a direct role in the U.S. economy, and FDI was largely a oneway street from the U.S. to China from the 1980s to the 2000s. In recent years, however, Chinese FDI into the U.S. has taken off, bringing a growing number of firms from China face-to-face with U.S. communities; new corporate neighbors are moving in.

 

This report details—for the first time—Chinese commercial investment in the U.S. down to the congressional district level, using a unique dataset in development since 2009. With that granular information the report describes the picture so far in terms of investment value, operations, and associated employment. The key findings are as follows.

 

The recent wave of Chinese FDI has brought new Chinese neighbors to towns across America. From 2000 to 2014, Chinese firms spent nearly $46 billion on new establishments and acquisitions in the U.S., most of it in the past five years. As of the end of 2014, we count 1,583 establishments by Chinese firms in the U.S., stretching across all regions of the country. Importantly, while investments in perceived trophy assets such as the Waldorf Astoria Hotel dominate the headlines, Chinese firms are clearly interested in the value of American workers and manufacturing in some of the areas with the lowest per capita incomes in the United States as well. The benefits of Chinese capital are distributed nationwide, not just in high-income parts of the country.

 

Local economies benefit from greater levels of investment. The biggest recipients in terms of cumulative investment from 2000-2014 were districts in North Carolina, Illinois, New York, Virginia, and Texas. While acquisitions (which account for the majority of investment) mostly represent change in ownership, many Chinese takeovers have generated local investment as the new owners have saved firms from bankruptcy and provided new financing lines. In most cases, acquisitions have led to expansions, and examples of downsizing are rare. Greenfield projects have already generated billions in local investment and investments in big manufacturing and service sector projects have accelerated significantly in the past 18 months.

 

Chinese-affiliated companies now directly employ more than 80,000 Americans. The recent U.S. expansion of Chinese companies means more than 80,000 Americans are on Chinese company payrolls, up from fewer than 15,000 five years ago. These figures do not include indirect employment during construction or at suppliers, which would add tens of thousands of additional jobs. The top districts in terms of jobs are home to Chinese-affiliated companies in manufacturing and services sectors, which have higher employment intensity than energy or real estate investments. Fears that Chinese acquirers could systematically move acquired assets and related jobs back to China have not materialized. Instead, new Chinese owners have, in most cases, sustained and expanded local employment after they acquired U.S. assets. Job creation through greenfield FDI is approaching the 10,000 mark, with significant further growth imminent from projects already in the pipeline.

 

Chinese companies are contributors to American innovation and competitiveness. There is no evidence that Chinese investors are moving high value-added activities back to China. Instead, U.S. innovation clusters, strong protection of intellectual property rights, and the talent pool are major draws for Chinese companies, which now spend hundreds of millions of dollars every year on research and development activities in the U.S.. Chinese companies also contribute to the training of  local workers, and technology investors such as Tencent and Alibaba have emerged as important sources of capital for startups and early stage growth companies.

 

FDI can be a catalyst for greater exports of “Made in the U.S.” goods and services to China. Growing investment creates important linkages which can help local economies reach the Chinese market with their goods and services. There are already many success stories in advanced manufacturing and consumer goods and there is tremendous potential to expand U.S. exports in those categories and new areas such as agriculture and food. FDI from China can also help to facilitate the export of U.S. services— including entertainment, hospitality, and financial and business services—to Chinese consumers.

 

North Carolina

 

With nearly $5.5 billion invested, North Carolina is the second highest recipient of Chinese investment in the U.S.. The more than 80 Chinese affiliates in the state currently provide over 15,000 jobs. This presence is in part the result of acquisitions of U.S. firms located in North Carolina (IBM, Smithfield), but also strong organic growth of Chinese companies in the state in recent years.

 

One significant employer in North Carolina is Smithfield, which operates 14 facilities in the state with more than 8,000 employees. These are spread evenly through congressional districts NC-01, NC-03, NC-08, and NC-09, and most importantly NC-07. The Tar Heel facility (NC-07) is the world’s largest pork processing facility.

 

The second top employer in North Carolina is Lenovo, with a track record of 10 years and nearly 5,000 employees. In 2005, Lenovo acquired IBM’s personal computing business including its operations in the Research Triangle (NC-04). Since 2008, Lenovo also operates a manufacturing facility in Whitsett (NC-06). In 2014, Lenovo completed the acquisition of IBM’s x86 server business, which is also located in the Research Triangle. It also plans to move some server production from China to the U.S.

 

Chinese companies have also invested in North Carolina’s furniture industry, including Fine Furniture and Design, a greenfield investment in High Point (NC-06); the acquisition of Schnadig Corporation in Greensboro (NC-12); and Talon Systems in Statesville (NC-05). Homestar Light Industrial Co., which acquired Talon, plans to add 40 jobs and retain all 120 currently at the operation.

 

NC-09 and NC-10 are home to a large group of medium-sized companies such as Jetion Solar, a solar panel manufacturer, and NouvEON Technology Partners, both in Charlotte. NC-13 is home to another major Chinese subsidiary, Epic Games, which is famous for its game Gears of War. The video game developer is owned by Chinese internet giant Tencent and provides nearly 300 jobs in Cary.

 

After experiencing major structural adjustments from the reorganization of global value chains (for example, its historically important textile and furniture industries), North Carolina has become one the most important destinations for Chinese investment in the U.S. Opportunities for expanding Chinese capital inflows exist particularly in the state’s high-tech sectors (including information technology and biotech) and other service industries.

 

Much is still to come. Chinese FDI is only at the initial stage Japanese firms reached in the 1980s, and there is tremendous growth potential for Chinese investment, job creation, and other benefits. If the U.S. continues to be a major recipient of China’s booming outward investment, it could receive between $100-200 billion of investment by 2020. Based on past employment intensity, this would increase the number of full-time U.S. Jobs provided by Chinese U.S. affiliates to somewhere between 200,000 and 400,000.

 

Greater Chinese FDI marks a new chapter in U.S.-China economic relations. Growing outbound FDI is a major channel through which the changes in the Chinese economic model will be felt in the U.S. economy. Higher levels of investment mark the beginning of an era of U.S.-China economic engagement that brings a wider array of mutual benefits rather than a limited set of winners and losers, as arose from the deepening of goods trade of the past two decades.

 

From local impacts to national interest. The United States is competing with dozens of other attractive economies including Europe, Australia, Canada, and Brazil for these new capital flows. Recent years have seen greatly stepped-up local-level effort by mayors, governors, and other local officials to attract these new investors to the neighborhood. Greater awareness of the local benefits from Chinese investment should help to sustain recent progress in aligning local opportunities and national interests so the U.S. will be successful in that competition.

 

Executive Summary: New Neighbors: Chinese Investment in the United States by Congressional District. Prepared by the National Committee on U.S.-China Relations and Rhodium Group, May 2015. The National Committee on United States-China Relations is a private, nonpartisan, American non-profit organization that promotes understanding and cooperation between the United States and Greater China. Rhodium Group (RHG) is an economic research firm that combines policy experience, quantitative economic tools and on-the-ground research to analyze disruptive global trends. The full study is available at www.ncuscr.org/fdi.

 

Content contributed Shumaker, Loop & Kendrick, LLP, a full service law firm founded in 1925 with more than 240 attorneys practicing in Toledo and Columbus, Ohio; Tampa and Sarasota, Florida; and Charlotte, North Carolina.     Our Charlotte office is sharing in the fast-paced development of the Carolinas by providing representation on corporate, securities, real estate, tax, litigation, immigration, employment, creditors’ rights, international business transactions and litigation, financial transactions, health and all other business specialty areas. For more information, contact Scott M. Stevenson, the Charlotte Managing Partner, at 704-945-2180 or sstevenson@slk-law.com or visit www.slk-law.com.

 

Company Name: Shumaker, Loop & Kendrick, LLP

Address: Charlotte, North Carolina

Phone: 704-945-2180

Website Address: http://www.slk-law.com

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