Foreign companies have for years been shifting production away from China as relations between Washington and Beijing have deteriorated. But now even Chinese enterprises — from big manufacturers to small businesses — are finding reasons to set up shop in the US.
Leo Chan, executive director of the Midwest USA Chinese Chamber of Commerce, helps companies establish or expand manufacturing activities in Ohio. He said he had more than a dozen projects in the pipeline, almost half of which manufactured parts for electric vehicles. The rest, he said, supplied consumer goods and industrial products to US clients.
“Compared to 2021, there’s definitely a sharp increase of serious inquiries [indicating] they want to set up a factory here in the US,” 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 US 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 US and China reached a record high $690.6bn last year, according to the US Bureau of Economic Analysis. The US mainly imported smartphones, automatic digital processing machines, toys and games, with China increasing its imports of soyabeans 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 US, and putting TikTok’s operations under scrutiny over fears the app is feeding data to Beijing.
Meanwhile, China has added US defence companies Lockheed Martin and Raytheon Missiles & Defense to its “unreliable entities list”. 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, were 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 US, 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 had gone up “tremendously” while the number of business restrictions and regulations has also been rising.
“The cost differential between the US and China has been narrowed significantly,” he said. “The trend is that the US 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 US, 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 $369bn into programmes 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 per cent 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 US.
Last month, Ford announced it would collaborate with Chinese supplier Contemporary Amperex Technology (CATL) to set up a $3.5bn EV battery plant in Michigan.
Chinese battery maker Gotion said last year that it would build a $2.4bn 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 US is not limited to big manufacturing companies.
“The majority of the hotel investments in metropolitan Milwaukee areas are fuelled by Chinese [money], mostly regional immigration centres, EB-5 programmes 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 programmes that allow foreign investors, their spouses and their unmarried children to become permanent residents in the US through qualifying investments.
Although this type of investment has slowed since the height of 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 start-ups and small businesses here or elsewhere overseas.”
Yuan explained that those seeking smaller investments in the US 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 chief executive of TDW and Associates based in Michigan, who advises US-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 welcomed jobs and contributions to local communities.
A version of this article was first published by Nikkei Asia on March 23, 2023. ©2023 Nikkei Inc. All rights reserved.
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Source: Economy - ft.com
