An outsourcing reversal: Chinese firms in US

Places from Richmond, Va., to Barstow, Calif., are already wooing foreign direct investments.

In March, a delegation from Richmond, Va., will visit three cities in China to hold a seminar on how to profit in America.

In Lockhart, Texas, a delegation of Chinese executives last week ate barbecue as town officials showed them potential factory sites.

In Massachusetts, officials are talking to the Chinese about investing in the fishing industry, which can supply Asian consumers with herring and mackerel.

Across the country, mayors are brushing up their chopstick skills in an effort to win Chinese investment. Individual counties and cities are setting up trade offices in Beijing and other Chinese cities. Some places are enlisting their Chinese-American citizens to translate and show visitors that their city cares about Asian culture.

Wooing the Chinese is important because in November, the United States had a trade imbalance of $158 billion with China, double what it was three years ago and growing by $3 billion to $4 billion every month. It dwarfs the second largest trade deficit - with Japan - by more than $80 billion. To date the Chinese have used some of that money to invest in US Treasury bills. However, economists believe it's important that China diversify and lengthen its investments.

"It produces a better, more balanced and stable relationship," says Mark Zandi of "It is a healthy sign."

There is no question the Chinese are coming, even though news reports have said that the Bush administration may raise national-security objections to the $1.2 billion acquisition of IBM's PC business by Lenovo, a Chinese computer company. Observers expect further investments in US companies involved in oil and gas production and appliances.

"This is the first inning of a very long game," says Don Straszheim, an economist who follows China trends in Santa Monica, Calif.

Chinese officials don't dispute that the future is likely to include some significant investments in the US. "The Chinese have adopted a policy to go global," says Zhanling Yuan, an economic and commercial consul in New York.

To date, most of the money has gone the other way - from the US to China - as companies moved their manufacturing operations. According to the State Department, China received $53 billion in foreign direct investment in 2003 for a cumulative total of $501 billion. By way of contrast, the Xinhua News Agency estimates Chinese direct investments in other countries totaled $1.8 billion for the first 11 months of 2004, and most of that was in Latin America.

That is expected to change, however. Liang Shuhe, vice director general at China's Department of Foreign Trade, says acquisitions may be a "shortcut" for Chinese companies to develop a brand. That will be the case with Lenovo, which will be selling IBM's "ThinkPads" (which are already made in China).

Another major Chinese company, Haier, which produces everything from flat-screen televisions to refrigerators there, is producing refrigerators in South Carolina. "Their effort is to penetrate by trying to build a brand name in the same way the Japanese did," says Mr. Straszheim. "But I think sometime in the next few years they will abandon this strategy and make a pass at a well-known name like Maytag or Whirlpool."

Certainly, many Chinese companies could learn something from the US about marketing. For example, Greg Wingfield of the Greater Richmond Partnership has traveled many times to China to seek direct investment. One of the hotels he has stayed in is called the Handsome Boy Monkey Hotel. "I've said to Chinese executives, 'One of the first things you have to do is find a name that is understandable in English and not taken by another company,' " he says.

No matter, many local officials in the US are jockeying for position to win Chinese investments. Massachusetts officials, besides trying to secure investments in the fishing business, think the area is ripe for investments in medical products and pharmaceuticals. "Ultimately as they bring their products over here and need the full licensing and permitting that is required on the high-tech end of things, Massachusetts is the logical landing spot [because of the presence of legal personnel who can take care of it]," says Julian Münnich, treasurer of the Massachusetts International Trade Council.

Last week, Philadelphia officials met with a Chinese delegation in New York for the Chinabrand 2005 expo. They talked about the city's educational facilities and an upcoming extravaganza called the Splendor of China, which will attract 400 Chinese companies to the city. "And we want to remind people that one-third of America is within one day's truck drive," says Curtis Jones Jr. of the Philadelphia Commercial Development Corp.

The concept of how to do business with the Chinese is spreading fast - even to as small a place as Lockhart, Texas, (pop. 13,000). Last week, a delegation of Chinese executives was entertained with mariachi music and left with cowboy hats. "Our intention is to develop a relationship in order to recruit in the future," says Sandra Mauldin, director of economic development.

There is no doubt that some Chinese entrepreneurs are looking for places to invest. Last year, Ron Rector, economic development manager in Barstow, Calif., found a real estate company that tries to hook up Chinese companies with communities. Now, Barstow has a new employer, United Plastics (Ca.) Inc.

"The Chinese see the US as a safe harbor for investment," says Mr. Rector. "Beyond that, they see the US as a place for their children to get educated."

In fact, some areas are emphasizing their relatively long ties to Asian culture. That's the case in Richmond, which boasts of its Chinese school run by Chinese nationals as well as good Chinese restaurants and Asian cultural events.

That made a difference to the Uquality Automotive Parts Corp., which set up a distribution center last year. "The whole Asian community thing and Asian schools made a difference," says Steve Moss, the operations manager.

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