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Chinese FDI and the 2016 U.S. Elections

Jul 08 , 2015

By now, “China-bashing” rhetoric has become a political fixture in U.S. national elections. In 2012, Mitt Romney brashly labeled China a “currency manipulator” and criticized President Obama for inaction. The 2014 mid-term cycle was rampant with Democratic candidates falling back on anti-China rhetoric to defend against Republican attacks about the economy.

Yet, new data shows a rapidly growing trend of Chinese FDI supporting local economic development efforts across America. In response, more and more local and state officials are now lining up to boldly tout active engagement with China. Looking ahead to the 2016 elections, a new conversation about China is beginning to surface that diverges from the typical national dialogue.

Chinese FDI on the rise in America 

Last month, the National Committee on United States-China Relations and the Rhodium Group issued a groundbreaking report on Chinese FDI flows into the United States. The report, titled “New Neighbors,” detailed Chinese investment into the U.S. by congressional district, revealing that 44 out of 50 states so far are home to subsidiaries of Chinese companies. According to the report, from 2000 to 2014 Chinese companies invested over $46 billion directly into the U.S. economy.


A mix of push-pull factors is driving the rise in Chinese FDI. On the one hand, a slowing Chinese economy is forcing domestic firms to diversify their assets and seek new growth opportunities in foreign markets. The U.S. is certainly a preferred place for Chinese capital to land. Chinese firms are particularly interested in U.S. talent and innovation, as well as a strong environment for protecting intellectual property. Chinese companies are hungry for U.S. technology and are willing to pay a high price to access patents that can take their companies to the next level. Chinese brands often find that a purchase of or joint venture with an American company will help build its competitiveness both in China and around the globe.

Local Officials Pack Their Bags For China 

Over the last few years, public officials across America have been fervently working to compete for Chinese investment. One reason is that local officials are realizing that Chinese capital is a timely resource to support economic development, or in some cases, as a solution to revive struggling local industries. For example, in 2010, General Motors sold the Nexteer Automotive Plant in Saginaw, MI to Beijing Pacific Century Motors (now owned by AVIC) for $450 million. That sale not only kept the “troubled and unprofitable” company afloat, but also maintained all jobs for local workers. AVIC has since invested another $150 million in the Saginaw operation, creating over 1,000 jobs.

What is astounding about Chinese FDI is the diverse geographical scope of the investments. As the New Neighbors report points out, Chinese plays in the U.S. are not relegated to large metropolitan areas or high-income areas. Many local officials have realized that the competition for Chinese FDI is still anybody’s game; opportunities abound, even in some of the most unlikely of places. Just a few years ago, the New York Times reported that multiple businesses in Toledo, OH, had successfully reached agreements on the purchases of two hotels, a restaurant, and a sizeable waterfront property from Chinese groups. Behind that investment was an active and highly public push by a local official, Mayor Michael P. Bell, who visited China four times to help secure important investments for the city. 

State and local officials across America are taking pages from Bell’s playbook, packing their bags and flying to China to bring home new business. Governor Jerry Brown of California traveled to China in 2013 to promote public works projects. Former Washington, D.C., Mayor Vincent Gray traveled to China last June to promote multiple greenfield investment projects. Governor Rick Snyder of Michigan has visited China every year since assuming office in 2011.

And the list goes on. While it is hard to attribute official visits directly to securing investment, most companies doing business in China would agree that having vocal, direct support from their local government is invaluable. As growth in Chinese FDI continues, perhaps as much as $200 billion by 2020 according to the report’s estimates, we should only anticipate an increase in these efforts.

Looking Ahead to 2016 

Despite the exciting fact that Chinese FDI is on the rise, Americans are still ambivalent at best regarding China. Indeed, FDI is only one aspect of the dialogue, so far eclipsed by other salient issues. National security threats from China, for example, are quite fresh. Americans have become extremely concerned about cyber security from China after it was revealed that Chinese hackers were siphoning important information from U.S. systems for almost a year without being detected.

Overall, Americans also just do not seem ready to trust the Chinese. According to a February 2015 Gallup poll, Americans are split 44% to 50% between having a favorable and not favorable view of China, respectively. 12% of Americans also consider China to be America’s biggest enemy, not far behind Russia (18%) and North Korea (15%). Whether or not Americans have a favorable opinion about China, the same poll suggests that now a majority of Americans (52%) believe that China is actually the leading economic power in the world today. Of course, there is the age-old “job-stealing” reputation that American politicians attach to China, continuing to blame chronic outsourcing for unemployment and the loss of manufacturing jobs. No doubt this will be an important issue in the 2016 elections.

Given this ambivalence about China on a national scale, it is unlikely that any national candidates will emerge with a “pro-China” platform. While Chinese FDI is certainly a positive thing and deserves more attention than it gets, the reality is that most Americans cannot feel it yet. Only 80,000 Americans are working in U.S. subsidiaries of Chinese companies, most of which were jobs retained rather than created by Chinese companies. It is more likely that some level of China-bashing will continue in 2016. But as we approach next year’s elections, keep an eye out for the dichotomy between the conversation on China going on nationally and locally. The difference should be stark, with many local officials and state leaders proudly boasting about their track records of success driving Chinese investment into their communities.

Hopefully, continued local successes will gradually augment the national agenda. Just as local officials in America are competing domestically for Chinese investment, the U.S. as a whole is competing with the world. Last year, the Chinese Ministry of Commerce announced its goal of growing outbound investment numbers by 10% annually over the next ten years, aiming for a day in which outbound investment surpasses inbound flows. That capital will need to go somewhere, and as local officials can attest, it will go where it feels most welcome. Perhaps we can look ahead to 2020 for national leaders to emerge that can boldly tell it like it is.

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