Skip to comments.Chinese Entrepreneurs Find Bargains In U.S. Firms
Posted on 05/11/2008 4:40:50 PM PDT by DeaconBenjamin
Dongguan, China -- Liu Keli couldn't tell you much about South Carolina, not even where it is in the United States. It's as obscure to him as his home region, Shanxi province, is to most Americans.
But Liu is investing $10 million in the Palmetto State, building a printing-plate factory that will open this fall and hire 120 workers. His main aim is to tap the large American market, but when his finance staff penciled out the costs, he was stunned to learn how it compared with China.
Liu spent about $500,000 for seven acres in Spartanburg - less than one-fourth what it would cost to buy the same amount of land in Dongguan, a city in southeast China where he runs three plants. U.S. electricity rates are about 75 percent lower, and in South Carolina, Liu doesn't have to put up with frequent blackouts.
About the only major thing that's more expensive in Spartanburg is labor. Liu is looking to offer $12 to $13 an hour there, versus about $2 an hour in Dongguan, not including room and board. But Liu expects to offset some of the higher labor costs with a payroll tax credit of $1,500 per employee from South Carolina.
I was surprised, said the 63-year-old president of Shanxi Yuncheng Plate-Making Group.The gap's not as large as I thought.
Liu is part of a growing wave of Chinese entrepreneurs expanding into the U.S. From Spartanburg to Los Angeles they are building factories, buying companies and investing in business and real estate.
Individually, these deals pale next to high-profile investments such as the $5-billion stake China's sovereign wealth fund took in Morgan Stanley last year, or state-owned oil giant CNOOC Ltd.'s $18.5-billion bid to acquire Unocal Corp. in 2005.
But unlike the suspicion or uproar those moves generated - CNOOC withdrew its offer amid U.S. political pressure, and the Bush administration and other governments have pushed for acode of conduct for sovereign wealth funds - private Chinese businesses such as Shanxi Yuncheng are being wooed by states hungry for investment and jobs.
Last month, Wyoming's governor toured companies in China's coal-mining country. Georgia's leader brought a team of 40 on a mission to boost trade and attract investment, and Alabama's governor paid a visit too.
It's like a land grab, quipped James Rice, Tyson Foods' China manager and a board member of the American Chamber of Commerce in Shanghai, who has attended some of these states' functions in China.
Many Chinese entrepreneurs remain wary of entering the U.S., uncertain about restrictive visa rules, language and cultural barriers and the political environment. Recent tensions related to Tibet and the Olympic torch relay have spurred calls in China to boycott Western companies. But no one says that's slowing Chinese companies' march into the world's biggest economy.
They don't want to miss this opportunity to bottom-fish in the U.S., said Mei Xinyu, an economist at China's Ministry of Commerce, referring to the depressed asset prices in a sluggish American economy.
Flush with cash, many Chinese companies want to compete globally. Others feel they've hit a wall in the domestic market and need to go out to expand sales. And the Chinese government is urging them on by loosening previously cumbersome restrictions, in part to help Beijing reduce a lopsided trade balance with the U.S. and make the most of its massive foreign reserves.
At seminars and talks, government authorities are saying,You're a capitalist, you should be going out,' '' said Fred Hong, a Pasadena, Calif., lawyer who has worked in Guangzhou for 15 years advising Chinese companies.
One of Hong's clients, a Wenzhou man who operates two printing factories in China, recently signed a deal to spend $1 million to buy a 60-worker plant in City of Industry, Calif., that makes magnetic cards. Hong said the man's factories had produced strong profit in the last several years, leaving him with a pot of cash. With the dollar having lost nearly 10 percent of its value against the Chinese currency in the last 12 months, the yuan can go much further in the U.S.
For years, investment between the U.S. and China flowed one way, with American companies spending billions in the Asian nation. But the Beijing government's $5-billion stake in Morgan Stanley and $3-billion investment in the private-equity firm Blackstone Group brought China's overall investments in U.S. companies to $9.8 billion in 2007, up from $36 million the year before, according to Thomson Financial. By comparison, U.S. investment in China was $2.6 billion last year, down from $3 billion in 2006, said China's Ministry of Commerce.
But many Chinese entrepreneurs prefer to keep a low profile, and experts say those figures don't include investment activity happening under the official radar.
Karen Shen, Washington state's trade development representative in Shanghai since 2000, used to focus on promoting exports of Washington-made goods and produce. Now she's helping the state's companies and officials hook up with Chinese investors. Tech companies in China are keen to buy or launch businesses near Redmond-based Microsoft, she said.
Few states have been as aggressive in reaching out to China as South Carolina. In recent years, 10 Chinese businesses, including appliance maker Haier, have expanded there and created about 2,000 jobs, said John Ling, managing director of South Carolina's China office. That's a fraction of the textile jobs the state has lost to Asia, but it's a start, he said.
Shanxi Yuncheng is Ling's latest catch - but it took two years.
The company's owner, Liu, was reluctant. He had built his printing-equipment business from the ground up in Yuncheng, an industrial city of 5 million in central China.
In the early 1980s, Liu traveled to Germany and, with a $250,000 loan from a state bank, bought a world-class machine that would make the copper cylinders for the gravure method of printing. Within a decade, Liu's company dominated this niche for commercial printing in China.
Today, Liu owns more than 80 gravure cylinder-making plants in China and 20 more in a dozen countries, including Mexico, Brazil and Vietnam. He has more than 10,000 employees and sales last year surpassed $250 million. Why, he asked himself, should he take the risk of setting up a factory in the U.S.? Besides higher labor costs, Liu worried that his company and managers would not be welcomed and feel a backlash from the bad publicity about cheap and unsafe Chinese goods.
But the more he thought it over, the more it made sense. Shanxi Yuncheng wasn't going to grow much faster at home. Its expansion into Mexico four years ago showed him he could succeed outside Asia.
It's a lot of pressure going to the largest market in the world, Liu said. But he thinks it's certain to help his business become more competitive.That's one of the real benefits from this expansion.
Ding. Ding. Ding!
We finally have a winner for honesty!
It's not just "Made in USA" at WalMart that's wanted after all, is it? It's what?
A country where property owners can only be sell among "us," and only trade is allowed between "us" and not "them" if the value is attributed as "fair" by the central government? Sounds commie to me.
Hint: Xenophobia is pronounced with a "zee" sound.
Good news! The way the Chinese capitalists treat their workers is being given a go by some of our undocumented-worker "cheap" labor businessmen -- the big difference is the poor workers have U.S. taxpayers to provide health, education, food, housing. . . .
While I was looking for some more info on this an interesting article popped up: Apparently the Japanese were buying at the top of this bubble, too.
They aren't even bothering to pack them up and ship them home any more.
If you understood the implications of this in the overall picture of asymetrical warfare and the stated intent of the Chinese to beat us using those tactics, maybe you would not be so rash with the 'X-word'.
When the Chinese control critical "American" industry needed for our national defense (we're very close now), then what?
Calling me "xenophobic" for wanting to close our borders to illegal invasion or retain enough industry in American hands in America to be able to wage war without the permission or commerce with nations who are likely our next major enemy is like calling me "homophobic" for not wanting some pervert buggering my little grandson.
Your attempts to label me mean nothing to me, but the security of my country (not to mention my grandchildren!) does.
They've been spamming my inbox so much in the last couple of years I probably threw it out with another pile of exhortations to vote for or donate to
Rudy, Mitt, Tom, Mike, .... Juan.
Heck, no wonder I think the party is stricken with something.
Oh. Great. Then we're on the same side.
What is it YOU plan to do to secure the security of your country?
Not too much. I am a geologist on an oil rig in Montana, drilling a well. How about you?
That's fantastic. Good for you.
I work in the electronics industry. I design components which are sold to Asia and Europe.
You and I create value for the country and build lives for ourselves and our families....and as 'conservatives' (I assume) we do our best to oppose the 'progressive' agenda of utopian anti-freedom politics where we can through the vote, and by trying to spread the word as best we can.
This is what we do to keep America strong.
However, talking about restricting a local landowner from selling his PRIVATE PROPERTY to a bidder who lives in China, has a chinese name, and may even be a member of the corrupt chinese govt cadres tells me more about the rights of the property owner in America than it does about the security status of Sino-US geostrategery.
There's a difference between espionage/selling missile technology, for example, and reducing the value of a free man's property, factory, product because he's not allowed to sell it to certain racial or nationalists. What's the point of being a free man in a 'free country' if I can't sell my beef or my house to a ferner?
Look at Montana. People have owned that ranchland up there for hundred years or more. And now they're selling it to leftist Californians as cut-up little ranchettes. That sucks, imo.
But should you be able to tell those families who've counted on that land value for generations that now they cannot sell? Why would that be acceptable in a free country?
The chinese have pretty much declared intent to bring the US down, and from many points of view, they are well on their way. If the plant is sufficiently good to operate in the US, or to be able to turn a profit, then there should be American investors who would be interested.
So, how would you feel if he sold it to Iranian nationals? Or North Koreans? Or is it just that the Chinese aren't quite as in-your-face about things (unless they are in a sub in the middle of your Carrier Group or flying fighters around your surveillance aircraft)?
Should we sell them the rope?
This is what I don't understand the focus of your concern.
Would you consider Taiwanese our allies? SOUTH Koreans? Japanese?
Let's just put that in order of stereotypes of poor quality....Japanese being best now, and Taiwanese the worst.
Would it be ok if all these Chinese purchases were being made by people from these countries?
How about Taiwanese-Americans with really crappy product quality ethics? What does it matter what ethnic group they're in?
To protect the "Made in USA" slogan, you would have some kind of what? Government mandated standards of quality for, like, what? Like machine tool tolerances like the USSR central committee doled out?
We should protect the American dream by turning into a totalitarian central economy where the state directs what to do or not do with the means of production? No thank you.
Should we sell them the rope?
All of your arguments could be used by the Chicoms about the USA undermining THEIR economy by assymetric means.
* American consumers demand factories for ultra-cheap WalMart goods.
* Chinese 'sellouts' open huge factories with govt money, pollute Chinese rivers, use Chinese energy and limited oil and natural resources like steel, and make ultra-low profit margins, keeping their workers at a subsistence wage.
* In return, Americans pay for this crap with inflated dollars which the Chicom govt must exchange for T-bills.
* So Americans get the stuff, and China gets the pollution and promissory notes.
If you were a Chinese National, you'd have to complain about China getting screwed in this deal.
Which is it?
Thousands of dead pets, contaminated toothpaste, lead paint on toys, crap (literally) in seafood, etc.
We DO have standards, the FDA, USDA, CPSC, and others impose, officially or otherwise on American made goods.
Those government agencies which you decry are already the watchdogs of American manufacturing and provide the consumer with confidence that American-made products will be of a certain level of quality or the products will end up being pulled from the shelves.
That does not stop the presence to e. coli in ground beef, but doubtless cuts down on the incidence of contamination.
Not to mention the hordes of tort lawyer waiting in the wings which act as a 'nuclear' deterrent to any actionable negligence.
It comes down to a question of confidence in the quality of a product, which translates into marketability.
Start making crappy products here, labelled with "Made in USA" and selling them, and the quality associated with "Made in USA" will suffer--which means a loss of marketability of any product made here.
The economic benefits for the Chinese domestic industries of such a change in consumer confidence are obvious.
To finish stating the obvious, American industry would lose status in the domestic and the world marketplace, and thus products made in America would lose value in that same marketplace.
Whatever onus which falls on one product will fall on all, so the question is one of would you trust the marketability of your product to your competitors?
Would you trust someone to build and market your product under your name who is in competition for the international trade in such products?
That is what the Chinese owning and managing a manufacturing business in the United States and selling the products as "Made in USA" effectively does.
It opens up the whole of American manufacturing to being given a bad reputation by what amount to Chinese made products made here.
If you cannot see that, either the possibility of short term profits has blinded you to the concept or you do something I do not: You trust the people who have stated their intent to destroy this country.
Some other things the Chinese have done or are doing:
Chinese put a man in space, and showed the ability to destroy satellites at will.
Chinese developed credible ability to launch and deliver MIRV devices, thanks to deals with Clinton cronies.
Chinese saved billions in research by simply stealing NEST data on nuclear warhead designs.
Chinese began building a deep water navy, including missile subs (SSBN).
Corrupt politicians at the highest level were influenced by donations from the Chinese.
The list goes on far too long and to the highest levels to ever assume benevolence.
Placing restrictions on what can be sold to whom is neither a new idea, nor anti-American In fact, those same restrictions are used to enhance national security.
I guess the question is one of whether you recognize the concept of long term economic warfare?
Limitations on property, intellectual and real are already present--and often ignored by the Chinese.
If I were a Chinese National, I might not have much say in how things are run there, but I would back my country over another, and would do my part to conquer the round-eyed dogs.
You assume the Chinese are getting nothing but pollution and 'worthless money' from us, but theirs is a more patient long-ranged goal.
Chinese 'sellouts' open huge factories with govt money, pollute Chinese rivers, use Chinese energy and limited oil and natural resources like steel, and make ultra-low profit margins, keeping their workers at a subsistence wage.
What have they gained?
They have effectively become the world's center of manufacturing.
What we were during WWII, and are no longer.
Why would one grocery store sell items at a loss during a price war? For only one purpose. To take sales from another grocery store in order to drive them out of business. The prices will go up later if they are successful, bank on it.
Ask anyone who lives in a relatively small town what happened when Wal-Mart moved in. Stores less able to compete with WalMart's economy of scale and prices either suffered or went out of business because they did not have the resources to engage in a protracted price war.
The only difference is one of scale.
Rather than two grocery stores or some local Mercantile vs. WalMart fighting it out in a small town, we have whole nations' industries fighting it out in a global marketplace.
The Chinese make their own rules, and preceed with contempt for international environmental standards so they can do so more cheaply. They have an economy which whether by decree or otherwise can utilize poorly paid workers, the rules of which are set by their government.
When they can use our currency to purchase our means of production, or just enough of it to undermine confidence in the wuality and thus the value of our products in the world marketplace and devalue the rest of our means of production by association using those "worthless T-bills" and an inflated dollar, they will have accomplished the goal of putting the nail in the coffin of America's domestic economy.
It does not have to be every industry sector, it might be only the carpet which falls apart after two or three years, the shirt that frays after a few wearings, the tool that breaks under strain, or the gadget that only works half the time out of the blister pack.
The destruction of confidence in the origin of the product will ensure the lessening of demand for all other products of the same origin, to the competition's benefit. The ultimate devaluing of the product, manufacturing base (stock), and, on a national scale, economy.
They have the bulk of the world's supply of rare earth minerals, something new electronic components depend on, and they have vast untapped mineral wealth.
The utilization of those resources is hampered only by Government decree, not by Greenpeace or the Sierra Club (hence, they have pollution), and they have the sort of totalitarian government which will ensure the job gets done.
All that has its drawbacks, and I am definitely not extolling their system as virtuous, but despite my political beliefs, I can objectively note that their system can be very effective.
One does not have to be a student of Sun Tsu to understand that a nation's economy is the soft underbelly of its military might, the Achilles' Heel of a superpower. Without it, military might cannot be maintained, and the ability of the nation to engage in protracted conflict is undermined or removed.
Note, too, that while we think of a decade as long-term, the Chinese think of a Century.
American consumers may have been buying a lot of cheap Chinese goods, and the chinese have exploited that opportunity to build a manufacturing base while ours has diminished in the face of that competition.
But that may be undergoing a sea change, in that Americans are looking for the "Made in USA" label more often, whether it be on grocery items, or other goods.
You may assume a benign attempt on the part of the Chinese to exploit that sea change, but there remains the darker vulnerability to our nation's economy.
You may disagree, and that is your right, but I feel I would be remiss if I did not point out the inherent dangers in allowing the Chinese to purchase our manufacturing facillities and operate them here.
The Japanese and Taiwanese are our allies, dependent on our military hegemony to some extent for their national survival.
The Chinese are not, and have stated the goal of defeating us.
That FRiend, is a world of difference.
I am one who lives in a relatively small town and have seen what happens: Lower gas price, better selection, and the local hardware store carries other more specialized stuff, now, like plumbing parts and plate glass and other things that don't scale well at a walmart.
Ask the locals who are able to buy more to feed and clothe their family at walmarts in those little towns if they like walmarts....you sound like Barack Obama in your condescension.
This, incidentally, is an antitrust violation.
As if calling me "ZEE-no-fobik" wasn't enough (and even assuming you had to give me pronounciation guidelines).
It wasn't condescencion, but just observing what happened in MY small town. Wal Mart does not sell gas here, so gas isn't cheaper. But we do have a huge store with lots of stuff, which is changed out on a seasonal basis in tune with Arkansas (I'm in North Dakota--our winter is still happening when the swimsuits hit the shelves, and coats are two months late hitting the racks here).
Maybe your town's experience was good, but here they cannot keep more than three of the 20+ tills open at any given time because they do not have the staff to do so.
They did put a few stores out of business here early on, but the rest are holding on pretty well because they have a better selection and better quality. A few items are cheaper at WalMart, and those of us who shop around will go there for them and to see what is in the clearance aisles.
Great jobs? Hardly.
When a kid just out of high school can get a job here roughnecking (working on an oil rig) that will pay 60K plus, they really don't have much drawing power for employees.
Anyone here who wants to work and is capable of working has a job.
Nice diversion, though, trying to peg me as a WalMart 'hater', but not germane to the discussion of the dangers of seling factories in America to be operated in America as economic warfare and part of asymetrical warfare.
Got any more labels?
Or do you want to discuss issues?
Any large chain which comes into a fresh retail environment can underprice their competition because they have an economy of scale which sometimes permits them to sell items for less than smaller stores can stock them.
Well so far you’ve compiled enough issues to fill a dumpster.
Where to begin?
Isw there a way to tie it all together and get to the primary difference between our positions?
For example, you and I have what appears to be the identical experience with WalMarts in small towns, and yet, it appears we have polar opposite conclusions.
I think we both saw competition come in, weed out some, make some better, etc. Interesting that they don’t sell gas and so didn’t make your pricing better.
Why not? Are you better off with the local guys shafting you on gasoline retail?
I guess I don’t glean a consistent point from you on that. Are you for a competitive market locally or not? Or just in some products?
I’m not trying to PEG you as anything. I’m just trying to understand your ethics and reasoning which motivates your keytapping.
I know chinese-americans taiwanese-americans and mexican-americans and whitey-americans like me LOCALLY, on a first hand personal basis who cover all ends of the spectrum of ‘Made in USA’ quality. And I work with all sorts of Asians generally to have my own stereotypes about Japanese v. Koreans v. Taiwanese v. Chinese(Shanghai) and Chinese(guangdong) and Chinese (fujian) etc. I know what racists they are to each other and how much ‘they’ are all far worse than ANYTHING we have in this country, as a hasty generalization.
I just think there are lots of things we need to do as AMERICAN-AMERICANS to make us more appropriately competitive, and safe, and it doesn’t have anything to do with TRUSTING STEREOTYPES or generalizations.
When I contract a white plumber or a chinese screen-print vendor, I trust them as far as I can throw them.
When I take a new medication, I check the seals, I avoid buying stuff off the backs of trucks, and I keep an eye out for wierd symptoms. I don’t trust anything implicitly because it says “Made in USA” because the Tylenol scare was precipitated by a homegrown terrorist and it had NOTHING to do with Tylenol itself.
Are you more opposed to American consumers paying chinese people to pay $12/hour to build crappy price-only products in the USA under EPA regs and OSHA work environments, or are you more opposed to American consumers paying chinese people to pay $3/hr to chinese people to build crappy price-only products in China?
I’m sorry pal. But ma and pa kettle aren’t paying more than 99c for a plastic bowl.
This may be simply a response to the growing American antipathy toward Chinese-Made (Made in China) products. It is out there, and someone from China may be simply seeking a market opportunity.
Now for the Dark Side.
One of the inevitable vulenrabilities of a system where people make unfettered choices based on price is that they will buy cheap. It is also one of the glories of the same system. At its best that promotes competition, efficiency, and innovation in manufacturing.
At its worst, well packaged products of less reliability will, in the short term, remove market share from better made products, and while those who can afford no less or who are willing to compromise on quality will remain a market, those who would rather spend a little more and get a reliable product with a longer useable lifespan will shift back to the original producer, provided that cheaper products have not eliminated that producer.
At that phase of market readjustment, the brand names of the original producer are worth more for their reputation for quality.
Many people have bought Chinese products for a variety of reasons which they found lacking in quality. In some cases that did not matter, the product was disposable anyway. In others, such as tools, it might make a difference in how well you can make a living, but in the end, many associate cheap with disposable, with junk.
American made products generally have a reputation for quality. They do not survive long in the marketplace otherwise, and their marketability in the world market depends on that well-maintained reputation (overall) of quality. Note that does not always mean the cheapest, nor event the very best, but a good value.
Enter someone from a country who is not an American, has no vested interest in America, and who may actually be hostiel to America. Someone who, in concert with others seeks to harm this country.
One way to do so would be to undermine confidence in the marketplace, both in America and elsewhere, by intentionally manufacturing shoddy goods in the USA, and selling those same goods elsewhere.
Do that in a few sectors, and the market edge that "made in USA" has for quality evaporates amidst consumer dissatisfaction.
That can adversely affect the marketability of goods outside the sectors involved, and can affect the entire economy.
Noting a longstanding hostility toward the United States, even as trade continues, and noting that the concept of asymetrical warfare not only exists, but is the means by which the Chinese have claimed they would defeat the United States, and further noting that the Chinese have increased their hegemony militarily, and particularly with an eye toward securing foreign energy assets (Africa, Cuba, et. al), I would not assume the Chinese are benign in their economic imperialism.
As for local guys "shafting us" on gasoline prices, we pay prices in line with the national average. I think the reason WalMart did not put in gasoline pumps is that they couldn't really beat local pricing.
This is not about a locally competitive market, the bottom line is about marketability of a nation's products in the global marketplace.
Would you, for instance, want The Chinese (Chinese, not chinese-Americans, but Chinese) to have majority ownership of the US media?
How about the boot and shoe manufacturers?
How about firearm makers?
Where would you draw the line on foreign ownership of American manufacturing?
Depends on who is drawing the line.
For me, I can't even refuse to sell my land to a Chinese national without being liable for an EEOC lawsuit.
For military, commercial...these are things the fedgov uses in their geo-strategic shell game above my pay grade. For example, Japan=US long ago agreed to certain deals in aerospace to make life better for Boeing. I'm ok with the fact that Japanese engineers respect Boeing products and although I don't own any Jap Cars, I'm ok with the fact that most of the automotive press and the uninformed populace thinks Japanese cars are God's gift to the world and that all American cars suck, Corvette etal notwithstanding.
Are you concerned about cheap products being made in USA...OR...are you concerned about CHINESE made crap in the USA?
IOW, replace all the offensive sales of American businesses to Chinese....and if they were instead being sold to Taiwanese nationals or Japanese nationals would they THEN be ok?
A price war, in and of itself, is not an antitrust violation, and neither are "loss leaders." Selling below cost with the intent to drive a competitor out of business, however, is called predatory pricing and is a violation of Section 2 of the Sherman Act). I think there is pretty widespread agreement amongst economists that predatory pricing is impossible in most real world situations, but it nevertheless remains illegal.
Any large chain which comes into a fresh retail environment can underprice their competition because they have an economy of scale which sometimes permits them to sell items for less than smaller stores can stock them.
Agreed, but that isn't selling at a loss, though.