Increasing protectionist policies by the U.S. have resulted in a trade war with and declining investments from China, with the latter's new foreign direct investment (FDI) in the former declining nearly 90 percent in 2019 from its highest level in 2016, according to an annual business survey released by the China General Chamber of Commerce-USA (CGCC), the largest and most influential non-profit organization representing Chinese enterprises in the U.S.

This is a crucial year for China-U.S. economic relations, which means empirical fact-finding is more important than ever, said Steven Tan, Vice Chairman of CGCC and President of China Telecom Americas, at the launch event in Washington, D.C. on June 10.

"The survey clearly demonstrates that Chinese companies hold substantial interests in the U.S. Their investments here translate into substantial job creation and economic growth," said Xu Chen, Chairman of CGCC and President of the Bank of China USA in a written message to the event.

"From a macroeconomic standpoint, we should recognize that long-term Chinese foreign direct investment in our economy gives us greater resiliency, diversity and opportunity," said Craig Allen, President of the U.S.-China Business Council, while moderating a panel discussion.

However, "the fear that the trade war creates a less-welcoming business environment for Chinese companies is also apparent," said Xu. "This environment's uncertainty shakes our members' confidence and discourages them from making further investments in the United States."

While the relationship may prove more challenging going forward, hopes are pinned on local-level cooperation. In a video message to the event, Matt Bevin, Governor of the state of Kentucky, said, "Our trading relationships have the ability not only to help our countries, but to help entire regions of the world and of the world itself."

The CGCC believes that continued cooperation and mutual understanding will create more opportunities for businesses, workers and consumers, Xu added.

Jobs and benefits

Although the overall Chinese investment flow to the U.S. plummeted significantly in the past two years, the U.S. remains a key investment destination for Chinese companies, with most of them starting their U.S. operations through greenfield investment (GI), which means they are more likely to establish a new business entity rather than acquire an existing one.

The report showed that more than 55 percent of the surveyed Chinese companies had the U.S. market either as their top priority or in their top three international investment priorities. The results also indicated that the volume of greenfield projects stayed on a robust and stable progression track at a level of about $1-2 billion a year while 54 percent of respondents entered the U.S. market through GI.

Instead of just taking over a company or an asset, GI generates new spending that goes into the market and creates new jobs at the local community level, making a stronger impact on the economy, usually in underserved areas such as southern or Midwest states, the report said.

Brian Connors, Executive Director of the Michigan-China Innovation Center, cited Dicastal North America as an example during the panel discussion. "They made a GI in an empty factory building in a small town in Michigan. There they created more than 450 good-paying jobs in a small town that really needed them," he said. Located in Greenville, Dicastal North America is a wholly owned subsidiary of CITIC Dicastal Co. Ltd., the world's largest manufacturer of aluminum wheels based in Qinhuangdao, north China's Hebei Province. "So in our experience, of course, we want Chinese companies to succeed in Michigan. I think we're in the process of learning how to do this more effectively together," Connors added.

Fuyao Group, one of the world's largest automobile glass producers, has created approximately 2,300 jobs in Moraine, Ohio, a city with a population of only 6,300, and in 2016, contributed an estimated $280 million to the Ohio economy. Now, Fuyao runs four factories in the U.S., located in the states of Michigan, South Carolina, Ohio and Illinois, with long-term plans to create 2,500 jobs. It recently purchased a site in South Carolina with plans to develop a second factory to service customers like BMW, Volvo and Subaru, according to the report.

Like Dicastal and Fuyao, some other Chinese companies are willing to keep investing in the U.S. According to the survey, 85 percent of respondents reinvest the majority of their profits into the U.S., with 58 percent of them indicating that all of their profits are reinvested, compared to 40 percent in the 2018 survey.

However, due to the uncertainties of the China-U.S. business environment, the number of companies with workforce expansion plans has dropped to a three-year low. Still, nearly half of the survey respondents indicated their intention to increase hiring in the next two years.

CGCC's 1,500 member companies have invested over $120 billion in the U.S., directly employing more than 200,000 people and indirectly supporting more than 1 million U.S. jobs.

Challenges ahead

Chinese FDI in the U.S. is a lagging indicator of broader China-U.S. relations, said the report.

Although it is the second largest economy, China accounts for approximately 1 percent of overall FDI in the U.S., about one 10th of Japanese FDI in the country, according to the U.S. Bureau of Economic Analysis (BEA).

The growth potential of China's FDI in the U.S. is obviously huge, but the path forward is bound to be bumpy. Faced with the complicated relations between the two countries, Chinese investors are uneasy about the current situation and are not optimistic about their future.

The survey results found that 75 percent of respondents cited the complex relationship between the countries as one of their key challenges. Over half, or 52 percent, of respondents felt that the U.S. investment and business environment declined in 2018, more than double from the rate in 2017, which stood at 23 percent. Another 30 percent of respondents expect the investment and business environment to decline over the next two years.

The report also showed that tariffs top the list of concerns of policy-related challenges, with 77 percent of respondents stating that they had been adversely impacted by these policies. When surveyed on additional tariffs, 44 percent of respondents impacted by the trade war will delay future investment in the U.S. in the next two years until both countries reach a deal, while 38 percent intend to adjust their global supply chain in the long run in order to avoid tariffs.

"We've seen a number of projects be put on hold. People are very cautious and tentative about proceeding with their GIs in the state," said Justin Kocher, senior manager of business development for Asia at JobsOhio, a private non-profit corporation focused on driving job creation and new capital investment in Ohio. "They want to see how the trade war plays out."

As the report stated, the future of FDI in the U.S., to some extent, is the future of the country itself.

FDI supports more than 7 million jobs in the U.S., with jobs paying compensation 26 percent higher than the U.S. private sector on average, and producing more than $1 billion a day in exports, according to BEA data. The challenges for Chinese investors in the U.S. are more or less U.S. challenges as well.

"We should support both of our governments to have the political will and the political courage to come to an agreement, to address the real issues that will benefit both of our economies," said Allen at the conclusion of the panel discussion.

(Reporting from Washington, D.C.)

Copyedited by Rebeca Toledo

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