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2 When China comes to
Iowa By Benjamin A Shobert
In the 1980s, when Japan Inc was at its
apex, many US states opened government-funded
trade offices in Tokyo to attract Japanese
investment, counteract the outflow of jobs due to
Japanese competition, and try to ignite flagging
state economies.
Fast-forward to
the present, and many government leaders at the
state level are pondering the value of
attracting Chinese investment to their jurisdictions. This
is especially true in the Midwest region, which
is the heartland of traditional
manufacturing and the region of
the United States most impacted by low-cost
competition from China.
However, the issue is not so
straightforward as it appeared to be during the
heyday of Japanese competition. The track record
of recent Chinese acquisitions in the US is both
meager and not
very encouraging for job
creation. Moreover, the Chinese as yet do not
bring many strengths to the table besides their
vaunted lower costs.
A case in point is
the most prominent Chinese acquisition to date,
that of International Business Machines' computer
operations by Lenovo in 2004. An otherwise
unremarkable acquisition has taken on almost
historical significance as a business deal
indicative of China's ascension to economic power
and prestige.
The April 20 announcement
from Lenovo that it would cut an additional 1,400
jobs from its global workforce (it had announced
in March 2006 job cuts of 1,000), but largely
spare its Chinese operations from sharing in this
most recent downsizing, has caused many to wonder
how illustrative the Lenovo acquisition actually
is of China's growing economic sophistication.
Many have suggested the Lenovo acquisition
was an example of China's transition from
beneficiary to source of foreign direct investment
(FDI). The realization that Lenovo appears to be
moving in the direction of gradually migrating its
manufacturing and other, broader portions of its
North American business to China would suggest
that it is premature to view China as a viable
source of FDI for the US economy.
Other
than the Lenovo purchase and possibly Haier's 2005
bid to purchase the distressed assets of US
appliance maker Maytag, Chinese FDI in other
countries' natural resources has provided the most
recognizable example of China's investments
abroad, largely because of the geopolitical issues
involved.
China's foray into Africa
and South America has caught the attention of a
world struggling with how to envisage China's future:
if the country's growth continues, can it be seen
as a partner, or must it be perceived as a
threat? And if the latter, how intimate an
economic relationship should the US be striking with a country
whose needs may line up against our own?
Should the US even be pursuing FDI from China?
At the intersection of America's past and China's
future - the manufacturing intensive heartland of
the Midwest - these questions take on a pragmatic
orientation and thus far, in the heart of Middle
America, China is only vaguely perceived as a
potential investment partner.
Even though
only dimly perceived, there already exists a
considerable synergy between China and the US
Midwest. Each needs the other to stay healthy if
either is to survive, and yet both China and the
Midwest represent sectors of the global economy
that are frustratingly duplicated and consequently
over-capacitized.
China's economic miracle
would be remarkably less interesting were it not
for the mass migration of automotive-component
manufacturers, plastic-parts processors, and
moderate-to-low-skilled labor-intensive jobs from
the US to China. These jobs once formed the
backbone of a Midwestern economy that embodied the
more general vitality of US capabilities.
While it would be an overstatement to say
that how the Midwest goes, so goes the US economy
at large (personal income in the Midwest relies on
manufacturing activity 53% more than the national
average), the Midwest does provide a large pool of
semi-skilled workers who have historically known
they could find and keep jobs and who are now
struggling to do so. As manufacturing jobs become
increasingly difficult to find, state governments
are again turning their attention abroad in an
attempt to court investment.
But a recent
Hong Kong Trade Development Council (HKTDC)
analysis showed that the Chinese economy still
relies on foreign firms to import more than 56% of
China's goods; these same non-Chinese companies
are responsible for almost 55% of China's exports.
If more than half of China's exports are coming
from non-Chinese companies, then what exactly can
US state governments expect to gain by courting
Chinese investment?
When weighing
statistics like those in the HKTDC report, the
answer is to be found in the middle to long term,
a time period that requires political courage and
economic timing for Midwestern administrations to
sustain.
John Rodgers, president of the
Midwest US-China Association, represents the
leading edge of Midwestern businessmen and
government officials who believe that courting
China now may pay important dividends in the
future. The organization he leads is dedicated to
an intermediate-level engagement among academics,
policymakers and business people from both
China
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
very encouraging for job
creation. Moreover, the Chinese as yet do not
bring many strengths to the table besides their
vaunted lower costs. 
