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Heesun Wee | @heesunwee Friday, 6 Feb 2015 | 7:00 AM ETCNBC.com
Source: Shandong Tranlin Paper Co., Ltd.
Shandong Tranlin Paper operates a pulp and paper factory in China. Tranlin is now working on opening a new U.S. plant in Virginia.
Later this year along the banks of the James River outside Richmond, Virginia, a paper products maker based in northeastern China will begin construction on a new U.S. manufacturing plant. The factory will churn the region's straw and corn stalks into household products including napkins, tissue and organic fertilizer—all marked "Made in the USA."
Shandong Tranlin Paper's new U.S. factory is forecast togenerate about 2,000 new jobs by 2020, and is the latest Chinese company to invest in American manufacturing.
Chinese foreign direct investment in the U.S. totaled $12 billion last year, topping $10 billion for the second year in a row, according to the Rhodium Group, which tracks Chinese money flows into the U.S. It was three years ago in 2012, when—for the first time ever—Chinese foreign investment in America lapped investment flows in the other direction to China.
Asian investment in America is nothing new. Japanese companies led the way in the 1980s, partly to evade tariffs. Avoiding international taxes on goods again is partly why Chinese businesses are coming to America. But Chinese investment in the U.S. is striking and different in other ways—and already altering pockets of domestic manufacturing.
Chinese investment in America largely has been tied to mergers and acquisitions. Chinese meat producer Shuanghui Group bought Smithfield Foods for roughly $4.72 billion. But some Chinese companies are taking another tact and building manufacturing plants—from the ground up—on U.S. soil. They're spending hundreds of millions on new projects and expansions of existing U.S. subsidiaries combined have jumped to five to nine annually, from virtually none a few years ago, according to Rhodium's research.
Beyond tariff jumping, the larger question remains why?
Known more for low-cost manufacturing and massive shipping containers of cheap toys and textiles, China wants to move up the food chain. China's gross domestic product for 2014 grew 7.4 percent—the weakest performance in 24 years. As the nation's economy slows, China wants to push into higher-valued products including pricey construction machinery. But production and sales of higher-margin goods require advanced tech skills and innovation, sometimes more easily achieved outside China, where low-cost production reigns.
And in an ironic twist on offshored American jobs, some Chinese companies are pursuing "Made in USA" branding. "Foreign brands and quality control are increasingly important for China's affluent middle class," according to Rhodium's research.
But for all the manufacturing bounty generated by foreign investments, some China watchers are cautious. The new manufacturing plants have stoked old fears about foreign investment. Are Chinese businesses planting stakes in the U.S. to simply hoard know-how, and eventually wipe out domestic competition?
"Some foreign direct investment is being done in a strategic way by the Chinese government to pick up high value-added parts," said Stephen Ezell, senior analyst at the Information Technology and Innovation Foundation in Washington.
"In the background, this has become of increasing concern," Ezell said.
A Virginia tale
Luke Sharrett | Bloomberg | Getty Images
Container ships at the Port of Virginia APM Terminal in Portsmouth, Virginia.
Roy Dahlquist, an economic development leader in Virginia, has traveled to China and back for 30 years and counting.
He's had China on his brain long before Americans began buying shares of e-commerce platform Alibaba, or started downloading the microblogging app WeChat on their smartphones.
For some 16 years, the Virginia Economic Development Partnership has operated an office in China, and eventually relocated to Shanghai in 2011. Meanwhile, a now senior executive at the Tranlin paper company—based in the Shandong province of China—earned an MBA from the University of Virginia Darden School of Business in 2003.
The future executive took note of the region's easy access to Interstate 95, Washington Dulles International Airport and the Chesapeake Bay. The Virginia port's shipping channels are deep, and can accommodate some of the world's largest container ships. These are all desired qualities for foreign-based businesses looking to open shop in America.
Years later, Tranlin executives wanted to expand with a new U.S. paper and fertilizer plant. They initially focused on California, when the Virginia team pitched Chesterfield County's infrastructure, and local talent pool that spans agriculture and the military. Naval Station Norfolk is the largest naval complex in the world. But the number of federal government-funded jobs has diminished over the years.
It was in June of last year that Shandong Tranlin announced it would invest about $2 billion over five years to build an 850-acre campus outside Richmond in Chesterfield County. About 23 Chinese-owned businesses already operate in Virginia, representing $9.51 billion in capital investment, including mergers and acquisitions, and more than 4,300 jobs.
"Virginia was in a position, where we historically depended on the federal government, military, defense for a lot jobs," said Dahlquist, managing director of the Asia region for the Virginia Economic Development Partnership. "In our new economy, we can't do that."
Chasing advanced manufacturing
Eddie Seal | Bloomberg | Getty Images
Construction at TPCO America's pipe finishing mill facility, a subsidiary of The Tianjin Pipe Group, in Gregory, Texas, 2012.
The Tranlin project in Virginia and other planned, new manufacturing facilities will boost Chinese foreign direct investment in the U.S. into the new year. "The outlook for 2015 remains very strong, with more than $3 billion in deals currently pending," according to an update from Rhodium published in January. And with U.S. crude oil prices hovering under $50 a barrel—half the cost a year ago—private buyers could drive China-U.S. energy deals in coming months, according to Rhodium.
OtherChinese companies behind new U.S. manufacturing plants include:
If Japanese companies in the '80s brought with them lean manufacturing practices, Chinese companies are pursuing advanced manufacturing that takes advantage of product and work flow innovations.
The Tranlin paper project, for example, will take advantage of the region's small grain producers. Straw and corn stalks—agricultural residuals that would have been tossed—and other fibrous materials will be transformed into household paperproducts.
Beyond the promise of advanced manufacturing, more Chinese companies are coming to America as they face higher costs in China for land and labor, along with tariffs and other trade barriers. Chinese firms in metals manufacturing, for example, localized production in the States after the U.S. imposed anti-dumping and other duties on various metal products, according to Rhodium. Related manufacturing projects include:
Welcome citizens?
But while the list of new Chinese-funded U.S. plants is growing, it's hardly a manufacturing boom. Chinese manufacturing foreign direct investment in the U.S. is small, and Chinese companies account for a tiny fraction of American jobs—less than 100,000 across all sectors of the U.S. economy, according to Thilo Hanemann, research director with the Rhodium Group.
Some research, in fact, suggests a decline in U.S. manufacturing jobs since China joined the World Trade Organization in 2001, and America's bilateral trade with China increased. Although China has become America's third-largest export, Chinese goods still far outpace U.S. goods to China.
In the manufacturing sector, the bulk of U.S. sales to China involves commodities, while the vast majority of Chinese sales to the U.S. is manufactured, finished goods. "The net result is a trade relationship that clearly produces jobs for Chinese workers but costs jobs for blue collar Americans even as U.S. exports to China grow," according to a 2014 U.S.-China Economic and Security Review Commission report to Congress.
But other China watchers say talk of a Chinese investment threat is exaggerated, and that America benefits from Chinese investment. Ask Dahlquist of Virginia.
"We need manufacturing jobs," Dahlquist said. "We need a fresh approach that's less dependent on the federal government."
Source: Shandong Tranlin Paper Co., Ltd.
Shandong Tranlin Paper operates a pulp and paper factory in China. Tranlin is now working on opening a new U.S. plant in Virginia.
Later this year along the banks of the James River outside Richmond, Virginia, a paper products maker based in northeastern China will begin construction on a new U.S. manufacturing plant. The factory will churn the region's straw and corn stalks into household products including napkins, tissue and organic fertilizer—all marked "Made in the USA."
Shandong Tranlin Paper's new U.S. factory is forecast togenerate about 2,000 new jobs by 2020, and is the latest Chinese company to invest in American manufacturing.
Chinese foreign direct investment in the U.S. totaled $12 billion last year, topping $10 billion for the second year in a row, according to the Rhodium Group, which tracks Chinese money flows into the U.S. It was three years ago in 2012, when—for the first time ever—Chinese foreign investment in America lapped investment flows in the other direction to China.
Asian investment in America is nothing new. Japanese companies led the way in the 1980s, partly to evade tariffs. Avoiding international taxes on goods again is partly why Chinese businesses are coming to America. But Chinese investment in the U.S. is striking and different in other ways—and already altering pockets of domestic manufacturing.
Chinese investment in America largely has been tied to mergers and acquisitions. Chinese meat producer Shuanghui Group bought Smithfield Foods for roughly $4.72 billion. But some Chinese companies are taking another tact and building manufacturing plants—from the ground up—on U.S. soil. They're spending hundreds of millions on new projects and expansions of existing U.S. subsidiaries combined have jumped to five to nine annually, from virtually none a few years ago, according to Rhodium's research.
Beyond tariff jumping, the larger question remains why?
Known more for low-cost manufacturing and massive shipping containers of cheap toys and textiles, China wants to move up the food chain. China's gross domestic product for 2014 grew 7.4 percent—the weakest performance in 24 years. As the nation's economy slows, China wants to push into higher-valued products including pricey construction machinery. But production and sales of higher-margin goods require advanced tech skills and innovation, sometimes more easily achieved outside China, where low-cost production reigns.
And in an ironic twist on offshored American jobs, some Chinese companies are pursuing "Made in USA" branding. "Foreign brands and quality control are increasingly important for China's affluent middle class," according to Rhodium's research.
But for all the manufacturing bounty generated by foreign investments, some China watchers are cautious. The new manufacturing plants have stoked old fears about foreign investment. Are Chinese businesses planting stakes in the U.S. to simply hoard know-how, and eventually wipe out domestic competition?
"Some foreign direct investment is being done in a strategic way by the Chinese government to pick up high value-added parts," said Stephen Ezell, senior analyst at the Information Technology and Innovation Foundation in Washington.
"In the background, this has become of increasing concern," Ezell said.
A Virginia tale
Luke Sharrett | Bloomberg | Getty Images
Container ships at the Port of Virginia APM Terminal in Portsmouth, Virginia.
"We need a fresh approach that's less dependent on the federal government." -Roy Dahlquist, Economic development leader in Virginia
Roy Dahlquist, an economic development leader in Virginia, has traveled to China and back for 30 years and counting.
He's had China on his brain long before Americans began buying shares of e-commerce platform Alibaba, or started downloading the microblogging app WeChat on their smartphones.
For some 16 years, the Virginia Economic Development Partnership has operated an office in China, and eventually relocated to Shanghai in 2011. Meanwhile, a now senior executive at the Tranlin paper company—based in the Shandong province of China—earned an MBA from the University of Virginia Darden School of Business in 2003.
The future executive took note of the region's easy access to Interstate 95, Washington Dulles International Airport and the Chesapeake Bay. The Virginia port's shipping channels are deep, and can accommodate some of the world's largest container ships. These are all desired qualities for foreign-based businesses looking to open shop in America.
Years later, Tranlin executives wanted to expand with a new U.S. paper and fertilizer plant. They initially focused on California, when the Virginia team pitched Chesterfield County's infrastructure, and local talent pool that spans agriculture and the military. Naval Station Norfolk is the largest naval complex in the world. But the number of federal government-funded jobs has diminished over the years.
It was in June of last year that Shandong Tranlin announced it would invest about $2 billion over five years to build an 850-acre campus outside Richmond in Chesterfield County. About 23 Chinese-owned businesses already operate in Virginia, representing $9.51 billion in capital investment, including mergers and acquisitions, and more than 4,300 jobs.
"Virginia was in a position, where we historically depended on the federal government, military, defense for a lot jobs," said Dahlquist, managing director of the Asia region for the Virginia Economic Development Partnership. "In our new economy, we can't do that."
Chasing advanced manufacturing
Eddie Seal | Bloomberg | Getty Images
Construction at TPCO America's pipe finishing mill facility, a subsidiary of The Tianjin Pipe Group, in Gregory, Texas, 2012.
The Tranlin project in Virginia and other planned, new manufacturing facilities will boost Chinese foreign direct investment in the U.S. into the new year. "The outlook for 2015 remains very strong, with more than $3 billion in deals currently pending," according to an update from Rhodium published in January. And with U.S. crude oil prices hovering under $50 a barrel—half the cost a year ago—private buyers could drive China-U.S. energy deals in coming months, according to Rhodium.
OtherChinese companies behind new U.S. manufacturing plants include:
- The Keer Group's $218 million cotton yarn factory in South Carolina.
- SANY's $60 million investment in office and manufacturing space for construction machinery in Georgia.
- Lenovo's computer production plant in North Carolina for an undisclosed investment amount.
If Japanese companies in the '80s brought with them lean manufacturing practices, Chinese companies are pursuing advanced manufacturing that takes advantage of product and work flow innovations.
The Tranlin paper project, for example, will take advantage of the region's small grain producers. Straw and corn stalks—agricultural residuals that would have been tossed—and other fibrous materials will be transformed into household paperproducts.
Beyond the promise of advanced manufacturing, more Chinese companies are coming to America as they face higher costs in China for land and labor, along with tariffs and other trade barriers. Chinese firms in metals manufacturing, for example, localized production in the States after the U.S. imposed anti-dumping and other duties on various metal products, according to Rhodium. Related manufacturing projects include:
- Tianjin Pipe's $1 billion investment in a steel pipe plant in Texas.
- A Nanshan Group unit's $100 million aluminum plant in Indiana.
- Golden Dragon's $100 million precision copper tubing plant in Alabama.
Welcome citizens?
But while the list of new Chinese-funded U.S. plants is growing, it's hardly a manufacturing boom. Chinese manufacturing foreign direct investment in the U.S. is small, and Chinese companies account for a tiny fraction of American jobs—less than 100,000 across all sectors of the U.S. economy, according to Thilo Hanemann, research director with the Rhodium Group.
Some research, in fact, suggests a decline in U.S. manufacturing jobs since China joined the World Trade Organization in 2001, and America's bilateral trade with China increased. Although China has become America's third-largest export, Chinese goods still far outpace U.S. goods to China.
In the manufacturing sector, the bulk of U.S. sales to China involves commodities, while the vast majority of Chinese sales to the U.S. is manufactured, finished goods. "The net result is a trade relationship that clearly produces jobs for Chinese workers but costs jobs for blue collar Americans even as U.S. exports to China grow," according to a 2014 U.S.-China Economic and Security Review Commission report to Congress.
But other China watchers say talk of a Chinese investment threat is exaggerated, and that America benefits from Chinese investment. Ask Dahlquist of Virginia.
"We need manufacturing jobs," Dahlquist said. "We need a fresh approach that's less dependent on the federal government."
