China is investing in the USA

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com

I don’t think this article says much more than “China is investing in the USA”. That’s about what I’d expect as growth in China slows down. Still, there hasn’t been a big surge of investment, like when Japan began buying up the USA in the 1980s.

Wages aren’t the only costs in China that are rising. The price of electricity has increased 15 percent since 2010, and industrial land is becoming more expensive too. Taxes are high as well: Dewang, the head of Fuyao Glass, said in an interview late last year that he had moved his plant to the U.S. because China had the “world’s highest taxes.” (Actually, income taxes are higher in many Scandinavian countries than in China, and the corporate income-tax rate in China is 25 percent, which is lower than in the U.S.) “Apart from labor costs, everything else is cheaper in the U.S. than in China,” he has said.

These factors alone would be enough reason to give companies pause about locating factories in China. But there are other reasons Chinese businessmen are looking outside of their own country for investment opportunities. There are so many cash-flush investors in China that there are fewer good opportunities to buy companies, and so people with money have fewer places to put it, said Eswar Prasad, a professor of trade policy at Cornell. Such investors might have once put their money into U.S. securities, but the rate of return is low, so they’re turning their attention to buying foreign companies instead. (Most Chinese investment abroad comes in the form of outright purchases of other companies; the Fuyao factory stands out in that the company decided to build its own products there, rather than acquire an existing business.)

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