Will China Save the American Economy?

Source: The Atlantic on June 27, 2017 | Alana Semuels

MORAINE, Ohio—For years, Donjian Xu and her husband operated a sleepy Chinese restaurant in this industrial suburb of Dayton, cooking up American-style Chinese food like sweet-and-sour chicken and beef with broccoli for customers who would stop in on their lunch break.

Then, three years ago, a new crowd started coming into Dragon China: Chinese natives who missed home and were craving something different than the hamburgers and pasta that everybody seemed to eat in Ohio. The Chinese, mostly businessmen, would come in and order things not on the menu—noodle soup with vegetables and fish balls, for example. Sometimes, Cao Dewang, a famous self-made billionaire from China, would come in and sit at the corner table with his deputies, and “that’s when we [would] need to make something really special,” Xu told me.

Dewang visits this Ohio town because it’s the home of the American factory he built for his Chinese company, Fuyao Glass. He spent $700 million in 2014 to rehabilitate a shuttered General Motors plant, where Fuyao now makes automotive glass that it sells to U.S. automakers. Fuyao employs 2,000, the majority of whom are Americans. “This place could be the next General Motors if it’s done right,” an employee named Larry Yates, who worked at the GM plant for 25 years, told me. “I want to see them do well and succeed.” Hundreds of Chinese executives work here, too, and, having brought their families from China, are buying homes and cars and enrolling their children in local schools.

Chinese investors are investing heavily in the United States. In 2016, Chinese businesses spent $46 billion on foreign direct investment in the United States, a threefold increase from the $15 billion they spent in 2015, according to the Rhodium Group, a research firm that analyzes global investment trends. Chinese-owned firms now support more than 140,000 jobs nationwide, nine times as many as in 2009.

President Trump has made reversing or resisting globalization a cornerstone of his economic policies and ideology, issuing executive orders directing the executive branch to hire and buy American, pulling out of trade deals such as the Trans Pacific Partnership, and promising to renegotiate NAFTA. But much of the economic activity being generated around the country comes because of globalization, not in spite of it. Globalization helped bolster economies around the world, including China’s, and is now allowing a class of wealthy people and companies from those economies to invest in the United States, creating jobs in depressed regions like Ohio.

Foreign companies are responsible for many of the jobs in states like Ohio today—they employ 18.5 percent of manufacturing workers in the U.S., according to the Brookings Institution. Other foreign companies creating jobs in Ohio include the Danish firm Xellia Pharmaceuticals and the German auto-parts supplier Borgers. “People typically think of trade or globalization as a one-way street in which they're on the losing end—if you listen to the president talk about this, you would come away thinking that we've only lost in this equation,” Joseph Parilla, a fellow at the Brookings Institution, told me. “Nobody has talked about the infusion of capital that comes from foreign companies that are supporting a ton of jobs in the U.S.”

But the increased investment comes with some growing pains. Chinese executives told me it’s hard to get American factories to become as efficient as Chinese ones, partly because Americans work fewer hours than Chinese workers do—on average, the Chinese work 2,200 hours a year, compared to 1,790 for the United States. They also say there are not enough qualified workers in manufacturing in Ohio, and that workers are unreliable.

Workers have their own complaints, as The New York Times reported recently. Workers say that Chinese companies operating in the U.S. don’t adhere to American labor standards and working hours. The workers complain about poor treatment, and one worker recently sued Fuyao on behalf of herself and others, alleging that the company didn’t pay them overtime. Another man alleges that Fuyao exposed him to chemicals that gave him blisters and made it difficult to breathe. The workers also say that Fuyao isn’t investing in training them, which is leading to low productivity at the factory. Fuyao disagreed with the criticisms, telling me that the Occupational Safety and Health Administration (OSHA) had investigated the claim of chemical use and found no violations, and that its policies on overtime and paid leave are straightforward.

Dayton—and Ohio—needs plants like Fuyao to succeed. New-business creation is faltering in America, with the number of new start-ups at 40-year lows. Foreign investment could be a key to creating new jobs for Americans. The question is whether foreign companies will continue to find America worth their investment.

* * *

In the cavernous white lobby of the Fuyao factory on a recent morning, a handful of people in suits sat under a Chinese flag, filling out job applications. They were seeking open positions at Fuyao, which had just announced that it was raising its hourly wage by $2 in order to attract new workers and decrease turnover. That drew in people like William Oliver, 31, who has an associate’s degree and was applying for a position on third shift (11 p.m. to 7 a.m.) so he could work at Fuyao while he attended school. Once he heard about the raise, he told me, “I knew I had to come down here.”

Not long ago, companies were decamping for overseas locations like China and Mexico, where they could save millions in labor costs. In 2004, factory workers in China made $4.35 an hour, compared to $17.54 that the average factory worker made in the U.S., according to the Boston Consulting Group.

But labor expenses are rising in China. According to the Chinese Business Climate Survey, put out by the American Chamber of Commerce in China and the consulting firm Bain & Company, businesses there cite rising labor costs as their top problem. That’s in part because worker organizations are gaining strength, and strikes and labor disputes are becoming more common. Today, Chinese manufacturing wages adjusted for productivity are $12.47 an hour, compared to $22.32 in the United States, according to the Boston Consulting Group.  

Read more here