Local U.S. Officials Woo Chinese Investment Despite Trump Threat

(Bloomberg) -- With the Trump administration acting to squeeze China on trade, U.S. governors and mayors are delivering a different message to Chinese businesses looking to invest: Bring it on.

Making trips to China and setting up liaison offices in the country, officials aim to position their states, cities and towns as desirable destinations for Chinese companies looking to invest and operate overseas.

"We are not shy about talking about our relationship with China," said Mike Preston, executive director of the Arkansas Economic Development Commission, in a March 16 phone interview. Since Governor Asa Hutchinson, a Republican, took office in 2015, "we decided to really target China and try to bring more investments from China," Preston said.

The outreach continues as President Donald Trump imposed sweeping trade tariffs last Thursday against China, saying as he signed the order, "This is the first of many." He also directed Treasury Secretary Steven Mnuchin to propose new investment restrictions on Chinese companies. In the past year, multiple acquisitions of American companies by Chinese buyers have been either blocked or abandoned following opposition from the Committee on Foreign Investment in the U.S. on national security grounds.

When the federal government is taking a "massive step backwards" in free trade, "cities and mayors have an important role to play in keeping America open to business and attracting investments that inject dollars and energy and jobs," said Christopher Cabaldon, mayor of West Sacramento, California.

Several people interviewed for this article spoke before the tariff details were announced. Cabaldon’s office said his remarks still stand.

"Smart governors are taking their economic future into their own hands," said Nancy McLernon, president of the Organization for International Investment, a lobbying group for foreign companies operating in the U.S. They "are out there reassuring companies that are already invested in their states, and their open investment policy statements are very impactful," she said.

$2 Billion

Shandong Ruyi, a Chinese apparel producer, announced in 2017 that it would open a factory in Forrest City, Arkansas, and create as many as 800 jobs, according to the Arkansas Economic Development Commission. As incentives, the state will provide tax benefits and cash rebates.

In the past three years, according to the commission, Arkansas went from having no investments from China to securing more than $2 billion through commitments from Chinese firms in textile, paper and heavy equipment sectors.

JobsOhio, a non-profit authorized by Ohio’s government to represent the state, sends staff to China several times a year.

"We view it as very important," said Kristi Tanner, senior managing director of JobsOhio, in a March 18 phone interview during a business trip in Fuzhou, China. She said that in meetings with companies and provincial leaders, she used Fuyao Glass, a Chinese automotive glassmaker whose factory in Moraine, Ohio, employs about 2,000 workers, as a case study for other Chinese companies.

Self-Driving Technology

Tanner said Ohio wants to capitalize on Chinese investments in the automotive sector, particularly in self-driving technology. She added that China’s interest in the U.S. resembles that of Japanese automakers’ American expansions in the 1980s. "We see a similar path with China," she said.

Other states and cities have similar delegations. San Francisco is expanding its quasi-government agency, ChinaSF, which has three branches in China and provides Chinese companies with access to the city government.

Preston, the Arkansas development executive, said Trump has come up in conversations with potential Chinese investors, "But we are really trying to focus on state-to-state, governor-to-governor relationships. Those relationships have been strong and have been good."

"Certainly the rhetoric is going to be a risk, but we’ve also done our best to mitigate that," he added.

Only about 6 percent of Chinese investments in the U.S. from 2000 to 2017 are so-called greenfield projects, in which a Chinese company sets up a local operation from scratch; the rest of the deals are mergers and acquisitions, according to Rhodium Group, a research consultancy in New York.

Investments Drop

And Chinese investments in the U.S. dropped by 35 percent in 2017 to $29 billion of consummated deals from a record-high number in 2016, Rhodium Group said. Much of the decline was due to China’s capital control rules, but also growing regulatory hurdles in the U.S., mostly scrutiny from the Committee on Foreign Investment in the U.S., Rhodium said.

ChinaSF has facilitated transactions that came under Cfius review. The city is a popular destination for Chinese investors in the biotech, real estate and fintech industries.

China has responded to Trump’s tariff announcement by threatening to impose tariffs on $3 billion of U.S. imports -- including agricultural, steel and aluminum products. Beijing’s ambassador to the U.S., Cui Tiankai, said his nation did not want a trade war, but all options were on the table.

"They will always find a way to get things done. Already, China is starting to be more sector-specific in their investments," Darlene Chiu Bryant, executive director of ChinaSF, said Monday. "China has been exporting to the USA for more than 200 years, and trying to turn back the clock with tariffs alone is not going to help the country; it will ultimately hurt the consumer."

To contact the reporter on this story: Yueqi Yang in Washington at yyang492@bloomberg.net.

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Laurie Asséo, John Harney

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