International Policy Digest

Pete Souza
Business /11 Sep 2015
09.11.15

Chinese Investment Translates to American Jobs

As the US race for the White House kicks into gear, the candidates’ focus should be on job creation. However, many American jobs are now being created by Chinese companies. When President Obama declared, “America is open for business” at the Select USA Investment Summit in October 2013, he laid out the roadmap for foreign investment through a four-point plan which streamlines foreign companies’ investment process by cutting red tape.

A May 2015 report by the New York-based Rhodium Group and the National Committee on US-China Relations estimates that 1,583 Chinese companies operate in the United States and employ more than 80,000 full-time workers, nearly half of which come from Smithfield Foods Inc., the largest U.S. pork producer. By comparison, a study conducted by the same group in 2012 found that Chinese firms in America employed 27,000.

Besides directly contributing to American employment, Chinese firms contribute indirectly. Telecom giant, Huawei, operates in 14 states, yet it reaches 35 states. The Rhodium Group China Investment Monitor (CIM) map as of September 5, 2015, depicts investment of Chinese companies in 45 out of 50 states, including the District of Columbia.

Authors Theodore H. Moran and Lindsay Oldenski write in their book Foreign Direct Investment in the United States that Chinese companies owning at least 10 percent of the firm in 2005 paid their American-based employees more than other foreign firms operating in the United States and even more than American firms. Moran and Oldenski found that Chinese firms operating in the United States paid their employees $85,000 in average wage and benefits. This amount is vastly higher than $65,000 paid to employees by other foreign firms and $60,000 from American firms. While Chinese companies in 2007 still paid their employees more than U.S. firms, the pay difference between Chinese foreign firms was similar.

Instead of conducting business in China where labor is cheap, Moran and Oldenski suggest that Chinese firms move operations to America to take advantage of its higher-skilled workers in Research and Development and management services. Concerns whether Chinese firms scale back jobs following a takeover are not valid. In fact, a 2012 study by the Rhodium Group found that Chinese companies actually increase staff after acquiring a business.

According to a July 15, 2015, report by Thilo Hanemann and Cassie Gao of the Rhodium Group, nearly two-thirds of total Chinese ODFI in America came from the real estate and hospitality sectors in the first half of 2015, amounting to $6.4 billion of 88 FDI business deals. Beijing’s OFDI in America is impressive; rising from 532 deals totaling $9 billion in 2010 to 1,117 deals totaling $54 billion in 2015, according to the CIM.

Chinese companies hold 5 out of the top 10 spots, including the top 4 in Forbes 2015 ranking of “The World’s Biggest Public Companies.” Chinese companies, large and small, are investing capital in America. As of September 6, 2015, the Ministry of Commerce of the People’s Republic of China lists 3,943 qualified overseas contractors. While many State-Owned Enterprises (SOE) conduct domestic and international business, the CIM notes that smaller, privately owned Chinese companies, rather than larger SOEs, conduct the majority of U.S. direct foreign investment. It is more likely that these smaller companies pose less risk to U.S. national security.

Chinese FDI does raise “national security concerns,” according to the U.S.-China Economic Security Review. While its 2014 annual report highlights that for the first time, FDI from China into America surpassed FDI from the U.S. to China, it warns of possible national security risks associated with SOE investments in critical infrastructure. Past national security investment deals involving Chinese companies include the China National Offshore Oil Corporation (CNOOC) bid in 2005, telecom giant Huawei’s bids in 2007 and 2011, and the Ralls Wind Corporation bid in 2012. In short, all bids faced heavy U.S. scrutiny and did not move forward.

Analysts estimate that by 2020 more than $1 trillion in Chinese ODFI will circulate in the world economy. A 2012 study estimates Chinese investment in the US could grow to $200 billion by 2020, creating as many as 400,000 jobs. While total direct foreign investment in the U.S. comes to nearly 4 percent or 6 million people, these numbers clearly demonstrate how critical direct foreign investment is, in particular from Chinese firms, to the American economy.