In late July, Hong Kong-based Mamtek International Ltd. broke ground on a new manufacturing plant in Moberly, Mo. The plant, which will produce a no-calorie sugar substitute called Sweet-O, is expected to create more than 600 jobs over the next few years and pump $46 million into the local economy.
The new plant will be a godsend for the city of Moberly, where job losses in the manufacturing sector have contributed to a nearly 10% unemployment rate. But Mamtek's commitment to build a greenfield plant in Moberly was no miracle. The city sold $39 million in bonds to help finance the construction of the facility, and the state kicked in $14.4 million in tax credits and $2 million in Community Development Block Grant funds, among other incentives.
The groundbreaking took place just 90 days after Mamtek executives first visited Moberly -- a breakneck pace in the world of economic development.
"In the end, we knew the company needed to move quickly, and we assured them that we could make it happen," explains Corey Mehaffy, president of the Moberly Area Economic Development Corp.
The story has several sweet twists to it. Mamtek sought to expand its operations from Fujian, China, into the United States to capitalize on America's reputation for manufacturing quality, explains Thomas Smith, CEO of Alexandria, Va.-based Capital Business Development Associates, who served as a site-selection consultant for Mamtek on the project. Perhaps even sweeter: The majority of the plant's production will be shipped back to China, according to Smith.
"They're positioning themselves in the Chinese market," Smith tells IndustryWeek. "This is an export win for the United States."
Mamtek, which has Chinese and American ownership, is one of the latest examples of a surge of Chinese-affiliated manufacturers investing in the United States.
Earlier this year, Anji Yuankai Furniture Co. Ltd. announced plans to establish its U.S. headquarters in Marion, Ind. The Chinese company will invest $24.4 million to renovate an existing facility for its operations in Marion, creating approximately 100 jobs over the next few years, according to the state.
Although Japan by far is the major foreign player in the Hoosier State, Indiana Gov. Mitch Daniels has expressed hopes that China's "modest" presence in the state will "parallel the growth of Japanese investment in the future." Last fall, Daniels led the first trade mission by an Indiana governor to China in more than a decade -- the governor's office called it a "jobs-hunting trip" -- and another trip to China is planned for this year.
"Certainly Chinese investment, albeit from a very small base, has exploded," Indiana Secretary of Commerce Mitch Roob says. "I think over the next 20 years that relationship will continue to grow."
A Wave of Investment
A 2008 report by the Vale Columbia Center on Sustainable International Investment and the U.S. Chinese Services Group of Deloitte LLP -- titled "Is the U.S. Ready for FDI from China? Lessons from Japan's Experience in the 1980s" -- asserts that the United States is on the verge of a wave of Chinese foreign direct investment (FDI) similar to Japan's push into America in the 1980s.
"All indications are that a growing number of Chinese firms are interested in investing in the United States, and are prepared to allocate considerable resources for that purpose," Karl Sauvant, executive director for the Vale Columbia Center on Sustainable International Investment, wrote in the foreword to the report.
The report notes that Chinese companies have some of the same motivations for coming to the United States as Japanese firms had in the 1980s -- "building on extensive export activity by reaping advantages from location and ownership in the U.S., as well as by internalizing processes that are currently external to Chinese firms targeting U.S. markets."
|From left to right, Moberly Area Economic Development Corp. President Corey Mehaffy, Mamtek International Ltd. Chairman Bruce Cole, former Missouri Gov. Bob Holden, Mamtek Chief Operating Officer Reena Gordan and Moberly Mayor Bob Riley pose at the July groundbreaking ceremony for Mamtek's new plant in Moberly, Mo.|
Latest official data from China's Ministry of Commerce shows that Chinese new FDI into the United States grew from $65 million in 2003 to $462 million in 2008. The Rhodium Group LLC, a New York City-based economic research firm, estimates that Chinese companies announced between $4 billion and $5 billion in new FDI into the United States in 2009.
Sauvant, however, cautions that it is difficult to obtain accurate data on China's FDI into the United States, "because a good part of Chinese outward investment goes via tax havens."
"And it is reinvested from there in the United States," Sauvant tells IndustryWeek. "So what might appear like foreign direct investment from the Virgin Islands, for instance, might actually be Chinese investment."
The U.S. Bureau of Economic Analysis (BEA) attempts to trace cumulative foreign investment in the United States back to the parent company's country of origin, in a data set called "Foreign Direct Investment Position in the United States on a Historical-Cost Basis, by Country of Ultimate Beneficial Owner." By this measure, China's direct investment position in the United States valued at historical cost -- which BEA defines as the book value of foreign direct investors' equity in, and net outstanding loans to, their U.S. affiliates -- increased from $448 million in 2003 to $2.3 billion in 2009.
According to the same BEA data set, China's cumulative manufacturing investment in the United States in 2009 totaled $994 million, up from $116 million in 2003. Hong Kong's overall investment in the United States, which is separated from China in the BEA data, was $5.5 billion in 2009.
While the Vale/Deloitte report asserts that there are "striking parallels" between China's march into the United States and Japan's push in the 1980s, Sauvant adds that there are some key differences.
For one thing, China's investment presence in the United States still pales in comparison with that of Japan. The Vale/Deloitte report notes that Japan's FDI into the United States "skyrocketed from less than $1 billion annually in the early 1980s to a peak of over $18 billion in 1990 alone." According to the aforementioned BEA data set, Japan's direct investment position in the United States in 2009 was $271.9 billion, with $81.7 billion of that in manufacturing.
"I think even under the best estimations, the amount of foreign direct investment from China is, at this stage, still quite limited," Sauvant says.
And while the Vale/Deloitte report predicts that China's push into the United States, like Japan's, "will take place against a similar background of trade and exchange-rate friction and charges of unfair business practices," Sauvant notes that the "resistance toward Chinese investment here is probably a bit higher than it was against Japanese investment."
"Partly that has to do with the fact that Japan, in the 80s, was part of the western alliance, while China is a strategic competitor," Sauvant says. "And partly it has to do with the fact that most Chinese outward investment -- I would estimate between 80% and 90%, if not more -- is undertaken by state-owned enterprises, and there are certain suspicions associated with state-owned enterprises."
There's been little friction between the Chinese and economic development officials in the Corpus Christi, Texas, area. Later this year, TPCO America Corp., a wholly owned subsidiary of the Tianjin, China-based Tianjin Pipe Corp., hopes to break ground on a $1 billion mini mill in a town called Gregory, Texas. The mill, which will make seamless steel pipe for oil and gas wells, is expected to create up to 600 new jobs during the next few years and pump an estimated $18 million of annual payroll into the local economy.
The company chose Gregory in 2008 after a three-year site-selection process that considered 77 different regions of the country, according to J.J. Johnston, executive vice president and chief business development officer for the Corpus Christi Regional Economic Development Corp.
The company says the driving factor to come to the United States was to have a facility close to its markets in North America and South America. Through its distributors, TPCO sells its pipe to companies such as Chevron, EOG Resources and Shell.
Gregory, which sits about 12 miles northeast of Corpus Christi, offers a "strategic location" and a number of other key characterisics that appealed to the Chinese company, Johnston says.
"The geographic location in the United States, our access to inbound raw materials, the availability of a really great site with utilities, the human resources we have, and the direct proximity to railroad and highways and the port of Corpus Christi were the business reasons that led to us even getting on the list in the first place," Johnston says.
In addition to the aforementioned logistical factors, as well as an incentive package that had not been finalized at press time, the Corpus Christi area differentiated itself with a "welcoming approach that resonated with the company's leadership," says Leah Olivarri, a TPCO spokeswoman.
Johnston notes that he and other economic development leaders from Texas traveled to China on multiple occasions to meet with TPCO officials, before and after the site-selection process was complete. On their most recent trip in June, a Texas contingent toured the company's plant in Tianjin and hosted company executives, government officials and other business stakeholders for dinner at a hotel.
"During that trip, we gave away 83 different gifts," Johnston says. "And that's not easy to do when you have to schlep them halfway across the world."
In January 2009, nearly 400 local residents and officials attended a public meeting in Portland, Texas, in which TPCO filed for an air-quality permit from the state and first publicly announced its plans to build a factory near Gregory, according to Johnston. During the meeting, a TPCO official spoke and showed a video detailing the company's plans for managing emissions at the Gregory site. When the company official was finished, the audience responded with a standing ovation "that lasted a couple of minutes," Johnston recalls.
"I think the best thing we did on the soft side was we always gave the company, and always still do, very enthusiastic and gracious support," Johnston says.
According to Johnston, TPCO America will be the largest Chinese FDI into the Corpus Christi region and one of the largest FDIs into the United States by a single Chinese manufacturer. Johnston notes that Texas and Chinese businesses already engage in $25 billion in annual trade -- the third-busiest U.S.-China trade relationship of any of the U.S. states -- and hopes the TPCO project will be the tip of the iceberg for Chinese manufacturing activity in the Lone Star State.
"China has the fastest-growing economy in the world right now, they're very expansion-oriented and they want to put more foreign direct investment into the United States and a lot of other countries," Johnston says. "So there is a lot of opportunity out there from China and India and from other fast-growing economies to invest here."