Moderator Stephen Roach, Non-Executive Chairman of Morgan Stanley Asia and a Senior Fellow at Yale University, staged this roundtable discussion by observing that “common ground is the perfect metaphor to depict what China and the United States offer each other.” Cross-border trade flows, said Roach, are an obvious case in point. “Over the years, the U.S. has consistently been China’s largest export market, surpassed by only the 27-country Euro Zone, and now China is America’s third largest export market.” On the other hand, he pointed out, foreign direct investment (FDI) is unbalanced. Multinational companies see China as an offshore platform both for “efficiency solutions as well as garnering toe-holds in the world’s most populous nation.” In contrast, Roach said, China has lagged in its investments abroad, with only $230 billion invested overseas, less than 1½ % of total global FDI. In the U.S., Chinese investments have been “puny,” amounting to less than one-half percent of the total FDI here.
However, in the next decade, Roach said, China will be investing one to two trillion dollars in foreign markets. Wanxiang America Corporation, which has acquired about 30 American companies that manufacture automotive parts, is one of the pioneers. Wanxiang America’s President, Pin Ni, said that in spite of the troubled state of the American automotive industry, “Our return on our investment in the U.S. has been multiples more than in China. There is no better time to invest in the U.S.” The reason, he said is “value creation,” and part of that has been due to Wanxiang’s good relations with the United Autoworkers in the unionized plants it has bought. “We came here not taking jobs away, but saving jobs. Most of the companies we are buying, if we were not here, would go bankrupt.”
“The fear is that America is exporting jobs, talent and vitality to China,” said Roach. In fact, said East West Bank CEO and C-100 Chairman Dominic Ng, labor costs in China are going up so dramatically that in “in five to six years, California labor costs will be lower than Shenzhen [a highly-developed Chinese manufacturing city between Guangzhou and Hong Kong].” As a facilitator of cross-border trade and investment, East West predicts that even Chinese companies will be manufacturing in the U.S., where their market is, not to speak of multi-nationals. Ng gave the example of one East West client from China, BYD, the Warren Buffett-invested green-tech company, which enlisted East West’s help to find a location for its American headquarters. Ng convinced BYD that even though “California comes out as the most unfriendly state for business” in terms of taxes and regulations, it was the most advantageous because of its “revenue potential” for BYD. Not only had California real estate costs dropped dramatically in the past few years, but labor costs are coming down relative to China. It also boasts excellent logistics and transportation, a ready market for BYD’s products, and an environmentally-friendly focus. After East West brought BYD together with local government and real estate developers to create a “win-win formula,” the company decided to build its headquarters in downtown Los Angeles, with distribution and manufacturing facilities to follow, and the potential of creating thousands of jobs.
The luxury handbag company, Coach, has benefited from China’s transformation from a producer to a consumer society, with a 75% increase in revenue in China this year. Lew Frankfort, Coach CEO, says Coach’s typical Chinese customers are “young female and male professionals [who] increasingly see themselves as citizens of the world.” They are attracted by a product designed in New York with raw materials from all over the world and are not put off by the fact that most are manufactured domestically, “recognizing that well-made products do come from China as well.” Frankfort said, “It’s a pleasure to work in China,” citing Chinese government support of Coach’s intellectual property rights, but with nearly 1,000 employees in China, Frankfort is also sensitive to rising labor costs. He concluded, “We do expect over the next four or five years to migrate 40-50% of our production out of China” to India and other Asian countries.
Begin viewing the 8-segment roundtable video here.