Editor's note: This interview was conducted before the COVID-19 pandemic swept China and the U.S., which will undoubtedly affect FDI throughout 2020, if not beyond. After a spike in Chinese foreign direct investment (FDI) into the U.S. in 2016, new investment activity from China has cooled significantly. Yet, even amidst trade disputes and the uncertainty of tariffs, Chinese industrial companies continue to invest in the critical North American market. And, if you are a Chinese company seeking a U.S. location, what matters is competitive advantage.
Competitive advantage can include a number of different factors, including location strategy. At a high level, it means taking advantage of the characteristics of locations and regions to put your Chinese company in a better position than the incumbent U.S. companies.
However, a Chinese company will need to overcome certain barriers to enter or expand in the U.S. market. Investments by Chinese companies are among the most highly scrutinized by U.S. authorities. It can be especially difficult for smaller Chinese companies to overcome the regulatory hurdles—you need the right capabilities, expertise and overall market leadership.
And, how the U.S. government might view a particular Chinese investment is not related to the size of the company—even small companies can be very closely scrutinized. More important is the industry or sector in which a company operates, and what the company plans to do with its U.S. operations. It’s a dynamic situation, with many influences coming into play.
The tariff question
Tariffs, of course, are a major source of uncertainty for Chinese companies because no one knows how long tariffs will be in place or how they may be changed. If you knew that tariffs would be maintained indefinitely, you could make location decisions designed to avoid tariffs and optimize your operating costs.
Right now, it’s very unclear as to how long tariffs will be in place. In addition to the tariff question is the larger political and social context for U.S. investment. These factors are creating hesitation about making long-term financial decisions based on what could be short-term issues.
The promise of opportunity for Chinese companies
Putting those concerns aside, the U.S. is otherwise a very healthy, potentially active market for Chinese companies that want to establish a leadership position in economies beyond China. What will help Chinese organizations large and small is to stay attuned to the environment here.
Decision-makers also need to pay attention to the other factors that drive decisions about entering a market or expanding within it. For example, talent and skills are often part of the competitive equation for a Chinese company making a location decision. What companies should pay attention to are the state and local economic development agencies that are finding innovative ways to address talent and skills shortages to help companies succeed.
Over the next year, ideally, the trade issues will be resolved, and Chinese companies will perceive a stable environment in which to make location decisions. Aside from federal policy considerations, many states and local communities would welcome Chinese investment. However, state and local governments have limited influence over federal perceptions and policies concerning national security and preference for U.S.-based companies.