Made in America, Owned by China

The gap between manufacturing costs in the U.S. and China is gradually shrinking, leading many Chinese companies to relocate factories in America, according CNNMoney.com

While labor costs are still much higher in the U.S. than in China, tax abatements, free land, government-funded training for employees and use of federally subsidized power has been a lure for other foreign companies, and Chinese businesses are no different.   

Land in the U.S. is one-fourth the price it is in an industrialized Chinese city.  Power is cheaper and much more reliable in the U.S.  And the Chinese government has encouraged global expansion of its domestic businesses through financial incentives.  Beijing pays 30 percent of the initial investment costs of Chinese business opening in a new market.   

Chinese companies have taken advantage.  According to CNNMoney.com, Chinese direct investment in the U.S. jumped to $5 billion last year after averaging roughly $500 million per year for much of the past decade.  Recently, the Chinese have acquired or started 50 companies in the U.S.  In South Carolina alone, the Chinese have invested $280 million.   

While China has quietly been stepping up its U.S. investments, it has not gone without notice.  In March, The Los Angeles Times reported, “Made in China now has a fast-growing sibling: Bought by China.” 

Not only are private Chinese businesses investing more in the U.S., so too is the Chinese government. 
China is investing heavily is U.S. real estate, according to the report. Attracted by bargain prices caused by the collapse of the market, the Chinese have invested in some of the county’s largest real-estate related funds, including Goldman Sachs and Oaktree Capital. 

But, possibly for fear of creating a major backlash in America, China’s investments have been relatively small. With a sovereign wealth fund estimated to be valued at $2.5 trillion, the Chinese have been extraordinarily modest in their investment strategy. 

Outside experts say that the amount of Chinese investment in U.S. assets, excluding bonds, was anywhere in the range of $3.9 to $6.4 billion “officially,” but some assume that China may have been indirectly investing in U.S. companies in the past few years through the billions of dollars Beijing has farmed out to hedge funds. 

In February, for the first time in its history, China Investment Corp., a sovereign wealth fund responsible for managing part of China’s foreign currency holding, revealed a glimpse into its investment strategy in the U.S. in a Securities and Exchange Commission filing. 

The report showed that CIC had equity stakes totaling $9.63 billion in over 60 American companies at the end of 2009.  

China has been able to accumulate such a massive foreign wealth fund through illegal trade practices that have allowed it to become the world’s top exporter and consistently hold massive trade surpluses. Last year, the U.S.’ $227 billion trade deficit with China accounted for nearly two-thirds of the nation’s total trade deficit.

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