U.S. foreign direct investment in China
U.S. foreign direct investment in China
Facts and fallacies
This paper clears up a lot of misconceptions about the U.S.-China trade relationship.
Fallacy #1: U.S. FDI in China is large
Most FDI originates through Hong Kong and represents investments made from Hong Kong, Taiwan and Japan
Share of U.S. multi-national corporations sales and assets in China was 1.9% and 0.7% (contrast this percentage with the number of magazine covers on China)
Fallacy #2: U.S. FDI in China is export-oriented
U.S. affiliates play almost no role in export industries in China
Foreign export-oriented companies are largely Hong Kong, Taiwan and Korean export firms that had merely moved operations to China
Wal-mart accounts for $20 billion of exports to the U.S.; however, they typically purchase from local export-oriented manufacturing plants
Fallacy #3: U.S. multi-national FDI in China displaces investment elsewhere
As discussed in the first two points, not only is U.S. FDI in China relatively modest, it is more focused on the China market than the export markets
Firms that expand to China are just as likely to increase U.S. domestic employment as they are to cut it
Fallacy #4: U.S. multi-nationals are rapidly exploiting China's growing technological prowess
Increases in exports of electronic goods from China is increasing rapidly, but so are imports of electronic components, highlighting the fact that China's role in the value chain is still largely the labor-oriented assembly
Foxconn, a Taiwanese electronics contract manufacturing firm, was by far the largest issuer of Chinese patents, and the data suggests that Taiwanese firms are more aggressively exploiting opportunities to conduct research in China
The key takeaways here are that the “limitless supplies of Chinese labor” are not as big a threat to U.S. economic well-being as populist sentiments would have you believe. Because China is the location where final assembly takes place, China bears a disproportionate amount of bashing from the politicians and union leaders.
Few people realize that if you look behind the “Made in China”, you'll find components from throughout the world. The U.S.-China trade deficit masks the fact that much of it comes from China's largest trade partners such as Japan, Korea, Taiwan and Hong Kong.
This was originally published in a personal blog in August 2007.