Jobs for Americans and Pink Slips for the Chinese

by David Fessler, Energy and Infrastructure Specialist
Tuesday, February 22, 2011

Up until a couple of years ago, Goodyear was just another small town in the middle of the Arizona desert. That is, until Suntech Power Holdings (NYSE: STP), a Chinese solar panel manufacturer, decided to set up shop there.

For Suntech, headquartered in Wuxi, about 85 miles from Shanghai, manufacturing in the United States represents a big savings on shipping costs, and an opportunity to gain market share in the growing solar renewable energy push underway here.

Its 117,000-square-foot plant currently employs about 30 people. The advanced manufacturing techniques it’s using in the Goodyear plant enable it to produce the same number of solar panels as 100 Chinese working in one of its plants in China.

If the technology continues to work well here in America, Suntech plans to transfer the technology to Chinese plants, eliminating a number of jobs there…

A 180-Degree Turnaround

Suntech isn’t the only Chinese company setting up shop in the United States. Dozens of Chinese business investors are being welcomed in droves – and with open arms.

Oh, what a difference a few years makes.

For the last several decades, American manufacturers were flocking to China to set up shop there, drawn by the prospect of cheap labor, raw materials and parts.

U.S. lawmakers began to get concerned about the exodus of American manufacturing to China. They threatened to retaliate by blockading valuable U.S. assets. For example, back in 2005, a Chinese state-owned oil company’s bid for California-based Unocal was nixed, and Unocal later merged with Chevron Corporation (NYSE: CVX).

Why the recent change of heart? America’s anemic economic recovery certainly has a lot to do with it. With America’s unemployment rate hovering around 9% to 10%, government officials have all but forgotten concerns over unfair Chinese competition and pricing.

As a result, Chinese business owners have some great incentives to set up shop here:

  • Reduction or elimination of U.S. trade barriers.
  • Capitalizing on the U.S. push towards alternative energy.
  • Valuable lessons learned about advanced manufacturing techniques they can take home with them.

How much money is being ponied up here by the Chinese? In 2009, they invested a total of $1.73 billion. In just the first nine months of 2010, that number jumped to $2.81 billion, according to Rhodium Group, an economic research group in New York.

And it’s not just solar that they’re investing in. Aviation, biotechnology, consumer products, rubber, food, tobacco and beverage companies have all set up shop here in the United States.

As the value of the yuan slowly rises against the dollar, it will continue to make U.S. assets more attractive to Chinese investors.

According to the International Monetary Fund (IMF), China absorbed $7 of outside income for every dollar it sent to other countries as late as 2005.

In a marked turnaround, the IMF expects that by 2012 Chinese cash investment outflow will exceed its inflow for the first time.

For investors, Chinese companies like Suntech Power Holdings might turn out to be great investments, while helping the United States to get back on its feet. Perhaps we should all send them a “Thank you” note…

Good investing,

David Fessler