Dominic Ng on American-Made, Chinese-Owned
“For better or worse, China and the U.S. have created one of the deepest and most significant commercial engagements in global history.”
– Dominic Ng
China is the world's biggest foreign holder of U.S. Treasuries, with a third of its $2.85 trillion foreign exchange reserves invested in U.S. government debt. Should China be worried about investing heavily in the greenback and U.S. government debt? What are the comparable alternatives for investment?
Speaking to a group at the Asia Society in Hong Kong on March 11, Dominic Ng detailed a number of reasons why he thinks Chinese investors should invest in the United States. “There’s no better time than now for foreign direct investment in the U.S.,” said Ng, who is the Chairman and CEO of East West Bancorp, Inc., the parent company of East West Bank (the largest bank in the country focused on serving the Asian American community).
Ng emphasized the importance of maintaining a trust-based relationship between China and the U.S. He said that in the 21st century, there is no nation that can be isolated and still thrive. “Without a doubt, I think the Obama administration recognizes that. And if you look at China’s leadership, from President Hu Jintao and the other senior leaders, they also recognize that,” Ng said.
Video: Why is the Sino-US Relationship So Important?
China as scapegoat
“The problem is that in the U.S. it’s election, election, election. So politicians need a strategy – how do you win votes? The minute they feel that they can blame China, for folks losing jobs, for example, then they do. They come up with these negative political campaigns using China as a scapegoat to get votes.” (The New York Times reported that in just one week during the 2010 mid-term elections, 29 political candidates unveiled ads that carried anti-China sentiments.)
Yet the more politicians repeat “China is evil” mantras to their constituents, the more people start to believe it. (Indeed, 46% of Americans polled by the Pew Research Center in November 2010 said that increased trade with China would be bad for the U.S.)
But the stakes couldn’t be higher. “If that blame game goes to the wrong way, the China/U.S. relationship may deteriorate permanently. And that would have a really bad impact on the world,” Ng said.
Video: Threats to the US/China Relationship
Treasuries are so yesterday. Today it’s about foreign direct investment
Instead, Ng said, Chinese and American leaders should be talking about what the U.S. and China can do, by working together proactively, to get the American economy back on track. “In my view, the best and most effective way to do that is through direct investment from Chinese firms.” And, he added, “There is no better time than now to do it.”
Ng said that the U.S. right now represents a perfect opportunity for foreign direct investment. “For many years, the U.S. was a very powerful country that invested in other places, and told other people what to do. But at this moment, the United State needs jobs; they need foreign capital to help local business to create jobs. And China has plenty of capital.”
“China can afford to help the U.S. in a substantial way,” Ng said. Yet he said the investing more money in U.S. Treasuries wasn’t the best way to do that. “Combine very low yields on Treasuries, much higher inflation, and renminbi appreciation, and it simply doesn’t make sense for China to continue to invest in Treasuries,” Ng said.
“In my view, direct investment in the U.S. is not just about profit opportunities, but about doing real good. Because the more China can invest in the U.S., the more jobs are created there, the stronger the American economy will be, and the more likely it is that the U.S. and China will work closely with each other.”
Ng offered a number of examples of how Chinese firms’ direct investment in the U.S. – when that investment creates jobs for American workers – goes far in winning the hearts and minds of American policymakers.
Video: Opportunities to Build the US/China Relationship
When Shenzhen New World bought two landmark Los Angeles hotels, it saved 400-plus union workers’ jobs. Shenzhen New World chairman Huang Wei mentioned that at a press conference and the union workers stood up and applauded. “The Chinese general counselors were there, and they were very pleased to see that reaction,” Ng said. “Investing in the U.S. is about making money, but it is also about creating good will.”
Video: Chinese-Owned American Real Estate
Ng called China’s foreign direct investment in the U.S. “American-made, Chinese owned.” There are 15 Chinese-owned factories in South Carolina, for example, that employ 1,200 American workers. When a Chinese firm bought auto-parts manufacturer Nexteer out of bankruptcy, it became the largest private employer in Saginaw, Michigan. And China’s largest solar power manufacturer, Suntech Power, recently opened a plant in Phoenix, Arizona, which employs several hundred American workers.
Bright Food, Shanghai’s biggest food and dairy company is in talks to acquire GNC, a U.S. vitamin retail chain with 7,000 stores and retail sales of $2.5 to 3 billion. Bright Food is among a growing list of state-backed Chinese companies that are scouring acquisition opportunities around the world.
Then there is Tencent Holdings, a leading integrated Internet service provider in China, which acquired a $350 million majority stake in L.A.-based Riot Games. Riot will maintain its headquarters in L.A. and, with the substantial capital infusion, plans to hire aggressively in 2011 to develop new products and enhance its flagship title.
Video: Chinese-Owned American Manufacturing
Of course, these investments aren’t about charity. The Chinese label manufacturer that bought 6.5 acres in South Carolina paid one-quarter what it would have in Shanghai or Dongguan. What’s more, the company pays 10 cents less per kilowatt-hour for electricity during peak hours (and it’s a supply of power that is more reliable than in China). The firms buying U.S. real estate will likely resell for substantial profits. And the acquisition of U.S. companies gives Chinese firms an “in” into the largest consumer market in the world.
“You could never have found these opportunities fifteen years ago – or even five years ago – because China always has the cheapest land and the cheapest labor, and the U.S. was always too expensive. Not anymore. I mean, the world is changing.”
Using business to better the U.S./China relationship
To the audience of business leaders, Ng said, “You are the ones who know U.S. business, you know the U.S. investment landscape; you can be that bridge between the east and the west. I feel very strongly that there’s a very significant role business leaders can take here to help foster a much better U.S./China relationship.”
Yet just as the opportunities for a stronger, more productive U.S./China relationship abound, so is there still a clear and present danger. “Our choices are very simple,” Ng said. “We can choose to do nothing, and say that U.S. is just a pain, or we can engage in this U.S./China relationship and find a way to make some really good money, and do some real good at the same time.”
Ng ended with a bit of advice for Chinese businesses investing in the United States: “Don’t buy their most important properties. I always say, ‘Thou shall never cover thy neighbors’ best trophy.’ When you do that – when you buy Rockefeller Center (like the Japanese did) – you’re taking a bit of their heart.”
He added, “There are plenty of businesses to acquire. Go into the business through which you can create jobs, or retain jobs. Go one city at a time, one state at a time. If you take care of jobs in one particular city, every politician there will like you.”
Closing his presentation, Ng played John Lennon’s Imagine. “Imagine, imagine what the U.S. and China can accomplish if these two powerful countries work closely together for the next twenty years. I leave that imagination to you.”
Vera Chen contributed reporting from Hong Kong.