Hope and Hype about Chinese FDI in the US and Job Creation

Record Chinese outward foreign direct investment (OFDI) in the US has spurred great excitement about its job creation potential. There is good reason for optimism. For instance, Wanxiang’s 2013 purchase of A123 Systems and TDC Cutting Tools’s 2009 purchase of Greenfield Industries reportedly saved around 750 jobs. According to one study, Chinese firms in the US employed around 90,000 workers as of the end of 2015, with one consultancy forecasting Chinese companies will create 400,000 jobs by 2020. Yet, even today, it is far from clear how many new jobs Chinese OFDI (COFDI) has created or how many existing jobs it has saved. Furthermore, a huge amount of COFDI goes into mega commercial real estate deals which do not have obvious job creation benefits. Beyond this, to put things into perspective, the number of jobs created nationally by Chinese firms does not yet top the number of American workers at Japanese firms in Southern California alone as of the end of 2013. Moreover, one legitimately can wonder how many jobs debt-laden, inefficient, M&A favoring state-owned enterprises, which are major investors in the US, will create. On top of this, while Chinese firms are investing in R&D in the US, they largely focused on buying existing brands and technologies, not creating new ones, which could do more for job creation. Lastly, while it would be wrong to deny the importance of more jobs, the jury is still out on the quality of jobs at Chinese companies. The above does not reject COFDI’s job creation potential. What it suggests is that less exuberance is warranted, that new/good jobs will not flow from COFDI unless the right context is present/created, and that local officials need to be more judicious about the incentives they offer and the junkets they undertake to court more COFDI.