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Sunday, July 31, 2005

China Sends a Few Jobs Our Way as a Goodwill Gesture

Did you know that China is opening a refrigerator factory in Camden, S.C., and this isn’t the only place China is opening production facilities in the U.S.?  This may be just the start, so I'm curious if you see the creation of jobs within the U.S. as China opens factories here as a positive development.  As you read this, remember that the refrigerators could be produced at lower cost in China even with shipping costs, so this is more of a political move than an economic one from China’s perspective, though currency revaluation could change that calculation:

Fostering Goodwill With Jobs, By Evelyn Iritani, LA Times: This sleepy town of quaint colonial homes and Revolutionary War battle sites is an unlikely champion for China.  It's the oldest inland city in South Carolina, a state devastated by competition from low-cost Chinese textiles. The state's most powerful politicians, including the late Republican Sen. Strom Thurmond, led the fight to keep out cheap goods from China and other countries.  But Camden, population 6,700, is also the home of the first U.S. refrigerator factory for China's Haier Group, a fast-growing appliance maker known as the General Electric of China.  The plant's 225 jobs, with promises of more, explain why people here view China with greater enthusiasm than do those in Washington, where a rising trade deficit and a Chinese bid to buy El Segundo-based oil company Unocal Corp. have sparked concerns that China is bent on supplanting America economically and politically.

After some initial missteps, Haier has earned a reputation here as a good employer whose workers make a decent living. … Chinese companies flush with cash and eager to get a foothold in the U.S. are primed to build or buy U.S. factories and companies. China's July 21 revaluation of its currency, the yuan, is expected to accelerate that trend by making American assets relatively cheaper for Chinese buyers. Their additional investments in America offer the potential to save or create thousands of jobs — building goodwill in the process.  In Minnesota, an investment by a Chinese company in a shuttered iron mine resurrected 400 jobs, winning praise from residents and politicians.  The positive feelings here toward Haier and the Chinese also illustrate a significant transformation underway in the Deep South. Although this state is often portrayed as a protectionist enclave, South Carolina has quietly transformed itself into one of the country's most international regions. Aside from Hawaii, South Carolina has the highest percentage of foreign investment per capita. Nearly one-third of Camden's manufacturers, including several textile plants, are owned by foreigners. … To be sure, emotions still run high here in textile country, as was evidenced by the fierce battle over the proposed Central American Free Trade Agreement, which critics said would lead to further losses of textile jobs. Southern politicians, like their constituents, were divided over that trade pact, which the House voted Wednesday to ratify.

Camden, like many small Southern towns, could easily have become a victim of its textile past. After surviving the Revolutionary and Civil wars, … Textile factories migrated from the North, attracted by the low wages.  But under pressure to cut costs, textile companies such as Dupont, the town's leading employer, began shedding jobs by the hundreds … In the 1990s, the town found its savior in an unlikely place. Japanese automakers — faced with the threat of tariffs by the U.S. and armed with a strengthening yen — began setting up auto plants in the South. … "We had the politicians tell us, 'If you lose the textile mills, you've lost South Carolina,' " said Samuel Small, of First Palmetto Savings Bank. "But the politicians were holding us back."  South Carolina Gov. Mark Sanford, an outspoken proponent of free trade, not only doesn't want to hold the state back — he has turned political tensions surrounding China's trade practices to the state's advantage. … "You can go to make an investment in Nebraska, but you really don't pick up a whole lot of political currency in that equation," Sanford said. "If you go to the epicenter, where the jobs have been lost — and we indeed have been the epicenter — it allows people in public policy to offer a counterpoint to those who want to raise the walls." … Haier could make its refrigerators in China and ship them across the Pacific for less than the cost of producing them in even the cheapest U.S. location, Vergnolle said. But, he said, the chief purpose of the U.S. factory was to boost China's image on the global stage. … "The Haier plant is in Camden to give the Chinese government a showpiece to demonstrate to the world that they can compete in a capitalist environment," Vergnolle said. "Money is not necessarily a motivating factor."… Surprisingly little anti-Chinese sentiment has surfaced, according to locals. Early on, someone called conservative commentator Rush Limbaugh and complained that the Chinese flag was flying higher than the American flag outside the Haier factory. "Of course, it wasn't," said the mayor.

Not that Haier's foray into America was problem-free. Like other foreign firms, Haier had a steep learning curve … Haier's chief executive was well-known in China for promoting a more Western-style of management in which workers were held responsible for their output and rewarded accordingly. At Haier's main factory in Qingdao, a daily tally was kept of each employee's mistakes, and the worst offenders were forced to repent, according to media reports. … the company's Chinese managers quickly discovered that their American workers would quit rather than be publicly humiliated. The situation improved dramatically after Haier brought in American managers. Haier no longer has any Chinese executives, and only a few Chinese technicians, at the Camden facility, according to Lindsay and others.

… Other Chinese forays into the U.S. economy have followed a similar pattern. Until the latest bids, the Chinese have avoided making the high-profile purchases that triggered resentment against Japan two decades ago, such as Sony Corp.'s 1989 purchase of Columbia Pictures. … Jobs are the trump card. Though textile factories continue to disappear, Camden officials have watched their unemployment rate creep downward.

    Posted by on Sunday, July 31, 2005 at 12:33 PM in China, Economics, International Trade, Unemployment | Permalink  TrackBack (0)  Comments (3)


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