China’s Capitalist Road Reaches Indiana as Spending SoarsDavid J. Lynch
When potential customers in Indiana scorned the red logo on his salesmen’s business cards as a “communist color,” Du Lijun quickly scrapped the design.
Du, the 41-year-old president of Nanshan America Co., is trying to make a success of the Chinese company’s new aluminum-parts plant in the American rust belt. If that requires sanding off the edges of its Chinese identity, so be it.
“I told them: Change the logo,” he said. “I understand the concern, even though it’s not reasonable.”
The business card makeover illustrates Du’s deft shepherding of Nanshan’s $160 million investment amid Sino-U.S. quarrels over currency values, intellectual property rights and commercial espionage. That diplomatic touch is a defining feature of China’s accelerating overseas investment push, as private companies supplant the state-owned giants that often stumbled in the first wave.
“We see a big move for the next 20, 30 years,” said Du. “Now it’s just getting started.”
More than three decades after Deng Xiaoping set China on the capitalist road, the world’s second-largest economy is expanding its role as a provider of global capital.
In the U.S., Chinese investment last year doubled to a record $14 billion, up from less than $1 billion in 2008. Already this year, $6 billion in deals have been signed, including Lenovo Group Ltd.’s $2.9 billion purchase of Motorola Mobility’s smartphone business, according to Rhodium Group, a New York-based consultancy.
Most of last year’s 82 transactions involved private Chinese companies, some seeking a foothold in the U.S to dodge anti-China tariffs. That’s bringing Chinese companies into parts of the industrial heartland where manufacturers have been ravaged by competition from low-cost Chinese imported goods. In 2013, Chinese companies started operations in Michigan, Ohio, Pennsylvania and Illinois.
More than 70,000 Americans now work for Chinese employers, eight times the 2007 number. In Lafayette, Indiana, Nanshan of Longkou, China, created 105 jobs at its aluminum extrusions plant with a total of 200 expected by the end of next year.
Yet China takes as it gives. Just two months before Nanshan turned on its first aluminum press, the Oerlikon Fairfield plant up the street moved 164 gear-cutting jobs from Lafayette to its facility in Suzhou, China.
“China is continuing to eat our lunch,” says Mike Bennett, president of United Auto Workers Local 2317 in Lafayette and a 26-year Oerlikon plant veteran. “If China was out of the picture, they’d be hiring right now.”
An Oerlikon Fairfield spokesman didn’t reply to two e-mailed requests for comment.
In 2011, after the U.S. imposed anti-dumping tariffs on aluminum extrusions from Nanshan and other Chinese suppliers, the company tapped Du to quarterback a 650,000-square-foot U.S. plant that would shape aluminum into products such as road signs, car and trailer parts, light poles and water lines.
Du realized he’d be bringing Nanshan to a region of the country where China was often seen as a cause of economic erosion, not advancement. A native of Shanghai with a taste for travel, Du came to Lafayette in 2002 for graduate study at Purdue University after three years with the Shanghai municipal government. At first, his English was so weak that even a routine trip to the supermarket was a source of stress.
When Nanshan began canvassing the Midwest for a factory site, Du’s familiarity with the area ensured the city on the banks of the Wabash River would get a look. Lafayette is the county seat of Tippecanoe County, immortalized in the 1840 presidential campaign ditty “Tippecanoe and Tyler Too.”
Today, the city’s 68,000 residents -- more than 80 percent of whom are white -- enjoy a brick-clad downtown of traditional charm, ringed by an expanse of shopping malls and fast-food restaurants. About 100 miles southeast of Chicago, Lafayette’s central location and track record hosting foreign-owned companies such as Subaru ultimately earned it Nanshan’s nod.
Du splits his time between Nanshan’s U.S. operations and its Chinese headquarters. When he’s not on the road, he lives in a high-rise condominium tower in Evanston, Illinois, across the street from a Buffalo Wild Wings restaurant and a movie theater. The Nanshan plant, which he visits every several weeks, is more than a two-hour drive away.
His wife, a KPMG executive, moved back to Shanghai four years ago for professional reasons and to enable the couple’s 12-year-old son and 6-year-old daughter to learn Chinese.
When the U.S. workday ends, Du’s Chinese bosses are just waking up. That means late-night e-mails and phone calls, leaving little time to watch his Indiana Pacers basketball team or sail on Lake Michigan.
Du’s unspoken challenge is battling China’s poor public image: 53 percent of Americans rated the country unfavorably compared with 43 percent with a favorable view in a Gallup poll last month. Labor unions that blame Chinese competition for the loss of millions of factory jobs are among the most skeptical.
“It’s a huge negative with jobs having to go over there,” Bennett says, adding that some of his members opposed the Nanshan venture “because it’s Chinese -- the communist thing.”
To avoid inflaming that latent anti-Chinese sentiment, Du gave plant tours to local elementary school students and steered a $10 million corporate contribution to Purdue’s international programs.
Since then, he has parried complaints about the Chinese flag flying alongside the Stars and Stripes outside the Nanshan plant on Veterans Memorial Highway. And he has filmed a promotional video showcasing his nearly all-American workforce.
“It’s been very well-received,” says Lafayette Mayor Tony Roswarski of the Chinese investment.
Nanshan’s strategy is to marry Chinese cash with American management know-how and labor. The company cycles small groups of Chinese supervisors from its home office through the Indiana plant for 12-week training assignments. What they learn in the U.S. -- about quality control, teamwork and empowering workers - - should make Nanshan more competitive at home. That’s one difference between this wave of foreign investment and Japan’s 1980s surge.
“When the Japanese companies came to the U.S., they were already leading companies in the world with global supply chains. The Chinese are at the other end of the manufacturing spectrum,” says Scott Kennedy, director of the Research Center for Chinese Politics and Business at Indiana University. “There’s a monster learning curve.”
As Chinese President Xi Jinping promotes a greater role for market forces in allocating resources, prices for credit, energy, labor and materials will rise. That will encourage more companies to go overseas, a move made easier by the planned elimination of mandatory government approvals.
By 2020, Rhodium expects the stock of Chinese direct investment abroad to reach $1 trillion to $2 trillion, up from about $500 billion. Already, China is the third-largest overseas investor, trailing the U.S. and Japan, according to the Organization for Economic Cooperation and Development.
State enterprises dominated the first wave of Chinese overseas investments in the 2000s. Some lost money, such as China Investment Corp.’s 2008 stakes in Blackstone Group LP and Morgan Stanley, stirring public anger in China. Others like the Chinese National Offshore Oil Corp.’s 2005 bid for Unocal Corp. failed amid U.S. suspicions about China’s long-term ambitions.
China’s private companies have learned from those mistakes. Last year, Wanxiang Group Co., China’s largest auto-parts maker, surmounted U.S. congressional opposition to acquire most of the assets of battery maker A123 Systems Inc.
“They’ve been very quick in adapting and learning how the game is played in the U.S.,” says Thilo Hanemann, Rhodium’s research director.
Though job-creating “greenfield” investments like Nanshan’s are “less susceptible to the controversies that have surrounded many” Chinese investments, Du’s approach smoothed the company’s path in the U.S., according to a case study by the Chicago-based Paulson Institute.
The key, Du says, is an ability to move seamlessly between the Chinese and U.S. governments, Nanshan’s corporate culture and its American workers and customers.
“You’ve got to coordinate four different ways of thinking, not just two cultures,” he said. “When you meet different people, you have to change your way of thinking.”
Du had to explain to Chinese colleagues that ties of friendship or family, known as “guanxi,” offer no shortcuts around U.S. labor or environmental laws. With his American managers, he speaks more directly than with Chinese coworkers.
“I’m the man in the middle for many things,” he says. “If you’re not careful, you’ll be crushed.”
Returning to the land of his birth, Du suffers from “reverse culture shock.” He’s the lone pedestrian who doesn’t habitually jaywalk or who waits patiently in line while others crowd a counter.
As his guiding principle, he cites a Chinese proverb -- ru xiang sui su -- that’s roughly the equivalent of “when in Rome, do as the Romans do.”
“These people are very intelligent,” says Steve Bluestein, 71, executive vice president of Oscar Winski Co., a local scrap metal and recycling company, and Du’s former boss. “They know they can’t come in as a bulldozer.”
While Du has steered Nanshan clear of controversy, finding new customers has been difficult. Eric Angermeier, 56, the plant’s general manager, suspects competitors are spreading false stories that Nanshan is importing substandard Chinese parts rather than producing in the U.S.
“We’re getting a little bit of that pushback in the marketplace,” he said. “We’ve even had potential customers say: Why should I buy from the Chinese?”
Inside Nanshan’s cavernous plant on a recent workday, a couple of dozen workers were welding, hammering and tying up loose ends. The plant, which began producing about a year ago, is operating at a bit less than 50 percent capacity.
Walking through the factory, Angermeier points out advanced furnaces and automated stacking machines along with a 9,200-ton press he says is the largest in the U.S. Cigar-shaped tubes of aluminum gleam on the plant floor.
In a corner is a rare sign of Nanshan’s Chinese heritage, a training room named for the parent company’s chairman, Song Jianbo. Nearby, a shrink-wrapped stack of highway signs is ready for shipment to a customer in Ohio. The packing slip bears an image of the American flag.
Angermeier says his Chinese bosses have been no different than the Americans he’s worked for over a 27-year career. His marching orders from Song, he says, were “spend less, produce more and make money as soon as possible.”
Du says his friends at home once doubted his decision to leave China, amid its historic economic boom.
“Now China is really involved in the mainstream of this country,” Du says. “Even my friends in China see, ‘Yeah, you’re doing something that’s representing the future.’”