By Josh Zumbrun | Photographs by Andrea Morales for The Wall Street Journal
WASHINGTON -- The accord now being drawn up to resolve the trade
fight between the world's two largest economies promises better
treatment of U.S. companies in China and more Chinese orders for
American crops and other products.
But rattled businesses on both sides of the Pacific are skittish
about rushing back in to revive the once-booming investment
activity between the two countries.
"There is no way any deal between China and the U.S. will cause
everyone on both sides to say, 'We were just kidding,'" said Dan
Harris, managing partner at Harris Bricken, a law firm that
specializes in investment with China. "The tariffs and the arrests
and the threats and the heightened risk have impacted companies and
that will not go away."
The trade dispute isn't the only factor driving a decline in
investment flows between China and the U.S., which plunged to just
over $19 billion last year, down from a 2016 peak of $60
billion.
Beijing clamped down on capital outflows, as authorities
questioned expenditures such as Dalian Wanda Co.'s $3.5 billion
purchase of Hollywood's Legendary Entertainment in 2016 as
overpriced and ill-considered. And U.S. officials had
national-security concerns. The U.S. Committee on Foreign
Investment has moved to block or unwind Chinese investment in
companies that could give it a strategic advantage, including
social media companies.
But the rounds of tariffs, investment restrictions and sharp
rhetoric have been the main factor behind the slump, investment
specialists say, as some Chinese and American companies rethink
their businesses through the prism of prolonged U.S.-China trade
tensions.
The camera maker GoPro has decided to move its camera production
for the U.S. market from China to Guadalajara, Mexico. The company
was contemplating such a move anyway, but the tariffs served as the
"catalyst to improve supply chain efficiency," said GoPro spokesman
Christopher Clark.
Another U.S. company, bicycle maker Kent International Inc.,
based in New Jersey, said it was investing in Cambodian factories
to avoid the Chinese tariffs.
China's Guangzhou Automotive Group, citing trade tensions, said
it delayed plans to export its Trumpchi line of cars to the U.S.
(the nameplate's similarity to President Trump is
coincidental).
The company didn't put a value on the scotched investment, but
it had already invested in research and development operations in
California, and had begun taking steps to recruit dealers and set
up a U.S. sales company.
In Forrest City Ark., meanwhile, the trade chill can be seen in
an abandoned, 1.4 million square-foot abandoned Sanyo TV factory.
In 2017, China's Shandong Ruyi Technology Group said it planned to
buy the ghost factory and turn it into a cotton-yarn mill that
would employ more than 800 people in a town of about 14,000.
The project is now on hold, according to officials with the
Arkansas Economic Development Commission, who blame the trade fight
for cooling Shandong Ruyi's interest.
"This is the heart of the Mississippi Delta, an area that could
really utilize the jobs," said Mike Preston, the executive director
of the commission. "But the timeline has been a moving target. It's
been delayed significantly... they can get cotton from other
countries and I think that's what they've been doing."
Shandong Ruyi officials didn't respond to requests for
comment.
The yarn mill is just one of the trade dispute's casualties in
Arkansas. A $1 billion paper mill project in Arkadelphia by another
Chinese company from Shandong province, Sun Paper Industry Group,
also has been postponed because of tariff worries, Mr. Preston
said.
"We were very heavy into negotiations and then communication
completely dried up," said Mr. Preston, who added that he was
optimistic that a trade deal would get the project get back on
track this year. Sun Paper didn't return calls for comment.
The U.S. and China are now aiming to conclude a trade deal in
late May or early June, and that could bode well for an improved
business climate, said Craig Allen, president of the U.S. China
Business Council, which represents American companies doing
business in China. "We are hopeful that the bilateral trade
negotiations will lead to an environment in which investment flows
going both way across the Pacific will be more stable and
predictable," Mr. Allen said.
Even with a truce in sight, the business community has remained
uncertain. A late-February survey from the American Chamber of
Commerce in Shanghai found that 65% of members said the tensions
were influencing their longer-term strategy, with nearly a quarter
delaying additional Chinese investments.
That is true for Synplus Inc., a Pomona, Calif-based supplier of
leather, fur and suede that sources its materials from Chengdu, in
China's Sichuan province. The company had invested in an office and
built partnerships with several pig-leather tanneries.
The company was hit by the 10% tariffs -- imposed in September
on about $200 billion of Chinese goods, including leather goods --
and had to scale back its investment by laying off 15% of its
staff, said Cynthia Gardenhire, the firm's vice president.
To avoid tariffs, some Synplus customers have switched from
western China pig leather to Pakistani lamb leather. Companies are
"forced to create a new manufacturing channel" and "if it's
successful, they won't choose to come back," said Ms.
Gardenhire.
Synplus has begun considering investing in a Vietnamese supply
chain to remain competitive and avoid future tariffs.
Rick Helfenbein, president of the American Apparel and Footwear
Association, said the decision faced by companies like Synplus is
emblematic of trade frictions that have "altered supply chains that
won't recover for, I would say, a minimum of 10 years."
When apparel companies talk to analysts and investors they are
grilled on their exposure to Chinese uncertainties, Mr. Helfenbein
said, and "the wrong answer is `90% of everything I do is China,'
and a good answer is, 'We're working hard to reduce our exposure to
China.'"
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
(END) Dow Jones Newswires
April 21, 2019 18:06 ET (22:06 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.