Why China’s top auto glass maker prefers to invest in the US

December 21, 2016 13:21
Cost advantage and a more business friendly environment drove Fuyao Glass founder Cao Dewang to invest in the US. Photo: epochtimes.com

Chinese glass tycoon Cao Dewang, founder of Fuyao Glass Industry Group Co. (03606.HK), recently grabbed headlines for his comments about the firm’s investments in the US.

Fuyao, the world’s largest auto glass manufacturer, has a market share of 60 percent in China, 30 percent in the US and 20 percent worldwide.

In a video interview with news portal yicai.com, Cao shared his bold plan to invest US$1 billion to set up factories in the US.

“Apart from labor costs, everything else is cheaper in the US than in China,” he said, adding that a similar plant can generate 40 percent more profit if it is built in the US rather than China.

The 70-year-old Cao shared a breakdown of all costs in the video.

For example, the overall tax cost in the US is about 40 percent and is much less complicated than in China where manufacturers may have to pay 30 percent more than their US counterparts.

Electricity costs are half that of China and natural gas only one-fifth. While land is increasingly expensive in China, it is almost free in the US, Cao said.

Meanwhile, the US government offers various incentives to attract manufacturers.

Although labor cost is lower in China, with blue-collar workers being paid eight times in the US and white-collar paid more than double, China’s labor costs are rising rapidly, he said.

Cao has been monitoring the business and investment environment in America since 1995, so the decision has been made after careful consideration.

Fuyao built its first American plant in Dayton, Ohio, with a total investment of US$600 million. The facility has an area of 170,000 square meters and is expected to employ more than 2,000 people.

It also plans to build plants in Michigan and Illinois, raising the total US investment to US$1 billion.

There is perhaps another key factor behind Cao’s decision that he avoided to explicitly point out.

Doing business in China often entails handling complicated relationship with government officials.

Industry polices, which have a large impact on the business environment, also tends to change more drastically in China, creating problems for the business sector.

By contrast, US corporations don't have so much headache in dealing with the government as long as they pay the appropriate taxes. Also, US policy is more consistent and predictable.

As an invisible factor, a more business friendly government may also have played a critical role in prompting Cao’s US investment.

Fuyao's move has sent an alarm to Chinese policymakers who need to figure out how to improve China's competitiveness in order to keep being the world’s factory.

This article appeared in the Hong Kong Economic Journal on Dec. 21

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist