Chinese Plans in Arkansas Face Scrutiny

China remains a viable market for investment in and trade with Arkansas, including the state’s farmers, despite challenges posed by the COVID-19 pandemic, trade officials say.

Other headwinds include the Chinese government placing more restrictions on outbound investment and the United States putting greater scrutiny on inbound Chinese investment, especially in the technology sector.

And although the U.S. and China signed an agreement in January 2020 that gave Arkansas farmers a big boost, the acrimonious trade war preceding the deal had ramifications for China’s foreign direct investment in both the state and the nation.

Chinese foreign direct investment in the U.S. peaked in 2016, at about $48 billion, but it dropped to $7.3 billion last year, according to Charlie Vest, a senior analyst at the Rhodium Group, a leading independent research provider headquartered in New York.

“The most important reason [for the mid-decade burst of Chinese investment] is that, since the global financial crisis, China has been awash in liquidity,” he said. “There was a lot of stimulus activity, particularly in the banking sector, where there was a lot of money sloshing around the Chinese financial system that was looking for places to go. At the same time, China’s financial system has largely been closed off to the rest of the world for decades.”

Beijing lightened its regulations in 2015-2016, allowing Chinese companies and Chinese investors to more easily move money abroad and invest in projects in the U.S. and elsewhere, Vest said.

Most got involved in mergers and acquisitions instead of greenfield investments, i.e., relocating or expanding operations.

“Arkansas stands out for having attracted some really good greenfield investments, which is, I think, a credit to the Arkansas Economic Development Commission and the people that have been on the ground sort of spotting the best opportunities for the state,” said Anna Ashton, vice president of government affairs for the private nonprofit U.S.-China Business Council of Washington, D.C.

“I do think that in every state the economic considerations around business with China are complicated, but the investment opportunities are not what they were across the country. So Arkansas is definitely not alone in that,” she said.

The Chinese government became concerned about too much money flowing out of the country and causing financial instability there, Vest said, so it implemented policies that made it more difficult for Chinese companies to invest abroad.

“So that’s the primary reason that we point to for why there’s been this dramatic slowdown in Chinese outbound investment, not only to the United States but to the rest of the world as well,” he said.

Ashton said the Chinese government is also trying to avoid a bad reputation. The country doesn’t want its companies going abroad and making big promises but not delivering on them.

Projects Killed, on Hold

The largest Chinese-backed project planned for Arkansas in recent years was the long-delayed $1.8 billion Sun Paper plant in Clark County, which never materialized. It was officially canceled in March 2020. Announced in 2016, then expanded in scope in 2018, Shandong Sun Paper Industry aimed to create 350 jobs.

Another project, a $410 million textile plant planned for Forrest City by China’s Shandong Ruyi Technology Group, is on “indefinite hold” because the pandemic is preventing its executives from traveling here, state Secretary of Commerce Mike Preston said.

He said foreign direct investment activity in general paused because of pandemic-created uncertainty. It began to pick up when vaccines became available, but there has been a pullback as the delta variant caused a new surge in COVID-19 cases, Preston said.

“But companies are ready to invest. There’s a lot of new opportunities out there. ... I don’t want to miss a beat on any of those,” he said. “So we’re going to move as quickly as companies want to and hope to have some strong announcements as we go to the third and fourth quarter for 2021. And, hopefully, we’ll end the year very strong.”

Preston cited a number of examples of the state successfully doing business with China, including the 2018 opening of a garment factory at the Little Rock Port by TY Garments USA, a subsidiary of Chinese manufacturer Tian Yuan Garments Co.

In 2019, the company was planning to expand and eventually employ 400 people. But the pandemic has prevented it from reaching expected production and employment levels, Preston said.

Other successes include Hefei Risever Machinery Co. Ltd., which opened a $20.5 million machine parts plant in Jonesboro in 2019, and PetWon Pet Products, which started a $5 million pet treats manufacturing facility in Danville in 2017.

No Single Alternative

There’s no one alternative market to the world’s biggest nation and second-largest economy, Vest and Ashton agreed. Preston said Canada has been a strong market for Arkansas, and the state is also continuing to look to Europe. “It’s a huge market for us, and, with our German- and French-owned companies here, we have such a great presence. So that continues to be a thriving market for us,” he said.

Arkansas activity with India was on the upswing before the pandemic, Preston said, and discussions with Israeli companies have also taken place.

The state’s overall strategy for attracting foreign direct investment hasn’t changed, but more is done virtually. The AEDC had an office in Shanghai from 2008-19, and it has a China/Hong Kong/Taiwan business relations director now.

Nevertheless, Arkansas has been one of the leading states during the last several years in jobs attributed to foreign direct investment because it is business-friendly and well-connected to the supply chain, Preston said.

Farmers Recover

Although Arkansas farmers suffered when the trade war curtailed soybean exports to China, exports have increased this year, said Mark Lambert, assistant director of commodity activities and economics at the Arkansas Farm Bureau.

“I would say that China is back in the market and they’re stronger than ever” because of the January 2020 trade deal, he said. Lambert added that increased demand from China is pushing prices upward.

Ashton, with the U.S.-China Business Council, said U.S. farmers seem pleased with the deal, reached after the trade war that unleashed tariffs and counter-tariffs, and she said the new United States-Mexico-Canada Agreement also strengthened trade among those markets. Arkansas sells much of its rice to Mexico, Lambert said.

Ashton said that while doing business of any kind with China has become much more complicated and difficult in the last few years, “U.S. reliance on China as a trading partner has not actually diminished.”

Chinese Investment in Arkansas

Source: Arkansas Economic Development Commission