President Donald Trump’s trade war with China may have helped delay the $410 million textile plant planned for Forrest City, but it hasn’t killed it.
That’s the hopeful message delivered by Mike Preston, director of the Arkansas Economic Development Commission, and Forrest City Mayor Cedric Williams.
The plant, to occupy a 1.4 million-SF former Sanyo complex and provide 800 jobs, was announced two years ago by Gov. Asa Hutchinson and Qiu Yafu, chairman of Shandong Ruyi Technology Group, one of China’s largest textile companies.
Questions about the plant arose last week when the Wall Street Journal published an article saying the project was on hold. Officials with the AEDC blamed “the trade fight for cooling Shandong Ruyi’s interest,” according to the article.
But officials interviewed by Arkansas Business said the situation was a little more complicated than that, going on to cite Shandong Ruyi’s recent string of high-profile acquisitions.
“We are still being told by Ruyi that the project will proceed as soon as they wrap up some other acquisitions they’re working on,” said Kay Brockwell, the economic development consultant who helped bring the deal together. “Now, that said, there has been no activity in more than a year. It’s discouraging, but a lot of times these things just hit a dead stop and you have to wait on them.”
There are two reasons for the delay, Preston said, the U.S.-China trade war and Shandong Ruyi’s buying spree.
“They’re an extremely large company and they’ve been in acquisition mode for about the last two years and they’ve acquired several other companies,” he said. “And the team that was focused on the Arkansas project was pulled away to work on the acquisitions.”
Those purchases have included the apparel and textiles business of Invista, for which it paid $2 billion, and luxury brands like Bally International. The company has said it wants to challenge luxury goods giant LVMH.
“So there was already some slowing because of that,” Preston said. “Then you couple that together with the trade war and the tariffs — they say, ‘Hold on. We’re going to hit pause until we see what happens with that before we put the team back in Arkansas.’”
Chinese Investment Plunges
China’s direct investment in the United States reached only $4.8 billion last year, down 84% from $29 billion in 2017 and 90% from $46 billion in 2016, according to the Rhodium Group, an independent research group. That’s the lowest level in seven years.
In fact, because Chinese investors sold $13 billion of U.S. assets in 2018, China’s net direct investment in the U.S. was a negative $8 billion in 2018.
There are a number of reasons for this investment slowdown, the Rhodium Group said, but the trade war is a definite factor. “[T]rade barriers and a generally more confrontational stance toward China have created tremendous uncertainty for Chinese companies in the U.S., dampening investor appetite and increasing the risk perception of U.S. sellers,” the Rhodium Group said in a January report.
The United States and China are scheduled to resume face-to-face negotiations on a trade agreement this week, with Trump last Wednesday expressing confidence in their outcome.
Preston said both he and Hutchinson have met with U.S. Trade Representative Robert Lighthizer and others in the Trump administration to voice their concerns about the trade dispute and “what it means for Arkansas, especially in terms of our exports for agriculture. That’s going to be a huge impact on our economy. We’d love to be able to start shipping rice over there. That’s something that before the trade war even started, we were advocating for us to start shipping rice.”
In addition, Preston said, Hutchinson hosted a meeting earlier this month in Arkansas with the Chinese consul general out of Houston, Li Qiangmin, who visited with 25 state legislators and Mayor Williams. “They shared with him their concerns about the trade war, their concerns and desire to trade more with China,” Preston said, “so we’ve been talking to the Chinese as well, letting them know from the state perspective what it means to us.
“He was very optimistic too that they’re close — President Xi [Jinping] and President Trump — on doing some type of summit and announcing a deal between the U.S. and China,” Preston said. “We’re the world’s two largest economies. We need each other to prosper.”
And in China, he said, the AEDC’s China Office was in communication with Shandong Ruyi last month “and they’re still just saying they’re waiting.”
Preston noted, however, that the company owns the Forrest City facility and 161 acres at 3333 Sanyo Road, which indicates commitment to the project. “Eventually, they’re going to have to do something with it,” he said. It was a purchase that set Shandong Ruyi back at least $5.75 million, according to real estate records.
“Whether it will be the size and scope they originally committed to, that’s to be seen,” Preston said. “From the state’s perspective we committed incentives for the project, but until they actually invest and create the jobs, we haven’t spent a dime.”
When the yarn project was announced in May 2017, production was expected to start in mid-2018, and Shandong Ruyi was expected to buy about 200,000 tons of cotton per year, equivalent to a full year’s production in Arkansas.
Hutchinson called the project “the largest economic development success in the Delta in recent memory.”
‘We’re Prayerful’
“It is our second-largest investment from China in terms of capital, but the largest from China by the number of jobs created,” he said in 2017.
Those 800 jobs were expected to average $15.25 per hour, a transformative economic infusion for Forrest City and St. Francis County.
Mayor Williams told Arkansas Business last week that he’s confident the project will come to pass.
“Our factory there in Forrest City is a little unique compared to the other Chinese factories that are going on in Arkansas,” he said. “Ours is directly related to cotton and textiles, and that’s directly affected by the Chinese tariff situation.”
But, Williams said, once the U.S. and China reach a trade agreement, “we’re back to the table as far as our operation here in Forrest City.”
“It’s something that’s just a little out of our control, from a local standpoint,” the mayor said. “Honestly, I am still confident” that the textile plant will come online once the trade dispute is resolved.
“Here we are, Forrest City, Arkansas, a town of 15,000 and then something that’s happening in the White House that directly affects our small town — very rarely does that happen, especially in rural communities. But this is something that is directly affecting us,” Williams said.
“We’re prayerful. We’re prayerful that it’s going to happen.”
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