American Companies Forced To Move To China?

Innovation and Education Won’t Save Our Economy

That’s the name of the article which appears in New America web site. It charges that American companies are often forced to move to China by bribes and threats. In the first part, the author challenges the idea that a lack of innovation is why jobs ae moving overseas.

U.S.-based multinationals are not transferring production to China and other countries because those nations surpass the U.S. in innovation. The U.S. remains the leader in global innovation, with a sophisticated system of creative interaction among universities, business, venture capitalists and government. Other countries are trying to catch up, but that is nothing new. China recently alarmed many Americans with its policy of “indigenizing” innovation. But ever since the 1970s East Asian and European countries have been trying to create their own artificial “Silicon Valleys,” usually with limited success despite huge investments.

Here is where, the author, Michael Lind, makes the shocking charge that China gets American companies to build factories there through bribes and intimidation.

American multinationals are not shutting factories in the U.S. and transferring production to China because of China’s superior innovation culture or superior educational achievements. Nor are low Chinese wages the major factor. For the most part, multinationals are pressured or bribed by the Chinese dictatorship into producing in China. In some cases, U.S. multinationals are told they must produce inside China in order to have access to China’s large and growing consumer market. In other cases, multinationals are bribed to relocate production to China by enormous subsidies from the Chinese government.

According to one trade expert in Washington, who spoke to me on condition of anonymity, Chinese government subsidies to individual American companies can amount to as much as 70 percent of the cost of a product. China’s artificially undervalued currency amounts to a government subsidy to Chinese-based manufacturers of around 30 percent. On top of the currency subsidy, the Chinese dictatorship often offers financial subsidies and gifts of free land and facilities that can amount to as much as 40 percent. China can afford to spend money on this lavish scale because it deliberately suppresses the consumption of its underpaid and unfree workers and controls investment decisions by its banking sector, while accumulating enormous surpluses from its artificially maintained trade deficit with the U.S. In other words, China recycles money spent on imports by American consumers to poach the factories of American producers.

I am familiar with the Chinese offering no taxation zones in coastal cities to attract American companies to move, but I have never heard these kind of charges before. Certainly many of the incentives offered to move plants to that country have the look and sound of bribery, nevertheless, the money advantages do not seem to rise to the definition of bribes. However, the Chinese government’s actions of international threats does give a certain credence to the charges.

I will see if I can find out more.

James Pilant

7 thoughts on “American Companies Forced To Move To China?

  1. Extract from my book: “Imagine President of United States of America declaring emergency, abolishing both the Congress and the Senate, canceling the democratic process altogether, human rights suspended, keeping everything to oneself and the selected coterie, claiming part of Canada as belonging to USA,
    threatening those countries with punitive action should they
    issue any visa to the Prime Minister of Canada, all in the
    name of tuppence of an ideology bereft of human dignity?”

    North Korea, Myanmar, Zimbabwe will surely change but I don’t see China ever would change. To quote, George Yeo, Foreign Minister, Singapore, said ‘India will never have a revolution. China will need one every two-three centuries, their society is hierarchical, has one call center. India is diverse’. So is US that is diverse.

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  2. Andrew

    Like you, I don’t know of much that could substantiate the allegations that the author makes.

    What I can say is that innovation is NOT the problem. Even though many companies are moving manufacturing plants to China, much of the innovation and design work is still being done here and the plans are being shipped to China.

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    1. President Reagan came out protecting Harley Davidson against Honda but HD came out with flying colors after that. So did senators breaking Japanese made goods. US could do that against a democratic nation but afraid of doing it against a suppessive regime. FCPA came only after President Allende and Lockheed scandals rocked US. Now it is the turn of China. For the sake of World Economy US must bring innovative ideas as well ideals to break the dragon. US only can. Innovation done in US, which is not a problem as you say, turns out to produce cheaper goods in China and comes back to US. e.g. alternate energy initiatives.

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      1. Andrew

        I agree with our assessment, I think. We, as Americans, are superior designers and innovators. The Chinese are set up to manufacture these designs much cheaper. The problem is that manufacturing produces many more jobs than engineering and design work. It may take a team of a small handful of engineers to design say an automobile, but it takes hundreds of plant workers and managers to run a manufacturing facility. That’s where the jobs are and bringing those jobs back to the United States would go a long way to rebuilding our middle class.

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  3. I’m not quite sure what “In business ethics on January 26, 2011 at 4:06 pm” refers to with respect to a specific publication other than an item posted on the New America website. I find it quite astounding that a publication called Business “Ethics,” or any publication other than a bloggers thoughts motivated by one’s personal agenda, would print a story with charges that American companies are often forced to move to China by bribes paid by the Chinese government and threats that they must produce inside China in order to have access to China’s large and growing consumer market. Further, it seems unethical (especially for an ethics publication, if it is indeed one) to quote an anonymous source claiming that the Chinese government subsidizes American companies. Where is the objectivity and independent verification of the information before going to print? These are serious charges. There is no hard evidence provided to support the allegations. In fact, if US multinationals are accepting subsidies from the Chinese government to produce in China it could be deemed as a violation of the Foreign Corrupt Practices Act albeit in reverse. The Act forbids US companies from paying bribes to gain business overseas. From an ethical perspective, to agree to the reverse violates the spirit if not the letter of the law.

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  4. Pingback: American multinationals forced to move to China? « Management Briefs

  5. Marty Frazer

    Of 42 mainland Chinese companies in the Fortune 500 list of the world’s biggest firms in 2010, all but three were owned by the government.

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