Saturday, October 3, 2015

China’s ties with the United States are quietly moving to the next level, signaled by a high-speed rail contract and a string of hi-end investments that could help Beijing's transition towards an innovation based economy. Ahead of President Xi Jinping’s visit to the US last month, a consortium led by the China Railway Group signed a deal with XpressWest Enterprise to build a high-speed rail line that would link Los Angeles with Las Vegas. In Beijing, there is considerable enthusiasm that the 370 kilometer high-speed link, between the two iconic cities will open the floodgates for bagging much larger projects. The Chinese have already set their eyes set on the proposed high-speed link between Los Angeles and San Francisco. The 2029 timeline has been set for this mega undertaking, which will reduce travel time between the two cities to under three hours.

Analyst say that the Chinese forays in the U.S. are likely to dramatically expand railway competition between Beijing and Tokyo, which has so far been confined to Asia, in countries such as Thailand, Malaysia, Indonesia, Singapore and India. China’s growing economic engagement in the U.S. flows from a policy direction that encourages companies to seek and absorb advanced technology. In Seattle, the first halt of his visit, President Xi observed at a CEO-roundtable that Beijing was keen that U.S. businesses set up “regional headquarters or research and development centers in China, and encourage more small- and medium-sized companies to expand businesses in China”. He added: “Meanwhile, China will keep increasing its investment in the United States.”

In tune with official policy, investment in the U.S. is growing as part of closed loop, for much of the production is routed into the Chinese market. Thus, 70 per cent of the lithium-ion batteries produced by the China-acquired A123 Systems in the Michigan find their way back home. The Wanxiang Group that bought A123 Systems in 2013 now prides itself for saving the company from bankruptcy – its woes the result of the 2008 financial crisis. In the same year, China’s Keer Group—a textile manufacturer—invested $ 218 million in an industrial yarn plant in South Carolina, the former nucleus of the U.S. “southern textile corridor”. As its success rate increases, it is estimated that from the current level of $ 50 billion, Chinese investments in the U.S. will surge to $ 200 billion by the end of this decade. A commentary in the state-run Xinhua points out that, “The mergers have enabled companies on both sides to sharpen their competitive edge and secure mutual benefits by learning from each other, complementing each other and hedging against disadvantages.”

China’s IT major Lenovo, which acquired IBM's PC division in 2005, illustrates the osmosis of technology and business culture that is currently underway. For instance, Lenovo went out of its way to retain most of IBM’s management, as well the company’s corporate culture and structure, in order to shorten its own learning curve. Yet, China’s achievements in the U.S. have come at a price. Chinese businesses lost 36.8 billion dollars between 2005 to 2013, according to a study by the American Enterprises Institute and the Heritage Foundation. The turnaround is now happening after investors began to internalise the complex local regulatory and cultural environment in the U.S., based on sound market research.

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