A Conversation With Former U.S. Ambassador Gary Locke
Gary Locke was the first Chinese American to serve as U.S. Ambassador to China. One of his priorities in that capacity was to encourage Chinese companies to invest in the United States. He was passionate about this mission and it is clear that his passion has not diminished, even though he has left the embassy.
I spoke with him a week after his departure from China and found him to be every bit as committed to creating positive commercial relations between the United States and China as he was while serving as ambassador. He clearly believes that the more these two huge countries are able to forge deep and broad economic ties, the better things will be – not only for China and the U.S., but also for the rest of the world.
I began the interview by asking what advice Locke usually gives to Chinese companies seeking to invest in the U.S. “The most important thing that companies need when investing another country,” he said, “is information – lots of it.” He said that companies must learn everything they can about the investment opportunity. This includes background information on the community in which the target investment will take place. It also means knowing which stakeholders will likely support the investment, and which ones might oppose it. Armed with this information, a company can enter into an investment opportunity fully prepared for anything that may happen.
I asked where companies could get this information, and Ambassador Locke recommended two main sources. Unsurprisingly, his first suggestion was to visit the U.S. Embassy. “Chinese companies should take advantage of the enormous resources that exist in the U.S. Embassy and U.S. consulates in China.” Embassy and consular staff are highly knowledgeable and eager to help Chinese companies. Although they cannot guide companies to particular investment locations or targets, they can provide extensive information about all 50 U.S. states. For example, they know about tax policies, which differ dramatically from one state to another. They can also help companies understand the regulatory environment, and can tell Chinese investors which industries are prominent in any given state.
Ambassador Locke’s second suggestion was to engage local consultants, noting that it is critical for investors to enlist advisors who know the local environment. “Whenever I talk to Chinese companies about opportunities in the U.S., I always advise them to engage American lawyers, accountants and public relations professionals,” he said. “There are experts all over America who are eager, able, and willing to help Chinese companies coming to the U.S.”
When considering where to invest, Chinese companies often gravitate toward cities they know. Usually this means big cities such as New York, San Francisco, and Los Angeles. But Locke said that focusing on big cities may not be the best strategy for Chinese companies, particularly small and medium-sized enterprises (SMEs). “The big cities tend to have higher taxes and higher property values,” he said. “Some of the best opportunities for a good return on investment can be found in second-tier cities, like Seattle, Detroit, Charlotte, and Toledo.” He said that, although Chinese companies might enjoy saying that they have locations in big, well-known U.S. cities, they are likely to make more money in the smaller ones.
We talked about the growth of smaller Chinese companies and whether they were at a disadvantage when contemplating investment in the U.S. Locke said that often, the opposite is true. “Many of the best investment opportunities are presented by smaller, distressed American companies,” he said. “They are perfectly suited for acquisition by Chinese SMEs seeking to gain a foothold in the U.S.”
Clearly, Locke’s job has been to advocate for the United States in China. But he exhibits such enthusiasm for this task that it is clear he believes deeply in building constructive economic ties between the U.S. and China. When I asked him the top reasons for Chinese companies to invest in the U.S., he gave me four.
“First, the United States is a mature, stable economy with a commitment to the rule of law.” He said that companies investing in the U.S. can have high confidence that their investments will be protected against the kind of political risk that exists in many other parts of the world.
“Second, the U.S. has the best university system in the world, which gives companies access to some extraordinary talent, particularly in the area of research and development.
“Third, the United States has free trade agreements with 20 other countries around the world.” This means that products manufactured in the U.S. by Chinese-owned companies can be shipped freely to countries like Korea, Mexico, Canada and Australia. “No other country in the world provides that benefit,” he said.
Finally, he said, “Energy costs in the U.S. are among the world’s lowest.” Just in the last few years, U.S. energy production has increased sharply, lowering costs substantially. The benefits of this development are particularly valuable to energy-intensive industries such as manufacturing.
When I asked if Chinese companies faced any downside when investing in the U.S., he acknowledged that a significant portion of the American public remains suspicious, even fearful, of China. “Many Americans don’t understand China. And they sometimes don’t distinguish between the Chinese government and individual Chinese companies.” For that reason, occasional friction between the U.S. and Chinese governments may cause people to think more negatively about Chinese companies whose only goal is to succeed commercially.
That is why it is so essential that Chinese companies entering the U.S. take full control of their image. They need to think strategically about who they are, and how they want to be seen by important U.S. stakeholders. Then they need to develop a communications plan that will present their most positive face to key audiences. They should do this early in the investment process to prevent others from mischaracterizing them, either out of ignorance or hostile intent. In that way, Chinese companies can take full advantage of the benefits of investment in the U.S., while avoiding the risks.