Chinese firms can capitalize on US infrastructure plan

By Zhang Jianping Source:Global Times Published: 2017/4/4 20:38:39

Illustration: Luo Xuan/GT

It's hard to find one word to sum up how Sino-US relations are supposed to be repositioned. Despite US President Donald Trump's consistent campaign reiteration of a hard line toward trade with China, he has yet to take any action since taking the oath of office. This lack of action suggests that Trump is a smart guy. The economic and trade relationship between China and the US has turned out to be a complex structure that both sides are highly interdependent. Competition coexists with cooperation, but bilateral economic ties are not at risk of derailment. If there's too much pessimism over Sino-US relations, it will be difficult to re-anchor.

Since Trump took power, new opportunities have emerged for bilateral investment and trade, such as infrastructure, considering Trump's $1 trillion infrastructure plan. Some Chinese scholars believe that China has a strong capacity for infrastructure and that there will be big opportunities in bilateral infrastructure cooperation. This is, nevertheless, somewhat simple and arbitrary. Blind optimism should be avoided and time needs to be spent on thinking of how emerging new opportunities in bilateral economic and trade development can be capitalized on.

Trump has said that his infrastructure plan will follow the rule: "buy American and hire American." In fact, current US laws have considerably inhibited the participation of Chinese businesses in American infrastructure spending. The American Recovery and Reinvestment Act of 2009 includes a "Buy American" provision that states that "none of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States." US government procurement follows very strict procedures and it's highly likely that Chinese enterprises won't be included in the directory of certified companies.

However, this does not mean that Chinese firms cannot share in the big pie of infrastructure construction in the US. Massive infrastructure projects can help further build the upstream and downstream construction machinery industry chain. Even if Chinese firms cannot make it onto the US government procurement list, upstream and downstream businesses should closely watch for market opportunities that infrastructure construction in the US may bring and seek to secure orders from US companies.  

The Massachusetts Bay Transportation Authority ordered another 120 subway cars from Chinese train maker CRRC Corp in December following a deal in 2014. Chinese firms such as SANY Heavy Industry and Zoomlion actively participated in the CONEXPO-CON/AGG 2017, a major international trade show for the construction industry in March in Las Vegas, hoping to prepare for an expansion in the US market. Chinese firms have cost advantages over their US counterparts in infrastructure and related industries, which makes it difficult for Trump's infrastructure plan to resist integration with the Made in China 2025 plan.

Chinese infrastructure firms should consider speeding up their plans to invest in the US and work toward localizing production to align with Buy America laws. A substantial part of US infrastructure is deteriorating with age. Even if Trump's infrastructure plan fails to gain congressional support, the US will still need to address its large infrastructure gap. Some Chinese infrastructure companies have in recent years ramped up efforts to build their US presence in hope of cashing in on the opportunity.

At the moment, the US is still recognized as one of the most desired destinations for investment. A majority of industries in the US adhere to a long-established policy that places no limit on foreign investment and hold a neutral attitude toward foreign capital. While the US will not offer special treatment to attract foreign investment, the country treats foreign investors the same as domestic ones. If Chinese enterprises that specialize in infrastructure were to invest in the US, they would have an opportunity of sharing in the economic pie with US domestic firms in the infrastructure sector.

Furthermore, China and the US could consider expediting negotiations of reciprocal opening up of the government procurement markets. Given the limited manufacturing supply of the US in certain areas and the country's commitment to international trade agreements and pressure from its allies, it won't be easy to wholly put Trump's simple rule of "buy American and hire American" into practice. China, at the end of 2007, submitted its formal application to become party to the plurilateral agreement - the Government Procurement Agreement under the framework of the WTO - to mutually open government procurement markets among its parties and facilitate trade. By allowing reciprocal opening up of the Sino-US government procurement markets and strengthening cooperation in infrastructure, joint interests are expected to be expanded.

The author is the director of the Research Center for Regional Economic Cooperation under the Ministry of Commerce.


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