They are essential to the ambitions of China’s authoritarian government.
People seem especially skeptical of China these days.
South Park put together a whole episode about China (and saw its existence in China vanish). The NBA spent the week stumbling over itself to appease the Chinese government, and then on Oct. 9, at least three fans in Philadelphia and in Washington, D.C. were removed from NBA exhibition games at U.S. arenas for holding up signs in support of pro-democracy protests in Hong Kong.
That same day, New York Times opinion columnist Farhad Manjoo penned this:
“The People’s Republic of China is the largest, most powerful and arguably most brutal totalitarian state in the world. … Yet unlike the way we once talked about pariah nations — say East Germany or North Korea or apartheid South Africa — American and European lawmakers, Western media and the world’s largest corporations rarely treat China as what it plainly is: a growing and existential threat to human freedom across the world.”
A lot of people are finally waking up to the shuddering effects China’s model of state-led capitalism is having around the world. But many in the United States are still willing to overlook these concerns (and others, like say China’s abysmal record on human rights) so long as they can turn a profit by accessing the Chinese market.
That part of the story has gotten a lot of attention (watch that South Park episode for more). What garners less notice is that many Americans are also willing to welcome China’s heavily subsidized state-owned enterprises (SOEs) to set up shop in their communities. This is a mistake.
American Jobs At Risk
We already have seen the destructive impacts of China’s model of state-led capitalism on our domestic manufacturing sector, and the damaging ripple effects on thousands of communities across our nation. Between 2001 and 2017, 3.4 million U.S. jobs were lost or displaced because of our massive bilateral trade deficit with China.
Most of those jobs went away because American companies offshored production to China following its entry into the World Trade Organization, which was supposed to move China toward a market-based economy (spoiler: the opposite happened).
But now China’s government-owned, controlled and subsidized companies are setting up assembly operations right here in the United States.
Backed by deep government support, two such firms – the China Railway Rolling Stock Corporation (CRRC) and Build Your Dreams (BYD) – have begun securing lucrative, U.S. taxpayer-supported contracts to supply major cities with transit rail cars and electric buses. The ambition is to establish a substantial foothold into the U.S. market as a means of expanding into private sectors, such as the freight rail and passenger automobile markets.
At first glance, it looks like there are positives, as CRRC and BYD have opened new facilities and hired American workers. But once you dive deeper, you discover tens of thousands of existing U.S. jobs are threatened – and perhaps hundreds of thousands more if these two firms expand into new markets.
Government-owned CRRC already has drastically altered the competitive landscape for domestic rail car manufacturing. Since 2014, CRRC has secured major transit contracts in Boston, Philadelphia, Los Angeles, and Chicago, nabbing them with impossibly low bids. In Boston, CRRC’s bid was hundreds of millions of dollars below the next lowest bidder. In Philadelphia, another bidder was quoted as saying, “I cannot grasp how they are able to do it at that cost.”
CRRC’s strategy is to establish itself in the U.S. market and to eliminate legitimate competition through any means necessary, even if it means losing substantial sums of money along the way.
The electric bus industry is also in Beijing’s sights, as BYD similarly has nabbed contracts to assemble electric buses in the United States.
There’s an added twist with BYD: It likes to promote itself as a privately-owned company to deflect criticism about its practices. But researchers have uncovered deep personal ties between BYD’s leadership and China’s state apparatus — including the military — along with significant state subsidies and other support.
Among the findings:
- BYD has received billions upon billions of dollars in subsidies from China’s government, far exceeding what it has acknowledged publicly;
- The company’s leadership maintains direct personal ties to China’s government, including founder Wang Chuanfu, who has held a number of official communist party posts, and Wang Zi-dong, who serves as “independent non-executive director” of BYD and also directs research at an institute that is part of Norinco Group, the state-owned defense conglomerate;
- BYD and now-banned Huawei signed a “comprehensive strategic cooperation agreement” in March 2019, solidifying a long-standing, “inseparable” partnership between the two firms;
- BYD uses its status as a “private company” to acquire foreign technology, data, and markets, BYD then hands off to China’s state-owned and military enterprises;
- BYD’s research and development centers are “incubated” at military-affiliated zones that focus on technology transfer; and
- BYD’s battery technology is part of the next “Made in China 2025” plan.
On top of all this, BYD buses have been plagued by quality issues, and there’s evidence that BYD has failed to meet Buy America requirements to build these buses in the United States.
The City of Albuquerque investigated the buses it ordered from BYD (a contract that was canceled because of quality concerns) and found “the majority, if not all, parts were manufactured in China and shipped to the United States” – including the bus frame, chassis, walls, drive train, axles, motor, lights, seating and seat belts, and more.
Congress Now Needs to Act
Congress is now moving toward banning Chinese SOEs like CRRC and BYD from using taxpayer money to build rail cars and buses. This is the right move.
Public officials have a duty to examine how these firms are systematically destroying the competitive national landscape for U.S. rolling stock manufacturing. With the seemingly endless backing of a foreign, non-market economy government and the stated goal of dominating these sectors, these firms pose a grave danger to established competitors. And, because their U.S. assembly operations are merely a supply line for imported components, ultimately the jobs of millions of American workers throughout our domestic supply chains are at risk.
There has been pushback, however, particularly from those who worry about what will happen to the hundreds of workers at the CRRC and BYD facilities.
Let’s be clear: This is not an attack on the people employed by CRRC or BYD. These dedicated individuals get up and go to work each day focused on providing for their families. Many have the protections of a union – and as anti-union activity in the U.S. rises, that cannot be overlooked.
But we also cannot ignore the devastation of state-owned enterprises like CRRC and BYD will have on our economy if they go unchecked (let alone our national security, which is a whole other issue).
Tens of thousands of American jobs are supported by a competitive, market-based ecosystem of companies that do not benefit from aggressive government support. Ultimately, millions of U.S. jobs are at risk, while millions more have already been vanquished by shifts of production and import competition over the past two decades.
Neither should criticism of CRRC and BYD be read as an attack on international competition in general.
Foreign investment is welcomed in the U.S. economy, and many foreign firms that manufacture in the United States provide high-wage jobs and contribute to economic growth, including foreign companies that manufacture buses and rail cars for our transit procurement markets.
State-owned, state-subsidized, and state-supported Chinese firms are simply different. Short-term promises of assembly jobs belie the long-term economic damage being done to our economy – it is an unhealthy proposition to allow foreign government-funded competition to push market-based firms into bankruptcy.
Unfair competition from China’s SOEs threaten the more than 2,000 existing manufacturing facilities and companies, spread across 49 states. This is a supply chain that employs tens of thousands of workers. There are even existing unionized manufacturers like Motor Coach Industries (MCI) that make all electric buses, so there are companies ready to provide transit systems working to decarbonize their transit systems with electric vehicles.
When the New York Times described China as “the largest, most powerful and arguably most brutal totalitarian state in the world,” most of its readers probably didn’t think much about rail cars. And when people watched that South Park episode, electric buses likely didn’t come to mind.
But all of this is connected. China’s government is aiming to dominate rail car and electric vehicle production by any means necessary — part of its larger Made in China 2025 plan to dominate global industry. Knowing all that we now know, it would be a mistake to hand China the keys.