The 'American Factory' Chinese Boss on Why He Invested in the US

Also his thoughts on Trump's trade policy

I’m Jordan Schneider, Beijing-based host of the ChinaEconTalk Podcast. In this newsletter I translate articles from Chinese media about tech, business, and political economy. Do subscribe here if you were forwarded this.

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A few days ago I finished watching “American Factory,” the Netflix documentary endorsed by Obama that looked into the Dayton Ohio Fuyao Glass plant. It does a good job portraying working culture clashes and a fight to unionize. However, the film misses the mark by not providing a deeper exploration of why exactly this investment happened in the first place.

Cao Dewang, CEO of Fuyao Glass is portrayed, according to one American reviewer, as “the caricature of a fat cat tycoon.” But his life story is much more compelling than what was caught on film.

Cao who was born in 1946 to a wealthy family who lost everything in the Chinese civil war. He had to give up schooling at 14 to herd oxen. To get out of the fields, he started selling fruit and tobacco leaves. For him, business was better during the Cultural Revolution as then there was no government around to hassle him.

Cao went on to found Fuyao Glass and become one of China’s leading philanthropists. In the interview below, Cao reflects on his first visit to America and how the Ford Company Museum inspired him, the economics behind his decision to invest in Ohio, and his thoughts on Trump’s trade war policies. It was first published in Lifeweek back in 2018 and this past week went viral in China.

Cao Dewang of ’American Factory’

[The following are all direct quotes from Cao Dewang]

I first went abroad to sell glass in 1990, when I was in the repair market. At that time, China imported only a few hundred thousand vehicles a year. I could sell tens of thousands of glass pieces a year, and I sold them to Hong Kong, Canada and other places in China. In Hong Kong, I started off selling glass by looking for its Yellow Pages, checking the phone numbers of auto repair shops, glass repairing shops, etc.

Then I went to Canada again and met up with a Taiwanese middleman. Later, he introduced me to an American dealer in Detroit. This man is also Taiwanese. We went for a lunch and, halfway through it, I felt he didn’t really want to do business. At that time, I didn’t understand that selling 100,000 pieces a year to the US was way too little.

Later that day, he had his colleague take me around to the Ford Motor Museum. She told me that this represented the industrial history of the United States, but I didn't feel like paying attention. I felt like I was a nobody. I had spent tens of thousands of dollars to come to the United States and didn’t expect to go home empty-handed.

On the plane back, unable to sleep because of jet lag, I thought: “Man, I really didn’t understand what was going on in that museum. I should take another look.” Figuring out that this museum represents America’s industrial history, I realized just how large the industrial and economic gap between the US and China really is. So a few days after I landed in Hong Kong, I booked a return trip to the US.

Upon visiting the museum, I got the sense that the Chinese economy was 100 years behind America’s. In 1900, the proportion of the US population working in agriculture was 60%, a similar percentage to that of China’s in the 1990s. In the Ford Motor Museum, I saw that traditional industry was leading the way at that time. Steel, PPG glass, and home appliance glass all emerged during this period, and even today they are not obsolete. In times of economic change, traditional industries are required to provide building materials. In China, the best idea was to make glass since that industry was still in its early days and far from being mature. It turned out that my judgment was correct.

Why Invest in America?

In 2014, when Fuyao began to consider investing heavily in the United States, I sat down and really began to study the issue of the US tax burden. After some research, I found that the tax burden of the United States was much lighter than that of China.

First of all, China had a VAT tax, and the United States did not. Secondly, labor costs in the United States are very high, accounting for 40% of the operating cost, whereas in China it only accounts for 20%, but the proportion of insurance paid by Chinese companies was very high. Although labor costs are half as expensive domestically, we calculate that in our case we were nearly 4% more expensive than the United States, plus the VAT for auto glass, which is around 12%. Third, the American energy prices were lower than China's. The price of natural gas there was one-fifth that of China's, electricity was only 40% of China's price, gasoline cost only half of what it did in China, and the cost of transportation and logistics were relatively low. These inputs made the price 4% to 5% cheaper, so the overall calculation made production 16% to 17% cheaper. Moreover, if I shipped the glass from China to the United States, the freight costs would increase by 15% to 20%.

Realizing this, I contacted the Xinhua News Agency to write an internal reference to the central government and give advice to the relevant departments. Later, it also caused an uproar of public opinion, but most experts agreed with me. The problem of the tax burden is very difficult for the state to deal with, but they can’t just ignore it either.

Some people say that when I went to the United States to build a factory, I ran away. But where was I running to? I am Chinese. The reason why I am talking about these issues publicly is because I’m complaining. I just want to remind the government and entrepreneurs to have a sense of crisis. Entrepreneurs must have a strong sense of responsibility to personally assume burdens, and to consciously give advice to their motherland.

Entrepreneurs must have political confidence, listen to the Party's words, and behave accordingly. Enterprises are part of society. Smart entrepreneurs can analyze the consequences of various policies and incorporate them into their thinking. But the premise is that you must truly "respect the heavens and love others,” believe the government, not commit crimes, and not infringe upon the interests of employees, suppliers and consumers.

Thoughts on Trump’s Trade Policy

Now everyone is talking about the issue of President Trump’s tariff increases. But you have to understand that there is a simple truth in doing business: If I don't want to sell to you, you can't buy my goods. And if you don’t need my goods, you won’t buy them. The needs of both buyers and sellers are indispensable. Then I ask you, what is this? This time, [automotive glass] went on its sanctions list and our tariffs went up by 25%, which clearly made things difficult for us. The US government then asked American automakers not to buy anything from us, but what happened? The car manufacturers said: "Let’s sit down and discuss the situation. First of all, the policy may not necessarily be implemented. If it is implemented, let’s both take a hit and share the 25% together."

The way Trump is playing the trade war will not allow him to be able to make ends meet in the long run. Starting in the 1970s, the United States began the process of “de-industrialization.” When it entered the peak in the 1980s, people went to the virtual economy. Young people went to Wall Street and Silicon Valley. Nowadays, American industry lacks management talent at every level. At present, 40% of the clothing and 30% of the shoes in the US come from China. Those in China and the US who can’t overcome mutual interdependence will pay the price, and ultimately the common people are going to foot the bill. 

This week on the ChinaEconTalk I had on Danit Gal, a Yenching Scholar and AI researcher. We discuss how Japanese, South Korean, and Chinese experts are forging new paths in the field of artificial intelligence (AI), exploring societal applications — and the unexpected drawbacks of “female” virtual assistants. Gal also explains the tech connections between China and Israel, and the possible impact of the U.S.-China trade war on this relationship.

One excerpt on Gal’s trip to Longquan Monastery in Beijing

They have a Chinese robot monk named Xian’er. I spoke to him and he gives you all these responses and talks to you about the deep meaning of Buddhist ceremonies… And then I asked him, ‘Who is your master?’ And then he answered to me very clearly, ‘The data is my master.’ And the monks freaked out — they [said] ‘No, no, no. We give him the data. We are the data. We feed him the ceremonies, and everything he has to say!’

WeChat robotic monk