The automotive industry accounts for about 4~5 % of the U.S. GDP. While it is trying to rebound after the collapse during the recent financial crisis, China is now quickly expanding its presence in Detroit. According to CSmonitor, Chinese auto companies and suppliers are opening plants and offices in Detroit due to low price of real estate and high level of advanced engineering talent.
Experts and the governor consider that the Chinese investment plays a big role in the market economy. They hope that this investment becomes a turning point for the auto industry in Detroit. This is a win-win scenario for both of Chinese companies and the U.S. since the Chinese companies can use the skilled labor with cheap real estate while the auto industry in the U.S. can use their investment to promote the growth. According to Michigan Gov. Rick Snyder, Chinese companies have invested about 1 billion dollars in his state so far.
Chinese see opportunity in Detroit. In addition to cheap real estate market, investors are also eligible for many local, state and federal tax credits for their investment and redevelopment. There are about 50,000 Chinese live in the area; it is expected to grow even more soon. Will this lead to a hopeful future for Detroit? We will see how it goes.
In the Economics of the Auto Industry class we discussed how the China’s automobile market is heavily saturated with foreign vehicles which are more reliable and better made. Chinese companies have attempted to compete with cheaper options but it has been known that these companies were interested in making better designed vehicles to truly compete with foreign companies. One of the things the Chinese companies lacked were experienced engineers and Detroit is the perfect spot to find the skilled employees they needed in that respect. Professor Smitka must have some theories as to how this will effect the market in China both now and 4 to 5 years down the road when possible new models are offered to the public.
I read an article a while back similar to this one, but it was different VC firms and other capital groups investing in different parts of Detroit due to the extremely low prices. Homes were being purchased for just a few hundred dollars. Of course there is a huge risk accompanying these properties as some areas may simply never recover.
“Detroit” does not mean the city, it means Southeastern Michigan / Northern Ohio (and even Western Ontario). Furthermore, “investment” is here financial, not the macroeconomic concept. So if for example a Chinese company acquires an existing local company, that may be captured in statistics as a financial transaction, but in need not have any “real” impact if there’s no new building and no new employees.
But why Detroit? As we read more this term, look for bits and pieces on the geography of the Chinese industry. Does the location of production reflect standard economies of agglomeration?