China In Detroit, Part 1: A Conversation With Jerry Xu

The President Of The Detroit Chinese Business Association On China And The Global Auto Industry Lately, Chinese investment firms have been making headlines with foreign acquisitions ranging from luxury yachtmakers to venerable pork processing concerns. By contrast, the growing Chinese presence in the U.S. automotive industry has been far more low-key. To get a better sense of Chinese companies’ activities in this area, Jing Daily interviewed two key figures in the global auto industry in Detroit: Jerry Xu, president of the Detroit Chinese Business Association (DCBA), and David E. Cole, chairman of AutoHarvest and chairman emeritus of the Center for Automotive Research. In Part 1 of this two-part series, Xu discusses the impact of Chinese business in the Detroit area, and what Michigan state government is doing to develop its own relationship with the mainland. Let’s start with some background on the Detroit China Business Association (DCBA). The DCBA has been in existence for 15 years. We’re a bridge between Michigan and China, especially with regard to business development. There are about 100 companies in our organization—small scale, midsize, and start-ups. We also have about 1,000 students enrolled in such schools as Michigan State, the University of Michigan, and Wayne State University. We facilitate the Michigan-China relationship in part by presenting events. We run business development meet-ups for delegations from China and present a China forum in the fall. We also organize networking events and opportunities to engage our community. For instance, we’re planning a golf outing in one of the largest counties in southeastern Michigan. The idea is to offer a platform for successful businesspeople to come together, have fun, and develop business opportunities. You mentioned the Michigan-China relationship. Tell us more about that. To fulfill its overall business development goals, Michigan has established good relationships with many provincial government counterparts in China. I give credit to Governor [Rick] Snyder, who’s been driving the exchange. He’s already traveled twice to China and I’ve heard he’s planning another trip this fall. Also, he himself has been successful in venture capital and technology, and with this type of professional background he understands long-term planning. We’re seeing an immediate impact here in Michigan—ten times more activity on the part of Chinese entrepreneurs and investors than under the previous administration. The DCBA is happy to be working closely with the Snyder administration and we give him and his team a lot of credit. In terms of long-range planning, is the Chinese Communist Party’s Five-Year Plan a factor for Michigan? Certainly. The Five-Year Plan is closely monitored—what happens in China doesn’t stay in China, especially with regard to business development. It’s all global, and the Michigan government realizes that as well. Organizations like the DCBA play a significant role in this, acting as the primary interface to help Chinese businesses get to know the local community and get assimilated here. Michigan has historically been one of the best places to raise a family, and we’ve found the Michigan community to be very accommodating, even in areas where the Chinese population is small. Jerry Xu. (DCBA) How large is China’s presence in the Michigan auto industry, and what areas are Chinese companies and investors interested in? Vehicle production? R & D? Parts manufacturing? Detroit has seen a lot of Chinese companies looking to invest in auto parts and supply companies. They’re hungry to buy into companies with existing market share, and are looking to develop additional market share in China. For example, Chang’An Automotive and Shanghai Automotive. They’re both large OEMs [original equipment manufacturers] with headquarters in China. Shanghai automotive has a North American headquarters here, and purchasing and R&D operations as well. The largest acquisition of a U.S. automotive company by China-led investors is Nexteer, a steering-system company in Saginaw, Michigan. They hired 3,000-4,000 people. That’s the largest acquisition to date on the automotive side. In general, most Chinese automotive companies have had a lot of hiccups due to quality issues and technological shortcomings. After enjoying success in their home markets they experience a bottleneck—meaning that they have to upgrade technologically and expose themselves to global competition by coming to global markets. In the short term, they need new markets to drive sales. In the long term, they need to become global players by acquiring technological knowhow and developing the skill-set of managing and operating an international business. As The New York Times noted recently, Chinese companies entering the auto industry in Michigan have been very low-profile about publicity. Most Chinese companies that come here already have some level of investment in Michigan. They tend to know what type of company they are looking to acquire but not exactly which one they want to acquire. These companies tend to rely on the DCBA to do the groundwork for them and to help them develop relationships with professionals in the area to spread their message. They usually don’t want to make a big announcement. Automakers from other parts of Asia have gone from manufacturing mass-market vehicles to developing luxury marques—for instance, Toyota developing Lexus. Do you foresee Chinese car manufacturers doing the same? Absolutely. The Chinese companies need to learn more in terms of investment in R&D, managing large-scale operations, assimilation into local markets and cultures, and developing successful business models. They’re open to learning from competitors. Along with the experience and know-how they’re acquiring from the U.S. auto industry, Chinese automakers have a lot to learn from the Japanese as well as the Koreans, especially given the similarities in cultural backgrounds and business styles. How does the luxury auto market fit into the strategic focus for Chinese firms in the area? Detroit has become one of the most important places for global automotive strategy regardless of whether it’s an American auto company or a Chinese one. GM and Ford have many partnerships in China and are focused on building new plants to support the expansion into tier-2 cities.In general, the Chinese love American cars and the lifestyles associated with these brands. Buick has been so successful there, and a lot of the strategic planning and decision-making to foster that success was done here in Detroit.

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China In Detroit, Part 1: A Conversation With Jerry Xu