President Trump announced during a recent visit to China that state-owned China Energy would invest $83.7 billion in West Virginia over the next 20 years, but will it be good for West Virginia? Yes – if it happens, and if the state doesn’t give away an arm and a leg in subsidies and tax breaks to try to make it happen.
The surprise investment pledge represents more than the state’s entire 2016 GDP of almost $74 billion. It made West Virginia, the 38th largest state, the biggest recipient of $250 billion in promised Chinese investment that Trump announced during the trip.
Aside from the enormity of the number and its sudden nature, the announcement is noteworthy for another reason: its uncertainty. It included few precious details and is only a memorandum of understanding, not a contract. Even West Virginia Commerce Secretary Woody Thrasher said, “Can I guarantee you that they're going to spend 83 billion dollars in 20 years? No.”
And there is an additional level of uncertainty baked into huge Chinese promises to invest in the U.S. and elsewhere. Just ask residents of Harrisburg, Penn., who are still waiting on Chinese-created jobs. In 2013, Taiwanese tech giant Foxconn, which assembles iPhones, announced it would build a $30 million factory there. Four years later, no factory. In 2007, Foxconn promised a $5 billion investment in Vietnam and in 2014, a $1 billion investment in Indonesia. But neither have materialized.
What we do know about the investment is promising, if only because it matches up with the West Virginia skill-set already in place. China Energy, the world’s largest power company, is the result of a recent merger between China’s biggest coal producer and one of its biggest utilities. West Virginia’s Commerce Department said the energy Goliath’s investment would focus on “shale gas development and chemical manufacturing projects.” The first two expected projects would be natural gas power plants, likely in Harrison and Brooke counties.
The chemical industry is one of West Virginia’s largest, accounting for nearly a quarter of the state’s international exports and nearly 13,000 jobs, according to the Commerce Department. West Virginians know how to work in the chemical industry. Workers at new natural gas power plants won’t have to go through extensive retraining to learn how to do their jobs. West Virginia is the ninth-biggest natural gas producing state in the U.S. Further, any new power plant that burns natural gas instead of coal will emit 50 to 60 percent less carbon dioxide, a key climate change contributor.
Finally, China Energy is known to West Virginia. West Virginia University and one of China Energy’s predecessor companies have partnered on coal liquefaction technology since 2002.
So, what’s not to like about this deal?
Everyone in the business world knows what a memorandum of understanding is; it’s an agreement to make an agreement. It’s not a contract, and it’s not binding. It’s a handshake on paper. And it’s a crucial start to almost any deal.
But it’s long on publicity and short on substance, which made it perfect PR for President Trump, who promised to bring energy and heavy-industry jobs back to West Virginia, and West Virginians believed him. Trump got a higher percentage of the 2016 vote in only one other state and despite his diving approval rating across the country, a Gallup Poll showed results from September 18 reflected Trump's best net approval ratings are in West Virginia. That means Trump retains his highest individual state approval rating in West Virginia.
Politically, this is a great short-term move for Trump, even if a few years down the line, not one spadeful of earth has been turned to fulfill the $83.7 billion pledge.
The other concern is what West Virginia is willing to offer China Energy to invest in the state. Governor Jim Justice said the Chinese have not asked for anything – and hinted it’s because President Trump has been turning up the heat on China. But some might consider that naïve. The Chinese government and Chinese businesses have been investing around the world for decades and are tough, thorough negotiators. Just because China Energy didn’t ask West Virginia for anything up front, does not mean it won’t.
Ask any number of foreign businesses what it’s like to invest in China and you may hear a story like this: A Chinese province pitches a foreign automaker to build a manufacturing plant. The provincial government offers to build new roads, provide electricity and so on for no cost. Once construction is underway, however, suddenly the bills come due. The local Chinese province will tell the automaker the new plant will require more electricity than was anticipated, so the automaker will have to pay for it. Or they have to pay for half of the new roads. The automaker, now committed to China, has no choice, but to pay.
Even though China Energy asked for no concessions, Justice said the state will extend normal tax benefits as it does to other companies that invest there. A 2004 study by economists Michael Greenstone of MIT and Enrico Moretti of UCLA found that taxpayer-funded incentives to investors pay off.
But they need to make sense for the taxpayers who are funding them — and the investors need to deliver on their pledges. West Virginians should keep an eye on what’s happening in Wisconsin right now. Foxconn, perhaps hoping Americans have a short memory on Pennsylvania, has promised to invest $10 billion to build an LCD screen manufacturing plant in Wisconsin. Wisconsin Gov. Scott Walker, in return, offered $3 billion in taxpayer incentives to Foxconn.
Things are big in China and they move fast. It has been fewer than 40 years since former Chinese President Deng Xiaoping began the country’s economic liberalization that brought us to this point, where the world’s two largest companies are not Apple and ExxonMobil, but Sinopec and China Natural Petroleum. Likewise, when Chinese companies and the government invest abroad, they promise big.
We should all be hopeful, for the people of Wisconsin and West Virginia, that big promises produce big results.
Frank Ahrens, a West Virginia native, is a public relations executive in Washington D.C. He was a Washington Post journalist for 18 years and is the author of “Seoul Man: A Memoir of Cars, Culture, Crisis, and Unexpected Hilarity Inside a Korean Corporate Titan.”