State by State: China and Michigan Trade

Widely known as the center of the U.S. automotive industry, Michigan is home to the country’s three major automobile companies. With 23 percent of U.S. vehicles produces in Michigan, the state is a major player in the global automotive market. Michigan ranks first nationally in concentration of industrial designers and engineers, R&D professionals and skilled-trade workers. 

According to the latest data released by the U.S. Bureau of Economic Analysis (BEA), Michigan’s GDP reached US$451.5 billion in 2014, up 3.7 percent from the previous year. The manufacturing industry, especially the auto sector, contributed a large portion to the state’s GDP growth. Other major industries in the state include defense, information technology, clean technology, medical devices, tourism and logistics and supply chain. 

Trade and Exports

China is the third-largest export market of Michigan. In 2014, the state’s export to China reached US$3.4 billion. Michigan’s top five exports are primary metal manufactures, computer & electronic products, chemicals, and machinery and transportation equipment. China’s exports to Michigan totaled US$8.1 billion last year, demonstrating a two-way advantage to business between Michigan and China. Notably, machinery and transportation equipment accounted for nearly 60 percent of China’s exports to Michigan.

State-Province Relationships

Michigan was one of the first U.S. states to begin a formal relationship with China, establishing sister state ties with China’s Southwest Sichuan province over 30 years ago. Sichuan province is one of China’s largest industrial centers and major agricultural production bases. Chengdu, the capital of Sichuan, is making a bid to become China’s automotive hub by concentrating on sales to the western provinces of Shaanxi, Qinghai, Gansu, Tibet and Xinjiang. 

Meanwhile, its close neighbor Chongqing City, a sister city to Detroit, is home to Ford Motor Co.’s largest manufacturing base outside of Detroit. Today, numerous Michigan-based companies, including Ford, General Motors (GM) and Whirlpool, have set up companies in China. 

RELATED: Luxury Brands, Westward Expansion Fuel Chinese Automotive Industry

Investment Opportunities

Automotive Industry

These are exciting times for the automotive industry in China. The country recently overtook the United States to become the world’s largest car market and shows no signs of slowing down. As more and more Chinese enter the middle class, their demands for mobility is increasing. As a result, car use in China has exploded. Based on a McKinsey report, China could surpass the U.S. as the largest luxury car market as early as 2016. 

Huge investment opportunities can therefore be found in China’s automotive parts industry. China encourages foreign investors to participate in automotive parts manufacturing, the establishment of engine research and development institutions, as well as the construction and operation of vehicle charging stations. However, investors seeking to engage in the manufacturing of complete automobiles need to cooperate with a Chinese controlling party. 

Last year, GM, headquartered in Detroit, Michigan, announced that it would invest US$ 12 billion into its China operations from 2014 to 2017, and is in the process of building five new plants. Currently, the company operates in China through 10 joint ventures with domestic companies, including Shanghai GM and SAIC-GM-Wuling (producer of the low-cost brand Baojun). With 2.5 million units sold in 2011, the company’s China sales are the largest portion of its overall global sales. 

Tax Treaty – US Trade with China    

The United States has signed a Double Tax Treaty with China. This can reduce tax burdens under certain circumstances in both trade and any China legal establishment. Please seek professional advice for specific China investment requirements. Treaty details can be found here. 

Further Support from Dezan Shira & Associates

Dezan Shira & Associates can service Michigan-based companies that are looking to further develop their operation in China. The firm can help companies establish a direct office in the country and can guide them through the affiliated tax, legal and HR issues that come with doing so. To arrange a free consultation, please contact our U.S. office at usa@dezshira.com.

China Investment Roadmap: the Automotive Parts Industry
This issue of China Briefing presents a roadmap for investing in China’s automotive industry. We begin by providing an overview of the industry, and then take a comprehensive look at key foreign investment considerations, including investment restrictions, tax incentives and manufacturing requirements. Finally, we discuss foreign investment opportunities in a part of the industry that receives substantial government support: new energy vehicles.

Using China’s Free Trade & Double Tax Agreements
In this issue of China Briefing, we examine the role of Free Trade Agreements and the various regional blocs that China is either a member of or considering becoming so, as well as how these can be of significance to your China business. We also examine the role of Double Tax Treaties, provide a list of active agreements, and explain how to obtain the tax minimization benefits on offer.

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In this issue of China Briefing, we present a roadmap for investing in China’s medical device industry, from initial market research, to establishing a manufacturing or trading company in China, to obtaining the licenses needed to make or distribute your products. With our specialized knowledge and experience in the medical industry, Dezan Shira & Associates can help you to newly establish or grow your operations in China and beyond.

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