State leaders are ignoring the anti- China rhetoric from the U.S. Congress and presidential candidates as they pursue investments by companies in the world’s second-largest economy at a pace that may accelerate.
Five governors, including Nebraska’s Dave Heineman, a Republican, and Arkansas’s Mike Beebe, a Democrat, joined trade missions to China this year, with more planned next month, according to the U.S.-China Business Council, a Washington-based group for companies such as Wal-Mart Stores Inc. (WMT) and Citigroup Inc. (C) that do business in China.
“Our goal is to generate new markets for many Nebraska products and our hope is to attract Chinese companies that want to expand into the American market,” Heineman told constituents July 27 before visiting three Chinese cities including Shanghai, where the state will open a trade office.
Competition for clean-energy goods and disputes over China’s currency have escalated trade tensions between the nations, leading President Barack Obama and Republican presidential candidate Mitt Romney to pledge tough action over China’s trade policies. China’s Wanxiang Group Corp.’s investment in U.S. lithium-ion battery maker A123 Systems Inc. (AONE) drew opposition from Representative Cliff Stearns, a Florida Republican, who cited national-security threats.
Chinese foreign direct investment is on the rise, increasing 18 percent in 2011 from the previous year to $3.8 billion, representing 0.2 percent of all such investment, according to the U.S. Bureau of Economic Analysis. Total foreign investment in the U.S. was $2.5 trillion.
“It would make sense if Chinese investment in the U.S. ticked up,” Nancy McLernon, chief executive officer of the Washington-based Organization for International Investment, which represents U.S. operations of foreign-based companies, said in a phone interview. Governors seeking economic growth “know that many non-traditional investors have capital to spend,” she said. “China is certainly one of them.”
China was the destination this year for Republican governors Dennis Daugaard of South Dakota and C.L. “Butch” Otter of Idaho, and Democrat Mark Dayton of Minnesota, according to the business council. Connecticut’s Dan Malloy, a Democrat, as well as Republican Rick Snyder of Michigan and Brian Sandoval of Nevada are scheduled to visit next month, the group said.
“We’re at the very beginning, and we should expect quite a bit of growth,” in Chinese investment in the U.S., Daniel Rosen, a partner at the Rhodium Group, a New York-based economic research firm that specializes in China, said in a phone interview.
Massachusetts Governor Deval Patrick, a Democrat who led a trade mission in 2007 that focused on clean energy, life sciences, education and transportation, is monitoring the investment in Waltham, Massachusetts-based A123 “very closely,” Krista Selmi, a spokeswoman for the governor, said in a phone interview.
The Chinese investment will help preserve U.S. jobs, Chief Executive Officer David Vieau said in a phone interview Aug. 9. The company, which won a $249.1 million federal grant to build a U.S. factory, had 955 U.S. employees at the end of last year, about 48 percent of its global workforce, according to a regulatory filing.
China has become Nebraska’s second most-active foreign investor since 2009. During Heineman’s mission, the University of Nebraska Medical Center, which developed a nutritional supplement for weightlifters, and Nebraska-based manufacturer Vireo Resources LLC signed a deal to distribute the product in China, according to a statement on the governor’s website.
An Arkansas delegation in April met with companies, including auto-parts makers and durable goods manufacturers, that are looking to invest in the U.S. within five years, said Grant Tennille, executive director of the state’s Economic Development Commission.
“Arkansas’s reputation preceded it” when officials from the home state of former President Bill Clinton and Walmart met with Chinese executives, Tennille said. “They knew Walmart and they knew the Clintons.”
Delaware Governor Jack Markell, a Democrat, held an event in the state with Chinese business leaders in January 2011 to lure investment. Virginia Governor Bob McDonnell, a Republican, visited China last year to promote economic ties.
China’s investment in industrialized countries picked up about three years ago, and is “mostly due to the changing economic conditions at home in China,” Rhodium’s Rosen said. He cited increasing competition among Chinese companies and rising operating and compliance costs.
State-owned and closely held companies have made 591 U.S. investments worth $20.9 billion since 2000, according to Rhodium’s China Investment Monitor. California, New York and Texas have been the biggest beneficiaries of the spending. Investment in U.S. fossil-fuel and chemical companies account for about 40 percent of all Chinese investment in the U.S., according to Rhodium.
Chinese companies such as Huawei Technologies Co., a telecommunications provider, computer maker Lenovo Group Ltd. (992) and Qingdao Haier Co. (600690), which makes appliances like washing machines and refrigerators, are already operating in the U.S. In April, China Petrochemical Corp. completed its $2.5 billion purchase of a stake in Devon Energy Corp. (DVN) of Oklahoma City.
Wanxiang in February announced plans to invest $25 million in Smith Electric Vehicles Corp., an A123 customer in Kansas City, Missouri.
A proposal by government-owned energy company Cnooc Ltd. (883) to pay $15.1 billion for Canada’s Nexen Inc. (NXY), which operates in the U.S. portion of the Gulf of Mexico, led Representative Edward Markey of Massachusetts and Senator Charles Schumer of New York, both Democrats, to call for close scrutiny of the deal.
The Committee on Foreign Investment in the U.S., a multi- agency group led by the Treasury Department, reviews mergers and acquisitions for national-security concerns when a takeover may give a foreign owner control of a U.S. company.
While filings are voluntary, the committee can begin its own review. By law the filings can’t be disclosed, according to Kara Alaimo, a Treasury Department spokeswoman.
The committee examined 313 potential transactions, filed by the companies, from 2008 to 2010, including 91 from the U.K., 25 from France and 24 each from Canada and Israel, according to the most recent CFIUS annual report. It reviewed 16 transactions from China, half in the manufacturing industry.
The Treasury Department “does not comment on information relating to specific CFIUS cases, including whether or not certain parties have filed notices for review,” Alaimo said in an e-mail.
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