Despite the politics, Chinese investment in U.S. grows

Sun Jun 9, 2013 8:00am EDT

* "Overwhelming amount of inquiries"

* "Trees, tees and PhDs"

* Some Chinese companies wary of publicity

By Paul Eckert

RALEIGH, N.C., June 9 (Reuters) - The biggest-ever Chinese acquisition of a U.S. company faces hurdles in Washington from lawmakers and regulators, but in much of America, Chinese investment is quietly booming.

With over $10.5 billion of deals by Chinese companies in the United States so far this year, 2013 is on pace to be the largest year ever for mergers and acquisitions of U.S. firms by Chinese companies, according to Thomson Reuters data.

Almost every week, the North Carolina state government receives a "a wonderfully overwhelming amount of inquiries" from Chinese companies looking to set up shop, says April Kappler, the state official in charge of drawing investment from Asia.

Home to one of the headquarters of Chinese-owned personal computer maker Lenovo Group Ltd, North Carolina is fighting hard to draw computer component and software companies, machinery makers and pharmaceutical firms from China.

To promote trade and investment, the state has offices in Hong Kong and Shanghai, and its mayors and governor travel to China frequently to meet potential investors.

The Chinese businessmen who come "always joke about trees, tees and PhDs for all the greenery, golf courses and all the higher education institutions," said Jean Davis, the state's director of international trade.

North Carolina universities - Duke, the University of North Carolina and North Carolina State - tap the connections of professors and graduate students from China. UNC does a joint degree with Tsinghua University, known as "the MIT of China."

North Carolina State University meteorology professor Lian Xie set up the Carolina China Council 10 years ago to link local economic development boards to investors back home.

He is now raising funds to build the first Chinatown in North Carolina, a complex of restaurants, shops and hotels. His group hopes to break ground in September on a 25-acre (10-hectare) site near the Raleigh-Durham International Airport.

North Carolina is fifth in the ranks of U.S. states receiving Chinese investment, following California, New York, Texas and Illinois, according to the New York-based Rhodium Group, an advisory firm that runs a database that tracks investments.

'ONE OF THE FEW BRIGHT SPOTS'

Figures on total Chinese business investment in the United States differ. According to Rhodium's database, which covers only direct investments, the accumulative total is $23 billion, most of it since 2008.

Another much broader measurement by Washington think tank Heritage Foundation includes big portfolio investments by Chinese sovereign wealth funds and reckons Chinese investments in the United States between 2005 and 2012 were worth $50 billion.

"No matter whose data you use, the two-year period of 2012-13 is very, very strong for Chinese investment in the U.S.," said Derek Scissors, an economist who compiles the Heritage Foundation figures.

The Chinese stake in U.S. businesses is small compared with leader Britain with more than $440 billion and second-place Japan's roughly $300 billion.

But with the American economy still pulling itself out of the 2008-2009 slump and crisis-hit Europe reluctant to buy into the United States, "China was one of the few bright spots" in 2012, Rhodium Group researcher Thilo Hanemann told a U.S. congressional panel last month.

Raymond Cheng, chief executive of Hong Kong-based SoZo Group, a matchmaking firm that brought a $100 million Chinese plant to rural Alabama that will employ 300 people making copper tubes, said Southern states were "really open and welcoming."

Pockets of the South "need jobs more than anybody else," said Cheng, who is also trying to bring Chinese manufacturers to other nearby states like Mississippi.

'LEVEL OF ANXIETY'

In Virginia, China's Shuanghui International Holdings wants to buy Smithfield, the world's biggest hog producer. At nearly $5 billion, it would be the biggest Chinese acquisition in the United States if it goes ahead.

But a few U.S. lawmakers have aired concerns about the Chinese meat company's safety record, and the deal will be scrutinized by the Treasury's Committee on Foreign Investment in the United States, which reviews deals for national security concerns.

While the purchase is expected to go through eventually, that kind of political and regulatory fuss turns off other Chinese companies.

Despite aggressive efforts by mayors and governors to court them, Chinese companies often seem wary of promoting themselves too loudly.

"A lot of these companies want to invest in the U.S., but they want to stay under the radar because there's a level of anxiety related to Chinese investment," said North Carolina state official Kappler.

She said she had to keep mum about an impending $40 million investment that would create 200 jobs because the wary firm did not want it known that it was from China.

Many Chinese firms recall the uproar that sank the 2005 rejection of China National Offshore Oil Corp's $18.5 billion attempt to buy U.S. energy company Unocal. That chilled Chinese investment in the United States for two years.

"There is absolutely this view among Chinese companies that the U.S. is a difficult environment to operate in and there's anti-Chinese prejudice. It's not well-founded," said Scissors.

Chinese firms in the United States employ at least 30,000 Americans, says Hanemann. That is a far cry from the 800,000 U.S. workers employed by Japanese companies or the 1.8 million Chinese who work for U.S.-invested firms in China.

Chinese direct investment is small compared with the $3 trillion invested by foreigners in the U.S. economy overall. The country also holds about $1.25 trillion in U.S. government bonds, according to the Treasury Department.

Investment matters have been a long-standing issue ahead of the summit that President Barack Obama and Chinese President Xi Jinping held in California this weekend. Cyber attacks and intellectual property theft are two other big issues for business.

State officials say North Carolina is not oblivious to the issue of cyber theft.

"When you hear about Chinese hackers and all this stuff, clearly there are some national issues that need to be addressed, but when it gets down to the local level, our experience has been good, stable jobs, with local managers, and it's meant a lot for our community," said trade official Davis.

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