Tuesday, June 4, 2013
From the AMC movie theater chain to the personal computer lines once owned by IBM to the country's biggest hog farmer, Chinese investment in America is on a record pace, with the ring of the cash register drowning out security concerns in a rebounding U.S. economy.
During the past 15 months, Chinese businesses spent more on U.S. deals than in the previous 11 years combined, and — despite some high-profile rejections — the U.S. government may be more willing to allow Chinese companies to buy out their American rivals.
"State governments all want the Chinese investment, because they need jobs," said Siva Yam, president of the U.S.-China Chamber of Commerce, based in Chicago. "They welcome them with open arms."
Chinese bids for U.S. companies that are still under discussion or awaiting approval total more than $10 billion, according to Rhodium Group, a New York-based research firm. That's the largest such backlog ever recorded.
"Very few deals actually get turned down," said Bill Reinsch, president of the National Foreign Trade Council. "A good number get approved with conditions, and then some just get approved."
The trend is not without its critics, though, and the issue of rising Chinese investment and the still-high Chinese trade surplus with the United States may come up when President Obama travels to California on Friday for his first summit with new Chinese President Xi Jinping.
Critics point to a significant government and military stake in many of the Chinese companies seeking acquisitions abroad, along with fears that sensitive technology or security information could be compromised. The acquisitions, including the record-setting $4.7 billion offer last week by Shuanghui International for Virginia meat-packing giant Smithfield Foods, are also seen as a shortcut for Chinese companies — which to date have a poor record at creating powerful international consumer product brands — to raise their profile.
Chinese companies have shown particular interest in gaining a foothold in U.S. industries, such as high-technology, natural resources, finance, farming and real estate.
The Smithfield purchase would help Shuanghui do just that in the meat industry, according to Christopher Leonard, a fellow at the New America Foundation, a Washington-based nonpartisan think tank.
Shuanghui has been trying to learn trade secrets in the U.S. meat industry for years, and this would give it a chance to "buy our knowledge," Mr. Leonard said. He pointed out that Shuanghui will now have access to the technology and pig genetics that have given American meat producers a competitive edge.
With this sale, Shuanghui would be able to take these trade secrets home and "bolster" the Chinese meat industry against U.S. producers.
"I think a big reason why a Chinese company would want to buy Smithfield is to gain access to its technology and the genetics of the pigs," Mr. Leonard said. "The pig genetics is like the secret sauce of the industry. These are some of the most valuable trade secrets, and now China can own them and bring them home to build China's domestic pork industry."
Chinese-based interests control the AMC movie theater chain and the personal computer lines once owned by IBM, and have a significant minority stake in investment banking giant Morgan Stanley.
The U.S. government has clearly become more welcoming of Chinese direct investment coming out of the recent deep recession, analysts say, because the economic benefits now trump national security concerns.
Mr. Yam said the U.S. should welcome China's interest in American businesses.
"The U.S. economy is not doing particularly well," he said. "So we want to have foreign direct investment — it doesn't matter whether it comes from China or anywhere else.
"But if you look at it, the European economy is in the tank, so you won't find a lot of European money coming here," he added. "If the European money isn't coming in, then the logical source would be from China."
Not too long ago, U.S. regulators displayed a much higher skepticism over Chinese acquisitions. As recently as last year, Ralls Corp., a Chinese-owned company, was blocked from running a wind turbine energy farm in Oregon, because it was located too close to a U.S. naval base. The company is appealing the Obama administration's decision in court.
Perhaps the best-known clash came in 2005, when China National Offshore Oil Corp., or CNOOC, lost its $18.5 billion bid to buy American oil company Unocal Corp. Unocal shareholders, instead, accepted a lower $17.1 billion offer from American-owned ChevronTexaco, now Chevron Corp.
This upset Chinese investors, who felt they should have won the bid because they offered more money.
"Some of the shareholders might have been concerned that if they voted for CNOOC, the government never would have approved the deal and they wouldn't have gotten any money," Mr. Reinsch explained.
But Chinese investors are enjoying more success as of late.
In 2012, China's Dalian Wanda Group Corp. bought movie chain AMC Entertainment Holdings Inc., for $2.6 billion, giving it a big foothold in Hollywood.
China's Wanxiang Group bought electric battery maker A123 Systems Inc., out of bankruptcy for more than $250 million.
These and other sales to Chinese companies may give the impression that U.S. regulators are taking a step back when it comes to Chinese investment.
But Derek Scissors, Asia economist at the Heritage Foundation, a conservative Washington-based think tank, suggested that U.S. regulators haven't changed their approach as much as it might appear.
"There are just more and more Chinese bids coming for American firms, as to be expected," he said.
That's because "they have more money to spend," Mr. Reinsch added. So as Chinese companies make more bids for U.S. companies, more will be approved.
China is also getting "smarter" about which U.S. companies it tries to buy, said the U.S.-China Chamber of Commerce's Mr. Yam. Rather than bidding for big oil companies or defense contractors, Chinese companies are going after companies in less sensitive market sectors that they are more likely to receive approval to buy — such as pork producers.
Food safety concerns aside, it's hard to make an argument that Shuanghui buying Smithfield poses a risk to national security, analysts say.
"They're buying a bunch of pigs," Mr. Reinsch exclaimed. "If you want to block that, you have to explain why that's a national security case. I think that would be difficult to demonstrate."