Govt makes case for investing in the US
Updated: 2010-12-28 10:53
By Wang Chao and Tan Yingzi (China Daily)
Sany will invest more than $100 million in a factory in Georgia over the next few years. Company officials said they expect to create about 600 jobs in the state. Tan Yingzi / China Daily
BEIJING / WASHINGTON - Chinese money is in every corner of the United States. When you walk into a new convenience store, it may be run by a Chinese couple speaking broken English; when you enter a furniture store, the manager greeting you might be Chinese and he may own five other stores nearby; even when the gas company comes to change your meter, you may notice that the new meters have Chinese characters on it.
Chinese investments are swarming into the country in all facets of life. In many ways, the investments go hand in hand with China's accumulated dollars from exports into the US over the past few decades.
On Nov 1, the Chinese Ministry of Commerce issued its report of China's outbound direct investments (ODI), which showed that in 2009, the country's ODI reached $56.5 billion, propelling the nation to a rank of fifth largest in the world by volume, moving up from a previous rank of 12th place. From 2002 to 2009, China's ODI grew by 54.4 percent annually.
While some of these came from State companies - those owned or controlled by the government - the majority of these investments came from the private sector. State companies prefer to invest in high-tech, high-return industries such as oil and energy, while private enterprises will put their money into smaller businesses, from convenient stores to hotels.
Chinese investments have come into the US through several ways: merger and acquisitions, joint ventures with domestic companies, buying small businesses and building new factories.
"Opportunities for investment (into the US) will last for a long time, perhaps 30 to 50 years," said Lin Shunjie, deputy secretary-general of the China Chamber of International Commerce (CCOIC).
Lin said what private enterprisers do is surprisingly diversified.
"For example, a Chinese company successfully bid to build a signal system for the high-speed train in the state of Georgia. Once the state government raises enough money to start the project, the Chinese company will make money."
Lin said that while State companies might not want to invest in areas with limited returns, private companies seem willing to invest in projects that bring them consistent returns.
Sany, the largest heavy equipment manufacturer in China and among the top 10 in the world, is not too dissimilar from many other ambitious Chinese companies.
"After the company went public in 2003 on the Shanghai Stock Exchange, we entered a new phase of development that required us to explore more resources worldwide," Tang Jianguo, president of Sany America, told China Daily.
"The US is the home to the leading heavy equipment manufacturers and it has the best technology, talent and market, and I believe the company can benefit from investments in the US."
In 2006, Sany President Liang Wengen and other executives spent three weeks in the US, visiting clients and local governments. They emerged from their trip with a decision to set up a branch in Georgia because of the state's low costs in operating a business and its convenient modes of transportation.
Based on the agreement with the state government, the company established a factory on 228 acres one year later and will invest more than $100 million over the next few years. Company officials said they expect to create about 600 jobs in the state.
CCOIC said 70 to 80 percent of its 300 members have overseas investments, with 20 to 30 percent of them investing in the US.
One main reason for the investments is that with the onset of the global financial crisis, Chinese companies, especially exporters, found it harder to export to the US. As the yuan appreciated, the dollars they accumulated from exports began to lose their value, pushing companies to find an outlet for their money. The US became an optimal destination.
"The US is desperately in need of investments, which is what Chinese enterprises possess," said Chen Yongjun, deputy director of the business school at Renmin University of China in Beijing. "It is the best time for Chinese companies to invest in the US. Previously, US companies were worried that their technology would be stolen when they brought their technology into China. But if we invest in the US, we become stakeholders and will protect our intellectual property rights, creating less concerns for a US partner."
Lin Shunjie said it is also a good opportunity to rebuild Chinese brands.
"For decades, Chinese products have been synonymous with being cheap and of low quality, just like Japanese products were in the 1970s. It was the only message conveyed to American consumers. If we let it be, it will also take us 30 years, like the Japanese, to eliminate that and rebuild brands. Through manufacturing in the US, we might rebuild our brands in 20 years."
To many private enterprises, investing in the US is a wise move since they will become part of a local company and can label their products "made in USA". And since labor is much more expensive in the US than in China, most investments go to technology-intensive industries, rather than consumer products.
"We don't advise all type of Chinese companies to invest in the US since many of them may not survive. Companies, especially labor-intensive ones, should alter their production models and add value to their products first before they consider investing overseas," Lin said.
But many Chinese enterprises have plunged into the US market without doing enough research, Lin said.
Most companies investing in the US are from southern China, while their counterparts in the north are still exploring the domestic market or selling to Africa and Latin America. Most are family enterprises, typically run by a husband and wife who don't speak any English, he said.
Usually private companies are not noticed by the US federal government because the investment amount is not as big as State companies, and most of them tend to keep a low profile.
The privately owened ZhongRong Group has invested in the oil industry in Canada and the US, but it never lets its shares go beyond 30 percent of any company.
CCOIC's Lin said the owner, Ni Zhaoxing, told him: "I have no intention to be the controlling shareholder, so the governments don't pay much attention to me." ZhongRong outsources most of its businesses, including oil exploration and mining, to local companies.
Once these enterprises see an opportunity, they tend to pay cash immediately. Last year, a State gold mining company wanted to buy a Mexican gold mine, but was being subjected to a series of meetings to evaluate the deal. Meanwhile, a private Chinese company which learned of this brought a suitcase of dollars the next day and handed it over to the Mexican gold mine. "Here is the deposit, I will buy it," the company's representative said. He closed the deal.
Lin said some entrepreneurs' instincts are very sharp.
For example, a private company, Xijing Group, bought the failing Propeller TV in the United Kingdom last year but has yet to turn a profit. "At least people began to know me. I can do business easier in the UK if I'm well-known," the owner, Ye Maoxi, told Lin.
An unnamed lawyer in San Francisco recalled how painful it was to work for a real estate investor from China. The client wanted to acquire hotels and other properties, but he was always calling at midnight, San Francisco time, to ask questions, not considering any time difference at all, not to mention things like slurping soup and talking too loudly.
"Based on their educational background, we can't expect them to be a professional multinational manager overnight. If you want to do business with them, you have to get used to it," Lin said, shrugging.
"The biggest problem is that they lack professional management skills, and are not ready to manage a multinational company. But the transformation will not happen overnight."
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