While the US focuses on its Chinese-held government debt, local governments are working with Chinese companies in a push for jobs and investment, particularly in the hard-hit midwest region.
Recent acquisitions are making headlines due to their scale. Dalian Wanda Group, for example, officially acquired Kansas City, Missouri-based AMC Entertainment in September to create one of the world’s largest cinema operators.
Worth $2.6bn, the deal marks the largest investment to date by a private Chinese company. It also gives Dalian Wanda an opening into the US cinema business, one that is considered a ‘trophy’ investment.
Small Chinese companies and individuals are also making investments in the US midwest, according to Brian Su, president of Illinois-based Artisan Business Group, a company that helps small and medium-sized US firms do business with China. Given China’s increased interest in FDI, however, Mr Su expects more Chinese investments in the US midwest over the next five years.
“The strategic location of the midwest makes it easy for these companies to access both coasts,” says Mr Su. “Chinese companies value the transportation advantage of the location. There are direct flights from Chicago and Detroit to Hong Kong, Shanghai and Beijing, which shortens business travel.”
He also points to the fact real estate in the midwest costs significantly less than on the west and east coasts of the US. “California and New York are simply too expensive for many Chinese companies that are new to the US market,” he says. Another plus is that state governments are especially welcoming. “They are seeking large-dollar investments to create jobs,” says Mr Su.
Rolling out the welcome mat
Toledo, Ohio, is a good example of a midwest town that has benefited from Chinese investment. Mayor Mike Bell especially impressed Chinese investors after his visit to China. “Bringing our mayor to China had a great effect,” says Paul Zito, vice-president of international development for Toledo’s Regional Growth Partnership. “The Chinese have great reverence for mayors. They have more power in China than in the US.”
Mr Bell’s relationship with China actually started through a chance meeting with Simon Guo, who today facilitates Chinese investment in Toledo. “I was having lunch by the river [in Toledo] when the mayor happened to show up,” Mr Guo recalls. “We struck up a friendship and I invited him to China.”
The rest is history. Mr Guo is now president of Five Lakes Global Group, a collection of unnamed investors who recently paid $3m to purchase Toledo’s ageing Park Inn Hotel. Last year, another group of Chinese investors operating through the Dashing Pacific Group, also introduced to Mr Bell by Mr Guo, paid $2.15m for a restaurant complex on Toledo’s Maumee River. Soon after they invested an additional $3.8m in 280,000 square metres of newly decontaminated land in the city’s Marina District, and promised to invest $200m in a new residential-commercial development.
In September, some 200 mostly Chinese businessmen arrived in Toledo for a conference on operating in the US. Mr Guo admits he acts more as a bridge to link international investors from China to Toledo. But he adds that he believes north-west Ohio is the logistics centre of the US, given its excellent highway and railway networks, and airport connections.
“Once you get into this area you find that it is a neat area with fine living,” he says, pointing to Toledo’s education system, housing, world-class art museum, business opportunities and the area’s natural environment, sitting on the shores of Lake Erie. “We believe Toledo has very good feng shui,” he adds.
Although Toledo was hard hit and became very depressed by the fall out of the US auto industry, Mr Guo says that the city offers a good variety of brownfield and greenfield sites, as well as existing buildings and businesses in which to invest.
Not all Chinese investment offerings in the midwest, however, are clear winners. Last year, Missouri was contemplating handing out as much as $360m in subsidies to create a China hub project, or ‘aerotropolis’, that would attract China Airlines flights.
A midwest China Hub Commission was set up with plans to establish an EB-5 regional centre in the greater St Louis area. This area would be eligible to receive immigrant investor capital, as designated by the US Citizenship and Immigration Services.
An EB-5 visa programme can be an incentive to Chinese investors as it provides a method for foreign nationals to obtain a green card for permanent residency in the US. The catch is they must invest at least $500,000 in a targeted employment area (ie, one with high unemployment or a rural area). They must also create or preserve at least 10 jobs for US workers, excluding the investor and their immediate family. The project stalled, however, due to an impasse over economic development programmes.
Buying up big
In August, China’s Wanxiang Group made an unsuccessful $450m bid to acquire an 80% stake in A123 Systems, a manufacturer of batteries for the automotive industry and military that was heading for bankruptcy.
The deal was somewhat controversial as A123, based in Massachusetts, had won a $249m federal grant in 2009 that allowed it to open factories and create hundreds of jobs in Michigan. Michigan Economic Development provided $4m in funding through its Michigan Strategic
Fund to support the project. A123 was also approved for $100m in tax credits in 2009 to support the state’s burgeoning advanced battery market, but the company did not access those credits.
Wanxiang is no newcomer to the US automotive market. The group has acquired more than 30 car part factories in the midwest and is also one of the largest non-government-owned companies in China, with annual revenues of more than $13bn. It operates an electric vehicles subsidiary, in Hangzhou and a US subsidiary Wanxiang America, based in Elgin, Illinois.
Furthermore, Wanxiang America is also a joint-venture partner in Rockford Solar Partners with Chicago-based renewable energy development company New Generation Power. Rockford Solar Partners is the recipient of a $4m grant to construct and operate a 20-megawatt photovoltaic solar power generation facility in Rockford, Illinois. The proposed project will be located at the Chicago Rockford International airport, some 110 kilometres north west of Chicago.
The US south-east also competes heavily for Chinese investment. According to Bill Cronin, vice-president of economic development for Invest Atlanta, Chinese investors are increasingly recognising Atlanta as a springboard for entry into Caribbean and Latin American markets, as well as the US.
“We find that many [investors] open a sales office or headquarters here first, then distribution, which leads to light assembly and eventually full-blown manufacturing,” he says.
Mr Cronin observes that, whereas Chinese investors were initially timid about investing in the US and did so mostly through mergers and acquisitions, today many are focused on greenfield investment as real-estate costs are relatively cheap.
Another big factor not to be overlooked, however, is the desire among many Chinese people to give their children a US education, and to expose them to the country’s culture, as well as finding an alternative to rising wages and manufacturing costs in China.