China Showing Bigger Interest in U.S.

Flush with cash and a strong desire to expand their global reach, Chinese companies have stepped up their shopping spree to acquire U.S. assets, highlighted Tuesday by reports of a possible bid for Unocal Corp. and an offer for Maytag Corp.

Mainland Chinese investments in the United States have been relatively small, attracting little attention. But analysts predict that China’s growing visibility could spark a backlash reminiscent of anti-Japan sentiments that arose two decades ago, given concerns on Capitol Hill that China represents a serious economic threat and future military challenger.

Chinese acquisitions of American strategic assets such as oil reserves will require vetting by the U.S. government and could aggravate tensions in Congress over the bulging U.S. trade deficit with China and that country’s reluctance to revalue its currency, analysts say. U.S. firms complain that the Chinese yuan is undervalued by as much as 40%, giving China an unfair trade advantage by making its exports cheaper.

“There’s going to be a fuss about this in Washington for sure, and I don’t think it is a foregone conclusion that Washington would say yes” to a Unocal deal, said Donald Straszheim, chairman of Straszheim Global Advisors, a consulting firm focused on China. “But I see no reason why it’s not reasonable to have Chinese companies investing in American companies, just like we’re happy to have Russian companies investing here or British companies investing here.”

Although China has long welcomed foreign funds, the Beijing regime is opening the nation’s doors wider to U.S. investment in previously closed sectors such as financial services and transportation. Last week, Bank of America Corp. announced that it was investing $3 billion for a 9% stake in China Construction Bank, one of China’s largest banks.

On Tuesday, Unocal’s stock rose $1.38 to $64.85 amid reports that CNOOC Ltd., China’s largest offshore oil and gas producer, may offer $20 billion for Unocal, which would outbid Chevron Corp. Early today, Reuters quoted a CNOOC executive as saying that no decision had been made on whether to bid.

Also Tuesday, Haier Group, China’s largest refrigerator maker, and two U.S. buyout firms offered $1.28 billion for Maytag, topping an earlier bid by Ripplewood Holdings. Maytag’s stock rose 86 cents to $16.09.

Those possible deals, along with the $1.25-billion purchase in December by China’s Lenovo Group Ltd. of IBM Corp.’s personal computer division, are the cutting edge of a new wave of overseas investment involving powerful but little-known Chinese companies.

They are seeking to acquire badly needed natural resources or move beyond their low-cost manufacturing base, said Donald Tang, chairman of Bear Stearns Asia. The path is a well-trodden one, used by companies from Japan, South Korea and Taiwan to get U.S. toeholds.

By purchasing global management expertise, technology, brand-name visibility and marketing networks, Chinese firms can leapfrog competitors, boost profit margins and bolster their attractiveness to consumers and investors.

Outside of natural resources, the most likely acquisition targets are U.S. companies involved in consumer electronics, appliances or high technology, in which China has already mastered manufacturing skills, analysts say.

Haier’s bid for Maytag, like Lenovo’s purchase of IBM’s PC division, are examples of this trend. Haier opened a refrigerator factory in Camden, S.C., in 2000 but has been struggling to expand sales in the competitive U.S. market.

“Once you have the technology, the manufacturing know-how and the brand name, the competitive landscape will be changed,” said Tang, who also heads the Asia Society’s Southern California branch.

Tony Luh, managing director and co-founder of Dragon Venture Inc., a San Jose-based venture capital firm specializing in China, said the U.S. telecommunications sector was a likely place for future purchases, given the aggressive expansion efforts of Huawei Technologies Co., China’s leading telecom firm. Huawei is reportedly considering a bid for Britain’s Marconi, which is up for sale.

China’s growing need for strategic resources such as oil or iron ore is also driving its investment push. China is already the world’s second-largest oil consumer, after the U.S., and a leading buyer of coal, steel and other commodities needed to fuel its export-oriented factories and domestic building boom.

CNOOC has yet to make public its intentions for Unocal. Wall Street, however, was rife with rumors Tuesday that the government-controlled oil company would offer to pay $71.50 a share in cash to snatch Unocal away from Chevron.

A spokesman for El Segundo-based Unocal declined to comment on the speculation.

Chevron spokesman Donald Campbell said the company couldn’t comment on the possible actions of another company. He did say, however, that Chevron’s commitment to buying Unocal was unwavering, and “the offer accepted by the Unocal board is attractive and has a high degree of certainty as to completion.”

Under terms of a deal announced April 4, San Ramon, Calif.-based Chevron agreed to pay about $62 in cash and stock for each Unocal share. The total value of the deal, which fluctuates with the price of Chevron’s stock, was pegged at $16.4 billion when the acquisition was announced.

The CNOOC bid, if successful, would be the first mainland Chinese entry into the politically sensitive U.S. oil sector. But China’s leading state-owned companies have been investing heavily in oil, natural gas and mineral projects around the world, including recent deals in the Canadian oil sands, reportedly the largest oil reserve after Saudi Arabia.

And in late 2003, China’s Laiwu Steel Group teamed up with Cleveland-Cliffs Inc., a Cleveland-based mining firm, to reopen a bankrupt iron ore mine in an economically depressed region of northern Minnesota.

Local officials and the steelworker union welcomed the Laiwu deal, which not only helped resurrect a mine that now employs 425 people but also saved more than 100 railroad and shipping jobs in the region. To date, the partnership has agreed to invest more than $35 million for equipment and an expanded production line, said Rep. James L. Oberstar (D-Minn.), who helped engineer the deal.

“If it keeps jobs here, it’s damn good,” he said, when asked about Chinese investments in the U.S. economy.

But critics of China vowed to increase pressure on the Bush administration to look more critically at China’s investments in the U.S. In the late 1990s, they foiled an effort by China Ocean Shipping Co., China’s giant state-owned shipping firm, to take over a closed Navy base at the Port of Long Beach, alleging that the Chinese could use that facility as a base for spying.

Rep. Richard W. Pombo (R-Tracy) and Rep. Duncan Hunter (R-El Cajon) sent a letter Friday to President Bush urging him to initiate a review of China’s expansion in the energy arena, including any future bid by CNOOC for Unocal. Under U.S. law, the Committee on Foreign Investment in the United States, a Treasury Department panel, is responsible for vetting any foreign purchases that could threaten U.S. security.

C. Richard D’Amato, chairman of the U.S.-China Economic and Security Review Commission, a congressional committee that has been sharply critical of U.S. policy toward China, said the implications of expanded Chinese investment were troubling because of the potential for future conflicts with that growing Asian power.

In addition to the security issues, he said, the U.S. government should consider the long-term threat to U.S. competitiveness.

“One danger, to put it bluntly, is that they can loot these companies and move that technology and know-how to China over time,” he said.

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China’s growing global interest

The Asian nation’s appetite for foreign companies, particularly those in the United States, is getting bigger. A sampling:

Maytag

An investor group led by Haier Group, an appliance manufacturer owned by the Chinese government, has offered to buy the U.S. company for $1.28 billion, Maytag said Monday.

Unocal

CNOOC, a state-owned Chinese oil company, is reportedly considering bidding for Unocal.

Canadian energy companies

This spring, China National Offshore Oil bought a 17% stake in MEG Energy in Canada, and another state-owned oil firm, Sinopec, acquired a 40% interest in a $4.5-billion oil sands project in Alberta, Canada.

IBM’s PC unit

Big Blue announced in December that it was selling its money-losing personal computer division to China’s Lenovo Group for $1.25 billion.

RCA brand

Last year, China’s TCL Group combined its television and DVD operations with French company Thomson to create the world’s leading maker of televisions, built around the RCA brand.

Global Crossing

In 2002, China Netcom Communications Group, bought the Asian subsidiary of the telecom giant for $1 billion.

Source: Times research

Times staff writer Elizabeth Douglass contributed to this report.