Chinese firms pouring cash into state
Chinese firms flush with cash have been snapping up U.S. companies at a record pace, and California has become a prime target for this investment.
About $1.3 billion of Chinese money flowed into the Golden State from 2000 to 2011, according to a study released Wednesday by Rhodium Group, a New York policy research group. Much of that investment has come in just the last few years, including a record $560 million last year.
The deals involved new factories, offices and other facilities as well as mergers and acquisitions of existing companies in industries such as electronics, information technology, biotech, logistics, renewable energy and consumer products. The figures do not include private real estate transactions such as home purchases by Chinese buyers because those are harder to track.
Although California captured the most deals with 156 over the 11-year period, it ranked fifth in total investment behind New York, Texas, Illinois and Virginia. Nationwide, Chinese investment totaled $16.4 billion over the period.
China’s foreign investment has accelerated since 2008 as Chinese firms have taken advantage of the global slowdown to snap up bargain-priced assets abroad. Chinese companies are also looking to penetrate international markets and to purchase technology, know-how and products not available at home.
In California, for example, a group of Chinese investors bought Silenus Vintners, a Napa winery, in 2010 with the aim of exporting wine to China, where demand is exploding. A year later, Chinese Internet giant Tencent Holdings Ltd. paid $250 million to acquire Riot Games Inc., a Santa Monica online video game company.
Still, California isn’t doing as well as might be expected in attracting Chinese investment, considering its size, its location on the Pacific Rim and its large population of Chinese immigrants, according to the study’s authors, Daniel Rosen and Thilo Hanemann.
China’s direct foreign investment into California could soar to as high as $60 billion by 2020, the report said. But the state will need a focused strategy to do so.
“California ... is in a position to lead the nation in attracting Chinese investment in the decade to come,” the authors wrote.
To do so, California needs to pitch its assets: its quality of life, creative workforce and diverse economic hubs in the Bay Area and Los Angeles Basin. Other states have been more aggressive in organizing trade missions and other outreach, the study said.
But challenges still exist, most notably, fears that Chinese investment poses a national security risk and empowers a growing economic competitor.
On Monday, a House Intelligence Committee report said the federal government should “view with suspicion” attempts by two Chinese telecommunications companies, Huawei Technologies Co. and ZTE Corp., to expand in the U.S.
The yearlong investigation by the committee concluded there is a strong risk the two firms would aid spying and cyber theft by China.
The report follows President Obama’s recent move to block a Chinese company from buying stakes in four wind farms in Oregon because of their proximity to a U.S. military base.
“Chinese investment raises plenty of normal, legitimate concerns given the general considerations around foreign ownership and the special characteristics of China,” the report said. “However, security concerns can be misapplied in situations that present no real threat because of simple overreaction or -- more worrying -- as a back-door route to stifle competition.”
The report calls for more narrowly defined security screenings to determine more fairly what risks certain deals present. It also urges officials to tout the benefits of Chinese investment, including the creation of thousands of jobs, an infusion of fresh capital and more options for products and services for consumers.
The Rhodium Group estimates that Chinese firms now employ 27,000 people in the U.S., up from fewer than 10,000 five years ago.
In a bid to boost trade and investment with China, California officials recently announced plans to reopen a trade office in Shanghai. That office was one of several closed in 2003 because of budget constraints.
The aim of the Shanghai office is to help California companies sell products and services to China and to showcase the Golden State as a good place for Chinese companies to invest, said Paul Oliva, deputy director of international affairs and business development in the governor’s office.
“Chinese investors are no different than investors anywhere else in the world. They want to find a place where they can get a great return and have a great location for their business,” Oliva said.
Southern California holds particular appeal for Chinese investors. The Los Angeles metropolitan area has seen 69 investment deals since 2000, more than twice as many as the Bay Area, the second most popular destination.
Part of the Southland’s appeal is its large seaports, big manufacturing base and the largest Chinese population in the state.
“We are China’s gateway to the United States,” said Ferdinando Guerra, an economist with the Los Angeles County Economic Development Corp. who has studied the potential effects of foreign investment. “The competition is fierce for these investments.”