Skip to comments.Chinese Entrepreneurs Find Bargains In U.S. Firms
Posted on 05/11/2008 4:40:50 PM PDT by DeaconBenjamin
Dongguan, China -- Liu Keli couldn't tell you much about South Carolina, not even where it is in the United States. It's as obscure to him as his home region, Shanxi province, is to most Americans.
But Liu is investing $10 million in the Palmetto State, building a printing-plate factory that will open this fall and hire 120 workers. His main aim is to tap the large American market, but when his finance staff penciled out the costs, he was stunned to learn how it compared with China.
Liu spent about $500,000 for seven acres in Spartanburg - less than one-fourth what it would cost to buy the same amount of land in Dongguan, a city in southeast China where he runs three plants. U.S. electricity rates are about 75 percent lower, and in South Carolina, Liu doesn't have to put up with frequent blackouts.
About the only major thing that's more expensive in Spartanburg is labor. Liu is looking to offer $12 to $13 an hour there, versus about $2 an hour in Dongguan, not including room and board. But Liu expects to offset some of the higher labor costs with a payroll tax credit of $1,500 per employee from South Carolina.
I was surprised, said the 63-year-old president of Shanxi Yuncheng Plate-Making Group.The gap's not as large as I thought.
Liu is part of a growing wave of Chinese entrepreneurs expanding into the U.S. From Spartanburg to Los Angeles they are building factories, buying companies and investing in business and real estate.
Individually, these deals pale next to high-profile investments such as the $5-billion stake China's sovereign wealth fund took in Morgan Stanley last year, or state-owned oil giant CNOOC Ltd.'s $18.5-billion bid to acquire Unocal Corp. in 2005.
But unlike the suspicion or uproar those moves generated - CNOOC withdrew its offer amid U.S. political pressure, and the Bush administration and other governments have pushed for acode of conduct for sovereign wealth funds - private Chinese businesses such as Shanxi Yuncheng are being wooed by states hungry for investment and jobs.
Last month, Wyoming's governor toured companies in China's coal-mining country. Georgia's leader brought a team of 40 on a mission to boost trade and attract investment, and Alabama's governor paid a visit too.
It's like a land grab, quipped James Rice, Tyson Foods' China manager and a board member of the American Chamber of Commerce in Shanghai, who has attended some of these states' functions in China.
Many Chinese entrepreneurs remain wary of entering the U.S., uncertain about restrictive visa rules, language and cultural barriers and the political environment. Recent tensions related to Tibet and the Olympic torch relay have spurred calls in China to boycott Western companies. But no one says that's slowing Chinese companies' march into the world's biggest economy.
They don't want to miss this opportunity to bottom-fish in the U.S., said Mei Xinyu, an economist at China's Ministry of Commerce, referring to the depressed asset prices in a sluggish American economy.
Flush with cash, many Chinese companies want to compete globally. Others feel they've hit a wall in the domestic market and need to go out to expand sales. And the Chinese government is urging them on by loosening previously cumbersome restrictions, in part to help Beijing reduce a lopsided trade balance with the U.S. and make the most of its massive foreign reserves.
At seminars and talks, government authorities are saying,You're a capitalist, you should be going out,' '' said Fred Hong, a Pasadena, Calif., lawyer who has worked in Guangzhou for 15 years advising Chinese companies.
One of Hong's clients, a Wenzhou man who operates two printing factories in China, recently signed a deal to spend $1 million to buy a 60-worker plant in City of Industry, Calif., that makes magnetic cards. Hong said the man's factories had produced strong profit in the last several years, leaving him with a pot of cash. With the dollar having lost nearly 10 percent of its value against the Chinese currency in the last 12 months, the yuan can go much further in the U.S.
For years, investment between the U.S. and China flowed one way, with American companies spending billions in the Asian nation. But the Beijing government's $5-billion stake in Morgan Stanley and $3-billion investment in the private-equity firm Blackstone Group brought China's overall investments in U.S. companies to $9.8 billion in 2007, up from $36 million the year before, according to Thomson Financial. By comparison, U.S. investment in China was $2.6 billion last year, down from $3 billion in 2006, said China's Ministry of Commerce.
But many Chinese entrepreneurs prefer to keep a low profile, and experts say those figures don't include investment activity happening under the official radar.
Karen Shen, Washington state's trade development representative in Shanghai since 2000, used to focus on promoting exports of Washington-made goods and produce. Now she's helping the state's companies and officials hook up with Chinese investors. Tech companies in China are keen to buy or launch businesses near Redmond-based Microsoft, she said.
Few states have been as aggressive in reaching out to China as South Carolina. In recent years, 10 Chinese businesses, including appliance maker Haier, have expanded there and created about 2,000 jobs, said John Ling, managing director of South Carolina's China office. That's a fraction of the textile jobs the state has lost to Asia, but it's a start, he said.
Shanxi Yuncheng is Ling's latest catch - but it took two years.
The company's owner, Liu, was reluctant. He had built his printing-equipment business from the ground up in Yuncheng, an industrial city of 5 million in central China.
In the early 1980s, Liu traveled to Germany and, with a $250,000 loan from a state bank, bought a world-class machine that would make the copper cylinders for the gravure method of printing. Within a decade, Liu's company dominated this niche for commercial printing in China.
Today, Liu owns more than 80 gravure cylinder-making plants in China and 20 more in a dozen countries, including Mexico, Brazil and Vietnam. He has more than 10,000 employees and sales last year surpassed $250 million. Why, he asked himself, should he take the risk of setting up a factory in the U.S.? Besides higher labor costs, Liu worried that his company and managers would not be welcomed and feel a backlash from the bad publicity about cheap and unsafe Chinese goods.
But the more he thought it over, the more it made sense. Shanxi Yuncheng wasn't going to grow much faster at home. Its expansion into Mexico four years ago showed him he could succeed outside Asia.
It's a lot of pressure going to the largest market in the world, Liu said. But he thinks it's certain to help his business become more competitive.That's one of the real benefits from this expansion.
There will be more of this.
The Chinese will make billions drilling for oil in the Gulf of Mexico and then use the money to buy American firms that won’t drill in the Gulf because of insane liberal environmentalism.
Is this article a PR plant to make the "princelings" look good?
Most are “princelings”, but many are not - I know several who built up their business themselves, and came from pretty humble beginnings...
Most of the Chinese businessmen looking to expand overseas are actually those of the latter, not the former. The former tend to be happy to just sit at home, letting things stay stagnant. The ones pushing expansion are those who started it themselves and see the value in expansion.
For Sale: One country. Slightly used.
Isn’t this how the Japanese investors got burned in the ‘80s?
I was an offset platemaker for about ten years prior to the digital revolution.
Mr. Liu is offering wages I made 15 years ago to make plates in commercial print shops.
Why just buy the rope from the capitalists when you can get a real bargain on the whole rope factory with big tax breaks too.
There are no business owners in China.
China is a Fascist nation.
No one truly owns anything, and any and every deal they make only leverages them against us as we become even more dependent on them.
This is very bad news.
Is anyone paying attention out there?
I'm still buying American when I can, but will "Made in USA" now mean "for the Chinese factory owner"?
Of course, any boycott of Chinese owned firms in the US will be greeted by "But you are hurting Americans!".
From last year.
The claim that 90% of China’s billionaires are the children of senior cadres is not even closely true. Unless of course one chooses to define a senior cadre as pretty much any member of the Communist Party. Almost all of China’s billionaires are actually self made, with the exceptions being those few who inherited and only one of them inherited from a former Vice-President (ceremonial role) who was already wealthy to begin with.
The term red princeling is really meant to describe just a few families who come from the political elite. Such as the children of Deng Xiaoping or Jiang Zhemin or Hu Jintao.
I wish we could learn capitalism and entrepreneurship from the Chinese.
Wait until he joins the local Traitors of Commerce chapter--they can tell him where to find workers who are closer to the Chinese wage rate.
Don't give a pass to the insane liberals Jeb Bush, Charlie Crist and Arnold Schwarzenegger.
They bought high. The Chinese appear to be buying low, at least so far as the dollar and real estate market.
Didn't they invent both about 2500 years ago?
I was a mite incredulous of the numbers myself but the tenor remains
I believe it's true that most enterprises and all major enterprises are state owned, where state can be a municipality and owned can mean majority "share holder."
The Party claims supreme authority but has allowed private initiative as long as it benefits the Party such as attracting Western FDI, technology, and intellectual property. Not all Western technology and intellectual property have been willingly transferred or stolen yet.
Will "socialism with Chinese characteristics" last long enough to get it all. That is the question, IMO.
They may not have invented it, but they have perfected it, just like other things they learnt from the West. I am filled with admiration for them after having visited China.
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