China eagerly buying up U.S. assets

BEIJING —  Facing a sharp economic slowdown at home, Chinese companies are plowing money into U.S. assets at a record pace, making huge bids for American energy, aviation, entertainment and other businesses.

The increase in investment, already at least $8 billion this year, comes despite lingering American anxieties about potential breaches of national security and loss of technology to the powerful Asian competitor.

Thus far, economic relations with China have received little attention in the political campaigns of either major U.S. party. But analysts said the country’s stepped-up investments, although welcomed by many budget-strapped state and local governments, could revive what has long been a contentious issue.

With U.S. real estate prices depressed and many firms in the West starved for cash, the Chinese see a prime opportunity to rummage through the bargain bins of rich countries to gain technological know-how and international reach.

They’re also hedging against rising costs and uncertainties inside China. The world’s second-largest economy is struggling with its slowest growth rate since the financial crisis in 2008.

“The Chinese growth model is changing fundamentally,” said Thilo Hanemann, research director for the New York-based Rhodium Group, which tracks Chinese direct investment.

“Chinese companies need to escape the profit squeeze in low-end manufacturing and move up and down the value chain. Expanding investment in developed economies is an essential part of that,” Hanemann said.

Natural resources remain a major target for the Chinese, who have scoured the globe for oil and minerals to fuel the nation’s rapid industrial development. In April, China Petrochemical Corp, also known as Sinopec, closed a $2.5-billion deal to buy a one-third stake in Devon Energy Corp. of Oklahoma City.

Across other industries, Chinese corporations are buying into American companies for their prowess in branding, marketing and research capabilities.

Conglomerate Dalian Wanda Group paid $2.6 billion this year for the heavily indebted AMC Entertainment, one of the largest movie theater chains in North America. The deal gives Wanda a foothold in the U.S. entertainment industry and a chance to gain expertise in the day-to-day operations of movie theaters.

Just this month, Chinese auto parts giant Wanxiang Group Corp. announced plans to provide a $465-million rescue package for struggling battery maker A123 Systems Inc., based in Waltham, Mass. The agreement gives Wanxiang, one of China’s biggest private companies, a chance to buy a majority stake in a world-class battery developer for electric cars.

Chinese investments in U.S. companies hit a record of nearly $9 billion in 2007, according to separate data compiled by Dealogic, a research firm, and Derek Scissors, a Heritage Foundation analyst who follows Chinese investments. Their figures don’t include Chinese purchases of American bonds, private real estate purchases and many smaller acquisitions.

Nor do the data capture direct investments such as that announced this year by Uniscite Inc. in China’s Shanxi province. The maker of plastic films said it would build a new plant in Laurens County, S.C., to manufacture packaging products for the food industry.

Companies like Uniscite are being aggressively recruited by state and local governments, many of which have offices or representatives in China.

“We have a concerted effort to punch above our weight in China,” said Dan Hasler, commerce secretary of Indiana. He said the state has sent 14 different delegations to China in the last year to woo businesses.

Although China has tight capital controls, that nation’s government officials want companies to go after new technologies and diversify their markets.

“The Chinese government has given an implicit green light to reach overseas to secure assets that will help Chinese businesses thrive in the long term,” said David Wolf, the Beijing-based head of the Wolf Group Asia consulting firm.

That’s worrying some Washington officials, who fear that the United States is selling off valuable assets to the Chinese, ultimately at the expense of American jobs.

Rep. Cliff Stearns (R-Florida) has warned that Wanxiang’s investment in A123 could end up as a transfer of taxpayer-funded intellectual property to a “foreign adversary.” The battery maker was the beneficiary of a $249-million clean-energy grant from the Department of Energy.

Meanwhile, both Democrats and Republicans have raised concerns about a massive $15.1-billion bid by the state-owned China National Offshore Oil Corp., or CNOOC, to buy Nexen Inc., a Canadian oil company with operations in U.S. waters in the Gulf of Mexico. As such, the agreement is subject to review by the Committee on Foreign Investment in the United States.

In 2005, CNOOC withdrew an $18.5-billion offer for American oil giant Unocal because of fierce political opposition in Washington. The deal’s collapse had a chilling effect on Chinese companies aiming to invest in the U.S.

One of the leading impediments then -- and now -- is the suspicion that Chinese companies act on behalf of China’s Communist Party rulers, rather than shareholders. State-run firms represent about 90% of Chinese outbound investment, according to the Heritage Foundation.

China contends that this investment has kept American companies alive and created thousands of U.S. jobs. Chinese President Hu Jintao said as much during a visit to the U.S. last year when he toured Wanxiang’s existing Illinois facility and met with other Chinese companies that had U.S. operations.

Compared with Japan and other economic powers, China’s foreign investment is still relatively modest. With global holdings estimated at $364 billion, China is on par with Ireland or Sweden, according to the research firm Rhodium Group.

Although China tops the list of nations holding U.S. Treasury bonds and other so-called liquid assets, it accounts for only about 3% of all foreign investment into the U.S., the world’s No. 1 recipient of such investments, according to Commerce Department figures. In 2010, foreign direct investment into the U.S. totaled $194 billion -- 84% of which came from six European countries, Japan and Canada.

Still, the Asia Society estimates Chinese overseas investment will climb to $1 trillion by 2020, presenting a major opportunity for foreign markets.

One Chinese company looking to increase its American presence is Xinjiang Goldwind Science and Technology Co., China’s second-largest wind turbine maker. The company has invested more than $200 million in U.S. wind farms in Illinois and Montana.

“This is a strategy of globalization for Goldwind,” said Tim Rosenzweig, chief executive of Goldwind USA. “If you can enter the U.S. and compete ... that means you’re a global player.”

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david.pierson@latimes.com

don.lee@latimes.com

Pierson reported from Beijing; Lee from Washington. Nicole Liu and Tommy Yang in The Times’ Beijing bureau contributed to this report.