Chinese Entrepreneurs Find Bargains In U.S. Firms

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 a“code 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.

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.”

Considering that the Taiwanese and the Japanese are ostensibly our friends, and have refrained for a few decades from surfacing submarines in the middle of our carrier groups, and further that we do to a great extent trust them, I am less concerned. We already have businesses which are Japanese on our shores. Some of the most precise machine tools in the world are currently of Japanese and Taiwanese manufacture(low backlash in gearing, repeatable adjustments, what you would expect from a quality piece of equipment). I do not believe there would be the quality issues, partly because the Japanese attach their family name to the product. (For example, the Honda Gold Wing, made in Ohio.)

Frankly, though, What I object to is crap, made and attributed to the USA, regardless of who makes it, but especially if someone who is not an American makes it here just to get the Made in USA on it, and even more so if the motivation therein is to damage the reputation of American industry in the global marketplace.

Again, with the Chinese stated intent to destroy the USA through unconventional asymetric warfare tactics, I can see a vulnerability in allowing them to purchase and operate factories here.

Now you may see that as paranoid, but it is a heck of a lot easier to lock the garden gate than it is to get the neighbor's cows out, not to mention the damage they do while they are in there.

Again, with the Chinese stated intent to destroy the USA through unconventional asymetric warfare tactics, I can see a vulnerability in allowing them to purchase and operate factories here. Now you may see that as paranoid,

No, it's perfectly fine. But it's a gross generalization. China is not the Borg. Each Chinese national is not necessarily a direct or indirectly a component of the strategic goals of the Chicom government.

Case in point. Big Buicks. Drive into Shenzhen for your first time and the first thing you see is a huge billboard that says "Buick V8." And then you look around and you realize, there's a hell of a lot of big cars in China. Much much more than you'd see in Taiwan or Japan.

Then you notice gas lines. Then you read in the papers about the internal bickering between Southern and northern oil companies in China (Sinopec and the other one I forget). Then you reaad about the government being powerless over industries you would tell me the 'communist' government controls.

My intimate experience with China cured me of the paranoia you have for them. I realized that the problem is not totalitarian control from China taking over the world.....but of the USA -GIVING OVER- control of herself to INTERNAL totalitarian control.

When chinese oilmen defy their government, they are effectively on capitalism/freeedom's side.

When American citizens take it upon themselves to support more government control over private property (Who you can't sell to, what quality level or products you're allowed to put "Made in USA" on, etc) then I see that as a threat to capitalism and freedom and individual liberty.

America won't fall to China. But she can fall to people who after all this think, "there oughta be ANOTHER law."

If communism/Islamism was vanquished around the world this very minute, and China/USSR/Iran were no longer military threats, then America could still end up being a second rate country as a product of our home-grown, lazy, poor work ethic new generation who's fainting at Obama concerts.

Actually, I'd love to see fewer laws. My parents could sell the timber (200 year old red oak) an ancestor planted because that part of the land grant was not good farmland instead of having to watch it decay on the root.

One tree they were allowed to remove (after obtaining the 9 permits/easements involved) from land which has been in the family since well before there was a United States fetched over $1000.00, and that was over a decade ago.

There was a time when inherent patriotism would have people be a tad more nationalistic. I have no problems with nationalism, with looking out for members of a group which share common interests.

Unfortunately, that has been fragmented by those who would divide and conquer this country, and they are well on their way.

Some things know no boundaries, among them greed, envy, and sloth, and there is plenty of all to go around.

It ultimately does not matter that the Chinese are not the Borg, the good and bad in human nature is universal, what matters is that those who are in a position to exert force on them, and to an extent, on us, are not beyond using the common man (or woman) to achieve those ends, and will, as much as possible manipulate the ordinary folk in order to achieve their ends.

I am not worried about the guy who assembles the parts to make a missile, but the one who issues the orders to aim and fire it.

So, while the average Chinese person might concieveably profess their undying love for all things western, that would not stop the missiles once a launch order went out.

As for Oilmen defying their governments, they can always end up like the chap who ran Yukos.

Ultimately, government is force, and ultimately, those in government will use that force to their own gain, which is why power corrupts.

Which brings us back to where we started.

Any government holds sway over its citizens, either directly through the ability to confiscate assets or exert force on its citizens, or indirectly, through being able to exert force on friends and family.

By these means the 'not so average' control the masses, whether it be through the threat of siezing your home for back taxes, or your person for some open act of defiance, catapulting your progeny into abject poverty and even farther into the government's sphere of influence.

It is the governments, not all "by, for, and of the people", which I do not trust.

And no, I am not blinded to the shortcomings of our own system. It is the worst on the planet, except for all the rest.

But it is ours. While I generally agree it needs fewer laws, not more, the Constitutionally mandated duties of our Government include providing for the common defense. The question is one of what constitutes a threat, in an era where more wolves wear wool than not.

When those you trust have a common vested interest, (not this mess of 'owes me' fractionation, nor a 'we are the world sort of globalism', but a common national/spirtiual/tribal/family interest) they can be generally counted on to do their part. That common interest, in popular lore, is often referred to as 'patriotism' on a national scale, and sadly, when the desire to place your country before profit is gone, chances are the country's days are numbered.

If we "need a law" now, it is just a symptom of a deeper decay.

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