Where's The Money: Chinese Investments in U.S.

Chinese investors make major moves into well-known U.S. companies.

June 7, 2013, 10:29 AM

June 7, 2013 -- intro: In an unprecedented California summit this weekend, President Barack Obama and Chinese President Xi Jinping will discuss a wide range of topics. With China's economy expanding at an exponential rate, strategic Chinese investments in U.S. companies are sure to be discussed when the two global powers meet.

A quick glance at the list reveals that Chinese companies have an implicit interest in the global energy sector, as well as slew of other major industries. The trend is not lost on the U.S. Treasury Department's Committee on Foreign Investments.

In a December 2012 report, the committee said that it "judges with moderate confidence that there is likely a coordinated strategy among one or more foreign governments or companies to acquire U.S. companies involved in research, development, or production of critical technologies for which the United States is a leading producer."

While not singling China out, the report sheds light on a concern of the Obama administration. Here's the short list of Chinese investments in U.S. companies:

quicklist:1title:Smithfield Foodstext: In what would become the largest acquisition of a U.S. company by a Chinese company, the proposed takeover of Smithfield Foods Inc. by Shuanghui International Holdings Ltd. is turning heads.

Smithfield agreed to a $4.72 billion deal, but it still faces a review by federal regulators and a vote to gain Smithfield shareholder approval.

The deal is raising eyebrows for several reasons: the quickening globalization of American brands, concerns over regulatory discrepancies between Chinese and American standards and concerns over China's lackluster environmental record.

Smithfield executives have assured critics that the acquisition is about exporting Smithfield's products to China, not importing Chinese meats to America.

"I know how people react — that we are selling out to the Chinese," said C. Larry Pope, chief executive of Smithfield. "This is not selling out to the Chinese. This is Smithfield being part of a global organization. There will be no impact on how we do business in America and around the world. This is about America exporting."

With several reports of Chinese companies shortcutting environmental regulations, and Smithfield having gotten in environmental trouble of its own, it remains to be seen how the deal will affect environmental standards throughout both companies.

quicklist:2title:IBM PC Unit Lenovo Laptopstext:In June of 2005, the Chinese personal computing giant Lenovo completed its takeover of IBM's personal computing division, a $1.75 billion deal that quadrupled Lenovo's annual revenue.

The acquisition made Hong Kong-owned Lenovo the third-largest PC vendor on the planet. Before the sale, few of Lenovo's products were sold outside China.

Since then, its ThinkPad brand of computers has grown steadily in the United States, capturing 40 percent of the U.S. retail market of computers that cost at least $900 and run Windows 8, according to the Wall Street Journal.

"This is a normal situation," said Yang Yuanquing, Lenovo's chief executive, to the Wall Street Journal, referring to the U.S. wariness of Chinese technology firms. "In every country, they are more comfortable with working with a local company."

Expanding into America, Lenovo has headquartered itself in North Carolina and opened a manufacturing plant there.

quicklist:3title:AMC Movie Theaterstext:Multinational Chinese company Dalian Wanda Group made the biggest acquisition of a U.S. company by China in purchasing AMC Entertainment Inc. for $2.6 billion last year.

The Wanda Group—which is also a giant in Chinese real estate, department stores, and hotels—is headed by billionaire Wang Jianlin, who has said he will invest about $500 million to upgrade operations and reduce debt at AMC, which is the second-largest movie chain the U.S.

The takeover means ownership over the 5,034 screens in 346 multiplex locations that AMC owns in the U.S. and Canada.

"More and more Chinese companies are going to try to come in and buy American businesses, just like Japanese companies did in the 1980s," Sean Yu, an executive director at Morgan Stanley who advises Chinese investors told the LA Times. "They want to increase their prestige and their reputation."

This comes amid recent news stories about American blockbuster films like "Iron Man 3" and "World War Z" adapting their storylines to accommodate the Chinese Film Censorship Committee.

quicklist:4title:Volvotext:In 2010, Chinese carmaker Zhejiang Geely Holding Group completed its purchase of Ford Motor-owned company Volvo for $1.3 billion and an additional $200 million upon completion of the acquisition.

Headquartered in Sweden, Volvo was purchased by Ford in 1999. Three years after its 2010 sale, Volvo reported profits dropped by 82 percent in 2012, but reported a 30 percent increase in Volvo Chinese sales in April 2013 over a year earlier.

"Given our expectations for growth in China, we will sooner or later end up in a situation where China will consistently be our largest market, but when that will happen is hard to say," Volvo spokesman Per-Ake Froberg told the Wall Street Journal.

With a planned $11 billion investment, Geely will overhaul plants, vehicles and engines, with the hope of competing with this popular European and American brand in China.

quicklist:5title:A123text:Chinese company Wanxiang Group purchased bankrupt lithium ion battery maker A123 in a $256.5 million acquisition that has lawmakers on both sides of the aisle grumbling.

The battery maker was backed by tax dollars, having received a $249 million grant from the Recovery Act to build advanced manufacturing plants in Michigan.

The 2013 deal cleared an obstacle when a Treasury Department agency approved the acquisition, and it now heads to bankruptcy court.

Lawmakers are concerned not only about taxpayer dollars supporting a company now owned by a Chinese corporation, but also about sensitive battery technology being acquired that could have military applications.

"Congress is seeing an increasing threat coming out of Beijing where they are methodically purchasing U.S. corporations," said Republican Rep. Marsha Blackburn to Fox News.

quicklist:6title:MiaSoletext:Hanergy Group, China's largest privately owned renewable energy company, took over MiaSole, a California solar panel maker, for a tenth of its asking price in the midst of a downturn in the market.

For a reported $30 million, Hanergy acquired the Santa Clara owned startup which had an original asking price of $1.2 billion. MiaSole investors reportedly put more than $550 million into the company.

The price reduction for the sale occurred because of a devaluation of solar companies after Chinese government grants encouraged solar producers in China to flood the market with supply over several years.

Hanergy plans to invest heavily in the company and maintain its 100-person workforce in the United States.

quicklist:7title:Chesapeake Energy Corp.text:In early 2013, Sinopec Corp., China's second-largest energy company, agreed to purchase a one-third stake in an oil and natural gas shale project owned by Chesapeake Energy Corp. for $2.2 billion.

The foreign investment is said to be a benefit mostly to the United States economy, adding 20,000 jobs and providing tax revenues for government.

Chesapeake is one of several energy companies that has sought foreign investment as it attempts to decrease its debt and capitalize on new sources of cash flow for investment in energy infrastructure.

quicklist:8title:Devon Energytext:In early 2012, China Petrochemical Group, better known as Sinopec, agreed to purchase a one-third stake in five oil projects in the Oklahoma-based Devon Energy Group.

This investment was seen as mutually beneficial to both parties, since Devon wanted to find a partnership that would allow the company to tackle the cost of building expensive wells to produce oil and gas.

The deal closed with a $900 million payment to fund the creation of 125 hydraulic-drilled wells around the world. Additionally, the partnership allowed the Chinese firm to gain exposure to shale drilling technology to boost China's own shale production.

Sinopec invested 1.2 million acres to Devon's existing positions in Alabama, Mississippi, Colorado, Ohio and Michigan.

quicklist:9title:AES Corporationtext:AES Corporation, one of the world's leading electrical power companies, announced that it closed an equity sale with the China Investment Corporation in May 2010. CIC acquired approximately 15% of stock in the electrical giant, adding more than $1.58 billion in new capital to AES.

"Working with CIC will expand our sources of financing in Asia, where the majority of growth in electricity demand is projected to occur," Paul Hanarahan, President and CEO of AES was quoted as saying at the time in a press release.

At the time of the sale, AES managed more than $40 billion in total assets, and currently provides services to 29 countries around the world. AES is based out of Arlington, Va.

quicklist:10title:Goss Internationaltext:In the age of laptops and smartphones, printing presses do not jump to mind as hot investments, but that did not stop the Shanghai Electric group from acquiring 100% ownership of press manufacturer, Goss International.

The Chinese multinational power and electrical equipment manufacturer spent $1.5 billion on the purchase in June 2010 in hopes of being able to better compete in the international technical industry.

''In the next two to three years, Chinese printing industries will be upgraded in a large scale. And although western markets are in depression, China and other Asian countries are progressing,'' said Jochen Meissner, CEO of Goss said at the time, according to a report by the Global Times of China.

The 2010 purchase was preceded by a 2009 deal in which Goss sold 40% of its stakes in the company to SEG.

Goss International produces printing presses and finishing systems for magazine, newspaper, packaging and other printing applications. At the time of the full purchase, Goss possessed 739 full patent rights for various technologies.

quicklist:11title:Nexteer Automotivetext:Although the American auto industry has seen better days, a Chinese automotive giant made a major investment in the traditional American manufacturing sector in Nov. 2010 with the purchase of General Motors subsidiary, Nexteer Automotive.

GM's $450 million sale of Nexteer resulted in China's biggest single investment in the international auto industry, while also making Beijing-based Pacific Century Motors the largest private employer in Saginaw, Mich. The sale was seen as a positive transaction on both ends, as it gave stability to the troubled American company and gave the Chinese automotive market greater access to efficient technology.

"The true value of this, and why China's investing, is China's such a rapidly growing automotive market that China wants to make sure they're positioned to support that automotive market going forward with advanced technologies," Nexteer's Chief executive, Robert J. Remenar said at the time of the sale, according to the New York Times.

Pacific Century Motors agreed to a five-year labor contract that would keep Nexteer's employees who were part of the United Automobile Workers Union, and management team in Saginaw, Mich.

quicklist:12title:Riot Gamestext:In early 2011, Chinese internet company, Tencent, acquired a majority stake in Los Angeles- based Riot Games worth nearly $400 million.

As a successful internet social game company, Riot Games is best known for its hit game, League of Legends, and the company boasts more than one million active players in its entirety.Tencent's claim to fame is QQ, a popular Chinese messaging service which currently has more than 176 million users. The company planned to distribute and introduce League of Legends to the Asian market through its QQ Game portal.

Despite Tencent's pricey investment, Riot Games does not currently have a Chinese office location. Current locations include offices in the United States, Ireland, Korea, Brazil, Turkey, Russia and Australia.

quicklist:13title:Greatpoint Energytext:In May 2012, Massachusetts-based Greatpoint Energy and Shanghai-based Wanxiang Holdings Group announced an equity investment agreement, which raised more than $1.25 billion in project funding.

The major project funded out of this partnership was a natural gas production facility to be located near the autonomous Chinese region of Turpan. Chinese chemical giant, Sinopec, agreed to purchase the natural gas produced from the new facility.

"We are building a major new global energy producer for the twenty first century and focusing on one of the largest, most attractive, and fastest growing natural gas markets in the world," Andrew Perlman, Chief Executive Officer of GreatPoint Energy, said in a press release.

Wanxiang is one of China's largest private manufacturing companies, and is involved in a variety of industries including, automotive parts manufacturing, clean energy production, financial services, agricultural products, and real estate.

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