China is coming to town. Like Japan in the 1980s, China will be the big Asian investor buying up pieces of America’s landscape, natural resources and companies. It’s a good thing.The U.S.-China Cities Forum on Economic Cooperation and Investment began June 22 in Nanjing, China. Here's how the event was billed:
Over the weekend a U.S. Commerce Department official said during a conference in Nanjing that China investment in the U.S. was set to double.
The two-day forum is co-organized by the US Department of the Treasury, US Department of Commerce, US Conference of Mayors, US-China Business Council, American Chamber of Commerce in China, and comparable Chinese governmental entities. The conference will focus on economic partnership at the local level and explore ways for city-level government to assist in the expansion of economic cooperation and investment opportunities between the United States and China.City level government often has funds for small to medium enterprises, something important to corporate owners and investors.
What's driving China to invest in the U.S.? China's foreign minister stated in The China Daily::
The Chinese government wants to develop industries with comparative advantages, while the US government hopes to expand its exports and revitalize the manufacturing industry, which allows much room for bilateral cooperation.How might China use any U.S, investments for comparative advantage, their clearly stated aim?
The 2011 conference was held in Chicago. The U.S. hosted version has the agenda and six audio recordings from the event.
Later in 2011 Carlyle Group co-founder David Rubenstein advised China to invest in the U.S. Rubenstein's earlier predication had China becoming the largest private equity underwriter (PEU) in the world. Carlyle recently announced the sale of AMC Entertainment to a Chinese firm. That came after a Chinese bank refinanced Carlyle's New York property 650 Madison Avenue.
At the 2012 World Economic Forum in Davos, Carlyle's Rubenstein expressed his preference for the Chinese totalitarian model of central planning. Rubenstein offered a dark vision for those not adhering to his advice.
"Our children are going to have and our grandchildren are going to have" a lower quality of life and a less affluent lifestyle than we enjoy todayIn many ways PEU Rubenstein already made his vision a reality. Take United Components (UCI) which Carlyle owned from 2004 to 2010.
When Carlyle purchased UCI it had no Chinese subsidiaries. By 2010 UCI had thirteen subsidiaries in China or Hong Kong. The number of employees fell from 6,900 to 4,350. Carlyle pulled $35.3 million from UCI via a special dividend in 2007. Add their $2 million annual management fee and the total rises to $47.3 million. How many jobs did Conway send to China outside UCI?UCI's is but one story of American jobs going overseas This drives the current efforts to revitalize U.S. manufacturing, two of which are Renewing America (Council on Foreign Relations) and SelectUSA (U.S. Department of Commerce).
The China Daily clarified who would provide incentives:
Unlike China, where incentive programs for foreign investors are mainly initiated by the central government, it is central and local authorities in the US who are responsible for drafting these policies.The U.S. government and cities have the money and authority to lure Chinese investment. I've not read about Chinese incentive programs where the government paid foreign investors, only the opposite. Foreign investors need to pony up for the right to do business in China.
Returning to the UCI example, will U.S. backed Chinese firms get federal and local money for bringing jobs back? UCI's Chinese subsidiaries are the right size, according to Steve Olson, SelectUSA's Executive Director.
The US welcomes more small- and medium-sized enterprises as well as entrepreneurial investors from the world's second-largest economy (China).Many small and medium sized enterprises are owned by private equity underwriters (PEUs). Ubiquitous global PEUs are offered as the tonic to all ills. SelectUSA's website highlighted various American industries and how interested parties could pursue incentives. The section on Financial Services makes no mention of private equity. Yet clearly, federal and local incentives will go to private equity affiliates, which will help the rich grow richer. It happened in Texas under The Carlyle Group's ownership of Vought Aircraft Industries. To think my tax money could benefit China owned PEU affiliates? I find that singularly distasteful.
China, with its abysmal quality, is coming. Here's the rationale from one Carlyle executive, Managing Director David Marchick::
“Chinese investment would promote new economic activity and expose Chinese companies to Western standards of corporate governance, reporting, and accounting.”Marchick was silent on Carlyle affiliate China Forestry, when it could only account for 1% of booked sales.
PEU China, greedy, controlling and heavy handed, will invest in the U.S. to its sole advantage. China understands economics as an element of warfare. Carlyle Group executives know this. When greed is the prime motivation and government is but a tool, anything goes.
What happens when PEUs are ready to liquefy their small to medium sized Chinese firms doing business in the U.S.? Will they crowdfund? What information will be available to protect potential investors?
China imported a financial Wild West. It stands ready to export it back to the U.S. Buyer beware.