Unwanted Chinese investments

China may be the second-largest economy in the world, but for some countries its investments are not always welcome.

Based on reports, a bipartisan group of United States senators was opposing the planned sale of Smithfield Foods Inc., the world’s largest producer and processor of pork products, to Chinese meat firm Shuanghui International.

Shuanghui has offered to acquire Smithfield for $4.7 billion, the biggest ever planned takeover by a Chinese firm of a US company.

The senators claim the purchase by a foreign company of a major supplier of meat products in the US constitutes a threat to the country’s food security.

For reasons of national security, in October 2012, Ralls Corp., a US-registered firm controlled by executives of Chinese construction machinery manufacturer Sany Group, was barred by the US government from putting up a wind farm project in Oregon.

The project site is near the airspace of the US Naval Weapons System Training Facility. There were apprehensions the Chinese firm could spy on the military base and clandestinely collect sensitive information.

In 2009, the $26.5 million investment offer of China-based Northwest Non Ferrous International Investment in Firstgold Corp., a mining firm in Nevada, was rejected on security grounds. The mining site is adjacent to a naval air station.

Unwelcome

A similar rebuff was suffered by China in Australia in 2009 when the $19.6 billion investment of state-owned Aluminum Corp. of China in Australian-British mining giant Rio Tinto Group was rejected by its board under pressure from Australia’s political opposition.

In a recent interview, China’s richest man, Zong Qing Hou, who has expressed interest in buying a dairy farm and building a milk processing plant in Australia, said he “found Australian foreign investment laws difficult to navigate and was worried about the negative perception of Chinese companies.”

Feeling discriminated against in Australia compared to Japanese or American investors, he stated “the Australian media always reacts to Chinese investment, but there is no reaction at all to American investments.”

The same sentiment was expressed by a Chinese billionaire whose attempts in 2012 to invest $500 million in Iceland for the purchase and development of a resort were twice stymied for being “incompatible” with the country’s laws on foreign ownership of real property.

In Africa, some countries that initially welcomed the entry of Chinese investors in the exploitation and development of their natural resources are unhappy with the arrangements they entered into and are having reservations about the additional infusion of Chinese capital into their economies.

Confidence

The adverse reaction by some countries to the entry of Chinese investments in certain areas of their economies can be traced to issues of trust and confidence.

Are these companies engaged in purely commercial or business activities or are their actions part of the global financial and security strategy of the Central Committee of the ruling Communist Party?

Can these companies be trusted to comply with the terms and conditions of their agreements with the host countries independent of the directives of their country’s political leadership or the powerful People’s Liberation Army?

Unlike other developed economies, business transactions in China are opaque. What you see or what appears on record cannot (and should not) be taken at their face value.

Those who have done business with Chinese firms can attest to the difficulty of getting information about their stockholders, officers and other matters that are routinely examined before entering into joint ventures.

No data can be released unless they are first reviewed by the equivalent of our Securities and Exchange Commission, vetted by their Ministry of Trade and Investment and cleared by an office attached to the government intelligence service.

After several months of waiting (assuming it passes through that complex screening process), the information is given in Chinese characters without the accompanying English translation!

If you insist on getting an English translation, you have to endure the same process all over again and keep your fingers crossed that the waiting time will be shorter.

Stock ownership

A research study conducted by a US think tank on China two years ago reported that the Chinese government, through its investment arms, has investments in major private Chinese firms engaged in strategic businesses–power, public utilities,  technology information and food production.

This is aside from the companies that are fully owned or controlled by key members of the Central Committee.

Not to be outdone, the People’s Liberation Army has its own investments in companies engaged in profitable areas of business which provide it with unlimited sources of funds for the improvement and development of its military personnel and hardware.

Considering the impact of the report, a quick denial or clarification should have come from the Chinese government (whose spokespersons are usually loquacious whenever anything adverse about it is reported in the international media) or the Chinese business community.

But not a peep was heard, leading to the inevitable conclusion that the findings of the study must be accurate.

With the identity and motivations of the people behind the Chinese companies engaged in foreign ventures under a cloud of doubt, the host countries cannot be faulted if they feel antsy or paranoid about their business activities.

More so, if their business site is near an area strategic to the security of a country or the area of business is vital to the well-being of its citizens.

The rationale behind the actions taken by the US and Australia in regard to certain Chinese investments in their countries should be taken to heart by the administration in its evaluation of the offer of foreign businessmen to participate in the country’s public-private partnership programs.

For comments, send your e-mail to [email protected].