Texas tries to lasso China

In 1979, Deng Xiaop­ing put an enor­mous cow­boy hat on his head at a Texas rodeo and grinned for the cam­eras. Thirty-five years later, Texas of­fi­cials are still giv­ing the hats to vis­it­ing Chi­nese of­fi­cials as they seek to in­crease trade, re­ports MAY ZHOU

China Daily (Canada) - - IN DEPTH -

The Chi­nese in­vestors are com­ing. Are you ready?” That was the ques­tion posed by Clarence Kwan, se­nior part­ner of Sino-Cen­tury China Over­seas In­vest­ment Part­ners, at a re­cent business dis­cus­sion hosted by Hous­ton’s Asian Cham­ber of Com­merce. Chi­nese in­vestors have come and more are com­ing to the Lone Star State. The lat­est avail­able data tell the story: • With $10.8 bil­lion in ex­ports, China was the state’s fourth-largest ex­port des­ti­na­tion in 2013. The ma­jor ex­ports are in­dus­trial and elec­tric ma­chin­ery, chem­i­cals, plas­tics and min­eral fuel. Texas ranked third in ex­ports to China after Wash­ing­ton and Cal­i­for­nia, both of which ex­ported more than $16 bil­lion of goods to China in 2013. • In the same year, Texas im­ported $42.8 bil­lion worth of Chi­nese goods, mak­ing China num­ber two among the state’s trad­ing part­ners. The top im­ports in­clude elec­tric and in­dus­trial ma­chin­ery, fur­ni­ture, toys and iron or steel prod­ucts. • Chi­nese com­pa­nies have spent $22.2 bil­lion to ac­quire Texas com­pa­nies in M&As in the last decade, mak­ing it per­haps the largest in­vest­ment cat­e­gory by Chi­nese in­vestors so far. • From 2000 to the first three quarters of 2014, 79 Chi­nese for­eign di­rect in­vest­ment (FDI) projects with a to­tal value of $5.3 bil­lion have set­tled in Texas. The state has at­tracted more than 12 per­cent of the to­tal of $43.1 bil­lion in Chi­nese FDI projects in the United States. That makes Texas num­ber two in the US be­hind Cal­i­for­nia.

James Chen, Asia/Pa­cific di­rec­tor of the state’s eco­nomic de­vel­op­ment and tourism di­vi­sion, has seen or helped a lot of the Chi­nese projects get into Texas. He said that FDI projects have picked up.

“I am see­ing ex­plo­sive growth in this area since last year. With Texas be­ing an en­ergy state, some of the projects are huge and the in­vest­ment dol­lars of­ten amount to bil­lions. But we are also see­ing more and more medium and small-sized com­pa­nies as well as in­di­vid­ual in­vestors com­ing to Texas,” he told China Daily.

In 2013, Sinopec USA, a sub­sidiary of one of the largest state-owned Chi­nese oil and gas com­pa­nies, Sinopec Group, opened an R&D branch in Hous­ton, where it al­ready has a few op­er­a­tions.

Also in 2013, PetroChina In­ter­na­tional (Amer­ica) Inc moved its head­quar­ters to Hous­ton from New Jersey. Its pres­i­dent, Li Shaolin, said the move has helped Petro China ex­pand its oil prod­ucts trade. The company has since in­creased the num­ber of lo­cal em­ploy­ees to more than 80 from 50.

Business ex­changes be­tween Texas and China show no sign of slow­ing down.

On Mon­day, a del­e­ga­tion from Gansu prov­ince ar­rived in Austin, the state cap­i­tal, at the invitation of Texas Agri­cul­ture Com­mis­sioner Todd Sta­ples and com­mis­sioner-elect Sid Miller. The meet­ing was held to in­crease agri­cul­ture trade be­tween Texas and Gansu, pop­u­la­tion 26 mil­lion.

Ex­port­ing Texas beef to Gansu is one of Miller’s pri­or­i­ties. With 11 mil­lion head of cat­tle in the Lone Star State, Texas leads the na­tion in beef pro­duc­tion. The beef in­dus­try gen­er­ates more than $10 bil­lion for the state.

On Nov 19, a Chi­nese trade del­e­ga­tion’s visit to the state was or­ga­nized by the China In­ter­na­tional Con­trac­tor As­so­ci­a­tion (CICA) un­der the di­rec­tive of China’s Min­istry of Com­merce. That visit re­cip­ro­cated Texas Gov­er­nor Rick Perry’s trip to China in Septem­ber to pro­mote the state, ac­cord­ing to Chen. While vis­it­ing Beijing, Perry was re­ceived by Chi­nese Vice-Premier Zhang Gaoli, one of the seven stand­ing com­mit­tee mem­bers of the Polit­buro.

Chen, who helped plan and joined Perry’s visit to China, said that in Beijing Perry signed a mem­o­ran­dum of un­der­stand­ing (MOU) be­tween Texas and Tian­jin, Fu­jian, Shan­dong, Jiangsu and Sichuan, rec­og­niz­ing the im­por­tance of de­vel­op­ing and ex­pand­ing ties of co­op­er­a­tion through business, trade, in­vest­ment, tourism, ed­u­ca­tion and re­search and de­vel­op­ment.

In ad­di­tion, a joint task force of the gov­er­nor’s of­fice and China’s com­merce min­istry was formed to support Chi­nese in­vest­ment in Texas.

In Oc­to­ber, Fort Worth Mayor Betsy Price and Dal­las Mayor Mike Rawl­ings joined a trade mis­sion to China. Price dis­cussed China’s NGC Re­new­ables’s open­ing a new trans­mis­sion plant later this year at the Al­liance Texas In­dus­trial Park. NGC Re­new­ables also an­nounced that Fort Worth will serve as its North Amer­ica head­quar­ters.

“The Chi­nese com­pa­nies are en­cour­aged to ex­pand in­ter­na­tion­ally and make over­seas in­vest­ment by their gov­ern­ment, and the Texas gov­ern­ment wants to at­tract more for­eign in­vest­ment. The need is well-matched on both sides and we are here to help,” said Chen. Big projects

Two big projects for Texas are be­ing ne­go­ti­ated, said Chen. A pri­vate Chi­nese company is look­ing to build sev­eral chem­i­cal plants to pro­duce eth­yl­ene gly­col with an in­vest­ment to­tal of $2.6 bil­lion. Another company may invest $1.2 bil­lion in a methanol plant. Names of both com­pa­nies have not been re­vealed.

A few Chi­nese firms are con­sid­er­ing build­ing a $4.5 bil­lion methanol plant on the 900acre Shoal Point penin­sula near the Port of Texas City, ac­cord­ing to a re­port by Galve­ston Daily News.

The grow­ing con­nec­tion be­tween Texas and China also is demon­strated by the in­crease in air­line ser­vice. Air China ini­ti­ated Hous­tonBei­jing di­rect flights in July. Amer­i­can Air­lines be­gan Dal­las-Shang­hai and Dal­las-Hong Kong ser­vice in June, and the car­rier re­cently an­nounced that it has filed an ap­pli­ca­tion to op­er­ate Dal­las-Beijing ser­vice be­gin­ning next sum­mer.

The Chi­nese pop­u­la­tion in Hous­ton also is grow­ing. “I am see­ing more and more Chi­nese com­ing to Hous­ton look­ing for op­por­tu­ni­ties,” said Austin Zhao, chair­man-elect of Hous­ton’s Asian Cham­ber of Com­merce and pres­i­dent of Path­way to China, which helps Amer­i­can com­pa­nies do business with China and Chi­nese in­vestors get a foot­ing in the US.

“Thanks to for­mer Na­tional Bas­ket­ball As­so­ci­a­tion star Yao Ming, Chi­nese are now more aware of Hous­ton and Texas. Texas will sur­pass Cal­i­for­nia and New York in Chi­nese pop­u­la­tion and in­vest­ment growth,” Zhao told China Daily.

The 2010 US Cen­sus put the state’s Asian pop­u­la­tion at 964,596, in­clud­ing 166,837 Chi­nese.

Jensen Shen, di­rec­tor of Asia, Aus­tralia and Ocea­nia at the Greater Hous­ton Part­ner­ship, said that de­spite China’s big three state-owned oil com­pa­nies be­ing in Texas, over­all Chi­nese en­ergy com­pa­nies in the US still lag be­hind coun­tries like Ja­pan or South Korea in get­ting es­tab­lished to do business.

“Chi­nese com­pa­nies came in and were poised to buy big com­pa­nies or projects. Such a high pro­file of­ten met with a lot of re­sis­tance from the gov­ern­ment as well as other or­ga­ni­za­tions. But now I see that they are chang­ing strat­egy; more deals are be­ing made by eq­uity par­tic­i­pa­tion in­stead of M&A.”

In Novem­ber 2013, Sinopec agreed to pay $3.1 bil­lion for a 33 per­cent stake in Hous­ton­based Apache Corp’s Egyp­tian oil and gas business. Sinopec was re­ported to also be in talks with Apache to buy a stake in the Kiti­mat LNG ex­port project on Canada’s Pa­cific coast, which is co-owned by Apache and Chevron Corp.

In June 2013, Sinochem spent $1.7 bil­lion to pur­chase a 40 per­cent stake in West Texas’s Wolf­camp Shale as­sets from Dal­las-based Pi­o­neer Nat­u­ral Re­sources Co, the third-big­gest sin­gle in­vest­ment by a Chi­nese company in the US oil patch.

While large Chi­nese state-owned oil com­pa­nies — such as CNPC, Sinopec and CNOOC — base most of their op­er­a­tions in en­ergy trade, re­search and eq­uity par­tic­i­pa­tion in Texas, a pri­vate Chi­nese petro­chem­i­cal company — Shan­dong Yuhuang Chem­i­cal Inc — ini­ti­ated in July a $1.85 bil­lion FDI project to build a methanol man­u­fac­tur­ing com­plex in Louisiana. It is pos­si­bly the largest Chi­nese in­vested methanol project in the US to date.

Charlie Yao, CEO of Yuan­huang Chem­i­cal Inc, the North Amer­i­can sub­sidiary of Shan­dong Yuhuang, said that fac­tors such as bet­ter in­cen­tives from Louisiana led to his choos­ing Louisiana over Texas for the plant. How­ever, Yao said the company based its head­quar­ters in Hous­ton be­cause of a bet­ter tal­ent pool. The of­fice em­ploys about 20 peo­ple and will even­tu­ally ex­pand to about 50 as the methanol project pro­gresses.

While PetroChina’s Li Shaolin cites in­ter­nal pol­icy as the pri­mary rea­son for not hav­ing in­vested in pro­duc­tion projects, Yao said he sensed hes­i­ta­tion from the US business com­mu­nity when it comes to China’s state-owned com­pa­nies.

“When I was look­ing for business part­ners, I was al­ways asked with­out ex­cep­tion if Yuhuang is state-owned. Upon a neg­a­tive an­swer, the re­sponse was al­ways, ‘Then we can do business with you.’ I think the US is gen­er­ally cau­tious of China’s state-owned en­ter­prises when en­ergy as a pri­mary re­source is in­volved,” said Yao.

Hous­ton Chi­nese Con­sul Gen­eral Li Qiang­min, while ap­plaud­ing the grow­ing trade and in­vest­ment be­tween China and Texas, said he hopes that the US does not politi­cize trade and eco­nomic is­sues, and will re­lax its re­stric­tion on the ex­port of high-tech prod­ucts to China. He said the US should be more co­op­er­a­tive with China in en­ergy and in­fra­struc­ture, and elim­i­nate some “un­rea­son­able re­stric­tions im­posed on in­vest­ment in the US by Chi­nese com­pa­nies.” Suc­cess­ful model

Jensen Shen of the Greater Hous­ton Part­ner­ship said that merg­ers and ac­qui­si­tions are hap­pen­ing fre­quently among medium and small-sized com­pa­nies be­cause “they don’t usu­ally cause at­ten­tion and meet re­sis­tance.”

A suc­cess­ful ex­am­ple, he said, is Rigid Global Build­ing, which spe­cial­izes in con­struct­ing metal build­ings.

Rigid is a re­struc­tured company from the for­mer Rigid Build­ing Sys­tem (RBS), said Bowen Lo, COO of Rigid. The Hous­ton-based RBS was ad­versely af­fected by the 2008 fi­nan­cial cri­sis and ran out of money after it in­vested in build­ing a $10 mil­lion plant in Alabama. In Jan­uary 2011, Jin­huan Steel Struc­tures from China’s He­bei prov­ince bought a 51 per­cent con­trol­ling share of RBS for an undis­closed amount after it went through bank­ruptcy and formed the cur­rent Rigid.

Lo, who worked in equip­ment trade for 30 years in the US, served as the match-maker be­tween Rigid and Jin­huan, was later hired to help run the company and act as a bridge be­tween Chi­nese and US share­hold­ers.

“Rigid’s em­ploy­ees have in­creased from 220 at the time of M&A to about 330 now. We are grow­ing and do­ing very well in business. Our rev­enue in 2013 was $60 mil­lion, and the rev­enue for 2014 is es­ti­mated to be $70 mil­lion. Also, we are close to com­plet­ing a $7 mil­lion new plant in north Hous­ton with the size of 124,000 square feet,” said Lo.

Prior to the merger, Rigid had no Chi­nese em­ploy­ees; now there are about 10 Chi­nese em­ploy­ees. “We only hire Chi­nese em­ploy­ees who have a US ed­u­ca­tion to keep the man­age­ment smooth. So far, no Chi­nese have been sent from China,” he said.

He con­sid­ers Rigid a good model for other Chi­nese com­pa­nies to em­u­late when con­sid­er­ing in­vest­ing in the US:

“A new start-up has to spend con­sid­er­able time to build the team and sales, and of­ten doesn’t see re­turn un­til two years later. Jin­huan by­passed all that by uti­liz­ing the ex­ist­ing wellestab­lished man­age­ment and em­ploy­ees,” he said.

The‘

state’s ro­bust econ­omy, af­ford­able liv­ing, and the in­creas­ing di­rect Texas-China flights are help­ing Texas to at­tract more Chi­nese in­vestors and im­mi­grants.” AUSTIN ZHAO CHAIR­MAN-ELECT OF HOUS­TON’S ASIAN CHAM­BER OF COM­MERCE

LNG ex­ports

Texas could po­ten­tially in­crease its ex­ports to China sig­nif­i­cantly if the tight US pol­icy on the ex­port of liq­ue­fied nat­u­ral gas (LNG) is re­laxed.

Un­der cur­rent US en­ergy pol­icy, Amer­i­can com­pa­nies can ex­port LNG with­out many ob­sta­cles to free trade agree­ment (FTA) coun­tries, but a lengthy ap­pli­ca­tion and re­view process with the US Depart­ment of En­ergy (DOE) is in­volved when it comes to LNG ex­ported to non-FTA coun­tries. China, which has per­haps the big­gest de­mand for en­ergy in the world , is not an FTA coun­try.

An ef­fort by Texas business lead­ers and probusi­ness law­mak­ers led to pas­sage of House Res­o­lu­tion 6 – the Do­mes­tic Pros­per­ity and Global Free­dom Act – in June, and it’s pend­ing ac­tion in the Se­nate.

The bill places a 30-day dead­line on DOE to is­sue a fi­nal decision on ap­pli­ca­tions to ex­port LNG fol­low­ing the con­clu­sion of a Na­tional En­vi­ron­men­tal Pol­icy Act (NEPA) re­view, and re­quires ex­pe­dited ju­di­cial re­view by the US Court of Ap­peals if DOE fails to meet the dead­line.

Texas State Rep­re­sen­ta­tive Gene Wu, who sup­ports LNG ex­ports to China, said: “If this get passed in the Se­nate and signed by the pres­i­dent, it will be huge for Texas and China. Texas has a lot of gas and re­finer­ies, and all those LNG traders are wait­ing to do trade with China.” Con­tact the writer at mayzhou@chi­nadai­lyusa.com

LUO JIE / CHINA DAILY

JEREMY FUCHS / TEXAS DEPART­MENT OF AGRI­CUL­TURE

State Agri­cul­ture Com­mis­sioner-elect Sid Miller (left) presents Texas cow­boy hats on Mon­day to mem­bers of a Chi­nese del­e­ga­tion from Gansu prov­ince, who were at the state cap­i­tal of Austin to dis­cuss trade.

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