U.S. Companies Woo Chinese Investment

By DINNY MCMAHON and CAROLYN CUI, The Wall Street Journal, Nov 5th, 2012

More American companies are trying to get Chinese investors to write checks in the U.S. and cash-strapped states are getting in on the sales pitch. The WSJ’s Dinny McMahon discusses the challenges American companies face in wooing Chinese investors.

MADISON, Wis.—Sun Wenbin and his colleagues from China got the red-carpet treatment on a recent trip to the U.S.

Over 10 days, Mr. Sun and 60 other Chinese entrepreneurs and executives were welcomed by former President George W. Bush, and courted by businesses ranging from a shrimp breeder in Orlando to a real-estate developer in Dallas and an alternative-fuel company in Madison. The wooing was part of an effort by local governments to attract more investment from the Chinese, who despite their newfound wealth have the reputation in some quarters as window-shoppers rather than deal-makers.

Mr. Sun—a 50-year old who owns 11 electronics stores in Handan, a city three hours by train south of Beijing—said he was impressed with some of the technology he saw, and his travel companions gushed about the hospitality and clean environment. But, as with many Chinese entrepreneurs who made their fortunes during the country’s economic boom of the last decade, he worried it would take a long time to earn a profit on some of the investment opportunities presented.

“Life is short. I just want to make a few big deals,” said Mr. Sun, over lunch in Madison during the trip. After returning to China, Mr. Sun said none of the projects he saw met his criteria for investing. “The returns are too low.”

In the wake of the global financial crisis, cashed-up Chinese companies were widely expected to swoop in and buy up struggling businesses in hard-hit Western economies. Instead, they mostly went shopping for natural resources in developing economies.

Sun Tao

Now there is an intensifying campaign to get Chinese investors to write checks in the U.S. The tour group including Mr. Sun is alone capable of investing more than $1 billion, organizers said, which is why cash-strapped states are getting in on the sales pitch.

In Wisconsin, the group dined in Gov. Scott Walker’s mansion on a showcase of local products, including Asiago cheese and herb-crusted tenderloin. “We have big hopes and dreams” for the group, said Rebecca Kleefisch, Wisconsin’s lieutenant governor.

The tour also met with Texas Gov. Rick Perry and Florida Gov. Rick Scott.

Chinese investment into the U.S. is already on the rise. According to Rhodium Group, a New York consulting firm that tracks Chinese outward investment, companies there invested $6.3 billion into U.S. companies and projects between January and September, more than the $5.8 billion invested in all of 2010, the previous record for annual investment.

While energy deals still take up the majority of new investment, a slowing domestic economy in China has small and private entrepreneurs looking for opportunities overseas to earn a better return or give them an edge back in their home market.

Carolyn Cui/The Wall Street Journal

Chinese investor Shen Youqiang rides a motorcycle made by Wisconsin-based Erik Buell Racing LLC.

But obstacles remain, often related to the fact that many Chinese have never invested overseas before—one reason they developed a reputation for being slow to commit. The trend could also slow if Chinese investors feel they aren’t welcome in the U.S.

In late September, the Obama Administration, citing national security, nullified the purchase of four wind-farm projects sites within or near restricted air space in Oregon by a company owned by two Chinese nationals. A week later a congressional report warned that telecommunications equipment made by Chinese companies Huawei Technologies Inc. and ZTE Corp. 000063.SZ +1.42% pose a threat to U.S. security.

Still, things are changing. “It’s getting easier [to do deals] because the U.S. side is learning and more willing, partly…because of the need for capital,” said Hanson Li, head of the San Francisco office of Hina Group, a Chinese investment bank, who wasn’t involved in the U.S. tour. But he said patience is needed “so things don’t turn sour on the U.S. side.”

The visit by Mr. Sun’s group was organized by a Chinese private-equity firm, Piyi Investment Co., that opened its first overseas office in the Trump Building on Wall Street. Many members of the group had never traveled outside of China.

The trip started on Sept. 20 in Dallas and then the group split up, with some heading to Orlando, where they visited Universal Studios, before heading on to Wisconsin. The others went to Los Angeles and Portland, Ore., where they toured the local vineyards, before reconnecting with the rest of the group in Washington, D.C., where the State Department hosted a reception. The trip ended in New York.

The group met with more than 100 companies, including a no-frills airline in Florida, a golf course in Texas, and a company making power from biomass in Oregon.

The companies, which were asking for funding of between a few million dollars and $275 million, according to a Piyi prospectus, were also involved in health care, agriculture or environmental technologies such as water treatment—all areas Beijing is trying to promote—as well as real estate and vineyards.

While no deals have been done yet, the investor group has asked for more information from 25 of the companies they met with, and plan to decide which they are interested in investing in by mid-December, according to Piyi. One investor has already taken the first step by signing a letter of intent with a California-based life-sciences company looking for $27 million in backing, the fund said.

Scott Mosley, foreign direct investment manager for the Wisconsin Economic Development Corp., said he was aware of a number of requests from individual investors for more information on the Wisconsin companies. “I think that the largest challenge in getting American entrepreneurs and Chinese investors to a deal is setting the right environment where each side…can operate in a manner and at the speed to which they are accustomed,” he said.