China is welcome on Wall Street... BUT
- From: Raymond <Bluerhymer@xxxxxxx>
- Date: Fri, 29 Feb 2008 00:58:24 -0800 (PST)
China is welcome on Wall Street, but its foreign acquisitions are
still provoking unease
By JOE McDONALD,AP
Posted: 2008-02-22 00:29:33
BEIJING (AP) - Flush with hundreds of billions of dollars, China Inc.
is still having trouble investing abroad, running into foreign
security worries as it tries to acquire companies and resources.
The latest casualty: A deal by a Chinese maker of telecom gear and an
American private equity firm to buy U.S. tech company 3Com.
The bidders say they just want to make money. But acquisitions are a
political minefield because many Chinese buyers are owned by or close
to the communist government, feeding fears that Beijing might gain
access to military technology or control of strategic resources.
"Where it looks purely commercial, everyone finds that acceptable, but
where it touches on resources or security concerns, it just falls into
a different basket," said William Hess, China analyst for the
consulting firm Global Insight. "As soon as politics enters into the
equation, it raises the risks for all parties. It's not just a
business case."
The arrest this month of a Pentagon employee charged with selling
military secrets to a man accused of being a Chinese spy "certainly
doesn't help the political climate in Washington," he said.
On Wednesday, Huawei Technologies Co. and its American partner, Bain
Capital, withdrew a request for U.S. government approval of their US
$2.2 billion (euro1.5 billion) bid to buy 3Com. The companies said
they failed to satisfy national security concerns.
American lawmakers and officials had expressed concern that sensitive
technology could be transferred to China through Huawei's 16.5 percent
3Com stake. A person familiar with the matter told The Associated
Press that Bain offered to sell its Tipping Point subsidiary, which
makes network-security software.
China's government said Thursday the Huawei bid was commercial and
appealed to Washington to handle it fairly.
"We hope the relevant U.S. authorities can deal with the case in
accordance with law so as to create a fair and favorable environment
for Chinese enterprises in the United States," said Foreign Ministry
spokesman Liu Jianchao.
American opposition to such purchases is prompted by unease about
China as a strategic rival, rather than details of individual deals,
said Joseph Cheng, chairman of the Contemporary China Research Center
at the City University of Hong Kong.
"There is this perception that China is the most serious threat that
the United States will face in coming decades, and this perception has
colored the opposition to these mergers and acquisitions," he said.
Unease about China's acquisitions extends to Europe, Australia and
elsewhere.
It has been fueled by questions about how China's US$200 billion
(euro136 billion) sovereign wealth fund, launched last year, will
invest and whether its financial muscle will be used to push official
policy.
European Union Economy Commissioner Joaquin Almunia said in September
the EU might restrict investments by such funds if they fail to
disclose more about what they invest in and why.
On Sunday, Australia issued new foreign investment rules, saying it
would look more favorably on proposals by state-controlled entities
that operate on a transparent and commercial basis.
Such investors might "pursue broader political or strategic objectives
that could be contrary to Australia's national interest," the
guidelines said.
China burst onto the acquisitions scene when computer maker Lenovo
Group agreed in December 2004 to buy IBM Corp.'s personal computer
unit in a US$1.75 billion deal. Some critics cited possible security
risks, but the sale went through after U.S. regulators apparently
decided PCs were too generic to pose a threat.
The following year, state-owned oil company CNOOC Ltd. ran into a
firestorm when it tried to buy Unocal Corp. CNOOC dropped its bid for
the U.S. oil and gas producer after opponents said it might endanger
energy security.
Since then, China has refined its strategy, trying to shield itself
from criticism by forging partnerships with U.S. and other companies
to make sensitive investments. Last year, state-owned China
Development Bank invested in Barclays PLC and committed financing to
the British bank's takeover bid, ultimately unsuccessful, for Dutch
rival ABN Amro.
In January, state-owned Aluminum Corp. of China teamed up with U.S.-
based Alcoa Inc. to buy 12 percent of Rio Tinto PLC, complicating a
bid for the mining giant by Australia's BHP Billiton Ltd.
Huawei, the 3Com bidder, exemplifies the ambiguous status of Chinese
companies.
The company says it is private, but its founder and chairman is a
former soldier and early customers included China's military and state-
run phone companies. Huawei adds to the mystery by declining requests
for interviews and information.
"Even when Huawei and other companies say they're not connected to the
government, no one really believes them, in Huawei's case with good
reason, because it has deep ties to the military," Hess said.
China's purchases of overseas assets have soared over the past two
years as Beijing encouraged companies to go abroad in hopes of
reducing reliance on export-driven manufacturing.
Chinese acquisitions in the United States rose to US$226.6 million
(euro155 million) last year, more than 16 times the 2006 level of US
$13 million, according to research company Dealogic PLC. So far this
year, another US$162.7 million (euro111 million) in deals have been
announced.
Most passed without comment, such as Wuxi Pharma Tech Inc.'s US$163
million (euro111.22 million) purchase of AppTec Laboratory Services
Inc., a supplier of medical tests in St. Paul, Minnesota.
In December, Wall Street welcomed a US$5 billion (euro3.4 billion)
investment by China's sovereign wealth fund in Morgan Stanley that
helped replenish the bank's assets after heavy subprime mortgage
losses.
In Europe, Chinese acquisitions last year totaled US$563.2 million
(euro384.28 million), according to Dealogic.
European and U.S. state governments states eagerly try to woo Chinese
money. Last year, Alabama Gov. Bob Riley brought a 50-member
delegation of businesspeople to China to meet potential investors.
Despite such lobbying, China's elite will take the failure of a 3Com
bid as proof the United States wants to slow their country's economic
and technological rise, Cheng said.
"It will certainly reinforce the image that the United States doesn't
want to see a strong China," he said.
Copyright 2008 The Associated Press. The information contained in the
AP news report may not be published, broadcast, rewritten or otherwise
distributed without the prior written authority of The Associated
Press. Active hyperlinks have been inserted by AOL.
02/22/08 00:19 EST
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