Foreign Interests Buy U.S. Holdings at a Record Pace


The most conspicuous beneficiaries are Wall Street banks like Merrill
Lynch, Citigroup and Morgan Stanley, which have sold stakes to
government-controlled funds in Asia and the Middle East to compensate
for calamitous losses on mortgage markets.

Beneath the headlines, a more profound shift is under way:

Foreign entities last year captured stakes in American companies in
businesses as diverse as real estate, steel-making, energy and baby
food.

The influx is the result of a confluence of factors that have made the
United States both reliant on the largesse of foreigners and an
alluring place for opportunistic investors.

With American banks reeling from the housing downturn and loath to
lend, businesses are hungry for cash.

The weak dollar has made American companies and properties cheaper in
global terms, particularly for European and Canadian buyers.

Even as Americans confront the prospect of a recession, economic
growth remains strong worldwide, endowing oil producers like Saudi
Arabia and Russia and export powers like China and Germany with
abundant cash.

As the German company ThyssenKrupp Stainless broke ground in November
on what is to be a $3.7 billion stainless steel plant in Calvert,
Ala., its executives spoke effusively about the low cost of production
in the United States and the chance to reach many millions of
customers ? particularly because of the North American Free Trade
Agreement, which allows goods to flow into Mexico and Canada free of
duty.

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Foreign giants like Toyota Motor and Sony have been sinking capital
into American plants.

Investment in the American subsidiaries of foreign companies grew to
$43.3 billion last year from $39.2 billion the previous year,
according to the research and consulting firm OCO Monitor.

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Some labor unions see the acceleration of foreign takeovers as the
latest indignity wrought by globalization.

?It?s the culmination of a series of fool?s errands,? said Leo W.
Gerard, international president of the United Steelworkers.

?We?ve hollowed out our industrial base and run up this massive trade
deficit, and now the countries that have built the deficits are coming
back to buy up our assets. It?s like spitting in your face.?

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The United States has lost more than three million manufacturing jobs
since 2001, with foreign trade often taking the blame.

Foreign-made goods now account for roughly one-third of all wares
consumed in the United States, roughly tripling their share over the
last quarter-century.

The soaring price of oil and a widening trade deficit underscore how
the American economy is increasingly vulnerable to decisions made far
away.

In 2005, Congressional opposition scuttled a bid by the state-owned
Chinese energy company Cnooc to buy the American oil company Unocal.

The following year, furor on Capitol Hill prevented DP World, a
company based in the United Arab Emirates, from buying several major
American ports.

No such outcry has greeted the purchase of stakes in major Wall Street
banks by state investment funds in the United Arab Emirates, Kuwait,
China, Singapore and South Korea.

This is largely because the banks sold passive slices and ceded no
formal control, which would have set off a federal review of the
national security implications.

But the silence also reflects the imperative that these enormous
institutions swiftly secure cash.

?It would be good if these companies didn?t need all this capital and
better if the capital was available in the United States,? said
Senator Charles E. Schumer, Democrat of New York, who was a vocal
opponent of the DP World deal.

?But given the situation that these institutions find themselves in
and the fact that there?s a pretty strong credit squeeze, there?s only
two choices: Have foreign companies invest in these firms or have
massive layoffs.?

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With the dollar weak and troubled American companies in a poor
bargaining position, the prices really do seem cheap, some economists
say.

?They?re buying financial assets at well under book value,? said Gary
C. Hufbauer, a trade expert at the Peterson Institute for
International Economics.

Trade experts assume tensions will rise as developing countries ?
which tend to have more state companies ? continue to expand their
share of investment in the United States.

Canada still spends the most money buying stakes in American companies
? more than $65 billion in 2007, according to Thomson.

But other countries? purchases are growing rapidly.

South Korea?s investments swelled to more than $10.4 billion last year
from just $5.4 million in 2000.

Russia went to $572 million from $60 million in that span; India to
$3.3 billion from $364 million.

But even if political tension increases, so will the flow of foreign
money, some analysts say, for the simple reason that businesses need
it.

?The forces sucking in this capital are much bigger than the political
forces,? said Mr. Garten, the Yale trade expert.

?If there is a big controversy, it will be between Washington on the
one hand and corporate America on the other. In that contest, the
financiers and the businessmen are going to win, as they always do.?



From The New York Times, 1/20/08:
http://www.nytimes.com/2008/01/20/business/20invest.html?_r=1&ex=1358485200&en=d3060c495138f9e2&ei=5088&partner=rssnyt&emc=rss&oref=slogin

Overseas Investors Buy U.S. Holdings at a Record Pace

By PETER S. GOODMAN and LOUISE STORY

Last May, a Saudi Arabian conglomerate bought a Massachusetts plastics
maker.

In November, a French company established a new factory in Adrian,
Mich., adding 189 automotive jobs to an area accustomed to layoffs.

In December, a British company bought a New Jersey maker of cough
syrup.

For much of the world, the United States is now on sale at discount
prices.

With credit tight, unemployment growing and worries mounting about a
potential recession, American business and government leaders are
courting foreign money to keep the economy growing.

Foreign investors are buying aggressively, taking advantage of
American duress and a weak dollar to snap up what many see as
bargains, while making inroads to the world?s largest market.

Last year, foreign investors poured a record $414 billion into
securing stakes in American companies, factories and other properties
through private deals and purchases of publicly traded stock,
according to Thomson Financial, a research firm.

That was up 90 percent from the previous year and more than double the
average for the last decade.

It amounted to more than one-fourth of all announced deals for the
year, Thomson said.

During the first two weeks of this year, foreign businesses agreed to
invest another $22.6 billion for stakes in American companies ? more
than half the value of all announced deals.

If a recession now unfolds and the dollar drops further, the pace
could accelerate, economists say.

The surge of foreign money has injected fresh tension into a running
debate about America?s place in the global economy.

It has supplied state governors with a new development strategy ?
attracting foreign money.

And it has reinvigorated sometimes jingoistic worries about foreigners
securing control of America?s fortunes, a narrative last heard in the
1980s as Americans bought up Hondas and Rockefeller Center landed in
Japanese hands.

With a growing share of investment coming from so-called sovereign
wealth funds ? vast pools of money controlled by governments from
China to the Middle East ? lawmakers and regulators are calling for
greater scrutiny to ensure that foreign countries do not gain
influence over the financial system or military-related technology.

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Harry






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