APRIL 6, 2010.

U.S. Cities Seek to Woo Chinese Investment

Officials See a Boon for Local Economies in Growing Number of Entrepreneurs Dipping a Toe in American Market

COLLEGE PARK, Md.—Chinese companies are increasingly looking to invest in the U.S., and state and local governments are scrambling to win a share of the money. But Chinese companies' go-slow approach and a longstanding preference for investing in Asia may leave governments disappointed.

Over the weekend, Chinese auto maker Zhejiang Geely Holding Group announced that it would buy Volvo from Ford Motor Co. for $1.8 billion. Even as such occasional, major deals grab headlines, many smaller mergers and acquisitions and so-called greenfield investments—in which an investor sets up a factory, office or other facility—involving Chinese firms are quietly taking place across the country.

Georgia is home to about a half-dozen Chinese ventures, including a soy-sauce plant. Texas has a handful of Chinese telecommunications and industrial manufacturers. In Milwaukee, Wis., Beijing's Toward Group has bought a shopping mall.

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.The trend stems in part from Beijing's moves to ease restrictions on overseas investments, as it seeks to nurture homegrown multinationals. Many Chinese firms, flush with cash or squeezed by competition, are casting abroad for new markets, technology and product lines.

Chinese and U.S. officials and trade groups note growing interest among potential Chinese investors over the last 24 months, with oversubscribed attendance at investment fairs, increasing numbers of inquiries concerning U.S. investment opportunities, and more delegations visiting the U.S.

"I think within the next two or three years, we will see a big wave" of Chinese investment into the U.S., says Clarence Kwon of Deloitte Services LP's Chinese services group.

The trend could bring much-needed jobs and investments to states hit by the recession, and they are pulling out all the stops to attract Chinese investment. That includes opening offices in China, offering preferential tax policies and hosting Chinese delegations.

In Maryland, officials are betting on an international incubator at the University of Maryland here in College Park. Seven of 11 companies approved so far to open offices are from China, and director Kai Duh says more Chinese investors are in talks to come.

"The goal is the same for every company," he says. "They would like to successfully enter the U.S. market. We'd like them to hire Maryland citizens and pay taxes."

.China's direct investment in the U.S. increased more than threefold to $1.24 billion in 2008 from 2002, according to the U.S. Bureau of Economic Analysis. Still, China accounts for only a sliver of overall foreign direct investment in the U.S.—0.05% as of 2008, the most recent year for which data are available. While China's total investment abroad has surged in recent years, rising to $55.9 billion in 2008 from $26.5 billion in 2007, according to Chinese data, the bulk has continued to go to Asia.

U.S. states have since the 1980s actively sought foreign investment, mostly from Western Europe, Japan and Canada. Those hoping China will soon become the new Japan—which stepped up its U.S. investments significantly beginning in the 1980s—are likely to be disappointed. Generally, the amount of Chinese investment remains small and the process of securing projects is slow.

Chinese Embassy spokesman Wang Baodong says Chinese investment in the U.S. is a "win-win" for both sides. But Chinese companies remain wary about investing here, he says, after U.S. security concerns scuttled a bid by state-owned CNOOC Ltd. to buy Unocal Corp. in 2005. Many Chinese companies also prefer a go-slow approach.

Overseas investing is new to many Chinese companies, and they tend to spend a lot of time looking and planning before making any commitments. Many start off small, hiring a few people with plans to expand over several years if business goes well.

China Heaven Creation International Performing Arts Co. of Beijing spent 10 months doing market surveys and due diligence, hiring an American lawyer to help, before buying a theater in Branson, Mo., for $3.54 million.

"We found we could buy the theater for the equivalent of three or four years' rent," said Chief Executive Cao Xiaoning. "This is the first time for us" to invest overseas, Mr. Cao said, estimating the venture will generate 30 local jobs.

States are aggressively going after Chinese investors. In 2005, China surpassed Mexico and Japan as the top site for states' overseas offices, with 30 offices there last year, compared with 26 for Japan and 20 for Mexico, according to the State International Development Organizations, a group representing state international trade agencies.

John Ling, who heads South Carolina's office in Shanghai, says he used to focus on export promotion, but now "90% of my effort is on FDI. What we're after are projects from China that can create a substantial amount of jobs and investments." He says he fields about three or four calls each month from potential Chinese investors, up from about one previously.

"To work on Chinese prospects is still a very time-consuming and frustrating process," he says. But even small projects "can help us recruit other businesses."

Missouri is hoping to lure Chinese companies with a plan to turn the Lambert-St. Louis International Airport into an air-freight hub for Chinese goods. The state signed a memorandum of understanding with Chinese authorities in 2008, but little progress has been made.

Mr. Wang of the Chinese Embassy says the embassy "feels it's a good project" and has helped set up meetings for Missouri officials with relevant Chinese agencies.

Now state and local officials have raised $2.2 million in federal grants and local funding from business and civic organizations to jump start the initiative, says Mike Jones, chairman of the Midwest-China Hub Commission. "If you can pull this off, you'll have hit the lottery," he says.

Experts say there are many reasons such agreements stall, including a lack of interest or of a main entity to push it along on either side. Also, multiple agencies in China would have to be involved in such an ambitious venture, which can involve turf battles and red tape. Without an agency or high-level official to oversee such projects, it is often hard for them to gain momentum.

Rockford, Ill., a city of about 150,000 near Chicago, has hired two China experts to woo Chinese investment, hosted four Chinese delegations last year, and established a "China help desk" to respond to inquiries from potential Chinese investors.

Last March, Wanxiang America Corp., a subsidiary of Chinese auto-parts maker Wanxiang Group Corp., said it would build a solar-panel assembly plant in Rockford. City administrator Jim Ryan says Wanxiang is expected initially to start out small with 60 employees and eventually increase that to more than 200, with a total $12.5 million investment. The city and state are providing $5 million in incentives.

"There are over $1.3 trillion [in foreign-exchange reserves] currently locked up in the Chinese economy that the Chinese government is encouraging its people and companies to place back into the United States," Mr. Ryan says.

Maryland is committing nearly $600,000 over three years to build up the Maryland International Incubator, in a bid to attract high-tech companies from China and elsewhere to collaborate with University of Maryland researchers.

Shanghai entrepreneur Steven Hu has set up in a corner office. His U.S.-China Training Service Center is working with the University of Maryland to enroll Chinese executives and students in business-oriented programs at the university.

"A lot of executives are very successful in the China market, but they are interested in learning about the international market," says Mr. Hu. He estimates a $500,000 investment here will generate at least 10 local jobs, adding that program participants could later decide to invest in Maryland.

Take Zhang Yajie, who attended an early course. Mr. Zhang, who has stakes in four manufacturing businesses in eastern China, plans to enroll a handful of employees in the program, then set up a company at the incubator.

Rising labor costs in China are squeezing his companies' profits, he says, and Maryland offers an opportunity to tap new capital and innovations, which could be developed for manufacturing back home. One product he likes: a non-stick gauze for treating wounds.

"We've never been overseas before, and our risk is very big," Mr. Zhang says. "But the bigger risk we face is over our survival. If we don't transform ourselves, sooner or later we will collapse."

—Kersten Zhang in Beijing contributed to this article.

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