Chinese investment in Pennsylvania spikes, but more could be done to attract interest

John Bittner, a lay out welder John Bittner, a lay out welder, grinds cut out holes for a transformer cover at Scottdale transformer manufacturing firm R.E. Uptegraff.

Andrew Rush/Post-Gazette

John Bittner, a lay out welder, grinds cut out holes for a transformer cover at Scottdale transformer manufacturing firm R.E. Uptegraff.

By Eddy Wang / Pittsburgh Post-Gazette

Chinese direct investment in Pennsylvania has totaled more than $245 million in the past two and a half years — a surge of more than 1,000 percent since 2013 — but it still accounts for less than 1 percent of the total nationwide, according to investment advisory firm Rhodium Group of New York City.

Some argue that the Keystone State — and the Pittsburgh region, in particular — needs to do better.

“Southwestern Pennsylvania should be one of the hottest areas in the entire U.S. for Chinese investment,” said David Iwinski Jr., managing director of Downtown consulting firm Blue Water Growth. “Our region has perhaps not presented itself as the strongest [investment] location.”

The Chinese have invested $54 billion in the U.S. since 2000, the Rhodium Group reported.

Among the biggest deals in recent years were Wanda Group’s $2.6 billion acquisition of AMC entertainment in 2012 and WH Group’s $7.1 billion acquisition of Smithfield Foods in 2013. Both companies have operations in Pennsylvania.

Data from Rhodium Group shows Chinese companies are acquiring ownership stakes in American companies at a higher rate than they are constructing new facilities in the U.S.

As Chinese companies are becoming increasingly profitable, they have pursued the opportunity to expand overseas, particularly in America. Mr. Iwinski said Chinese companies prefer acquisitions because it is cheaper to keep existing clients than to find new ones.

Relaxed rules on foreign investments by the Chinese government have driven the boom. The recent stock market crash in China also may be fueling foreign investment as Chinese companies look to diversify their assets.

Selling Southwestern Pennsylvania

Mr. Iwinski said Southwestern Pennsylvania should be appealing because it is strong in manufacturing, a sector in which Chinese companies like to invest; the cost of living and quality of life is reasonable; and the region has resources in the medical devices, environmental technology and energy technology sectors that have proven of interest to many Chinese companies.

Last year, China-based Taizhou Fuling Plastics Co., which makes plastic tableware and kitchenware, decided to invest $21 million in a manufacturing site in Lehigh County that would create 75 jobs.

Fuling chose Lehigh County after meeting with a representative of the state’s Office of International Business Development. That office recently launched a joint venture partnership initiative meant to help connect international companies looking to partner with businesses in the state, said Daniel Carrigan, press aide at the Pennsylvania Department of Community & Economic Development.

So far, the most tempting target for Chinese investors in both the state and the country has been the energy sector.

In December 2013, Colorado’s Energy Corp. of America announced it was pursuing a joint venture with China’s state-owned Shenhua Energy Co., one of the largest coal companies in the world, to develop 25 natural gas wells in Greene County.

Matt Flavin, senior vice president of Energy Corp. of America, said total investment in the venture has been $150 million. Shenhua contributed the first $90 million, and Energy Corp. agreed to operate the wells, with additional capital spending split evenly among the two companies.

“We are shale gas experts, and Shenhua came to us because they were interested in better understanding shale gas development,” he added. “While I cannot speak for Shenhua, I believe their interests have been in gaining knowledge and investing in the U.S., rather than moving gas to China.”

The U.S. Energy Information Administration reported in 2014 that although China’s shale gas reserves are the largest in the world, “China lacks technical expertise and adequate infrastructure which, coupled with the difficult geology of Chinese reserves, makes recovery challenging.”

Shenhua’s American subsidiary, located in Canonsburg, could not be reached for comment.

Kurt Rankin, assistant vice president and economist at Pittsburgh-based PNC Financial Services, believes the lack of export infrastructure is holding investors back from capitalizing on declining U.S. natural gas prices.

Strengths and weaknesses

Pennsylvania has been receiving consistent Chinese investment in health and biotechnology. Four deals have been completed since 2013 worth $88 million, according to Rhodium Group. The biggest was a 2014 majority ownership stake acquisition of Exton pharmaceutical development company Frontage Laboratories for $50 million by Hangzhou Tigermed Consulting Co.

Other sectors receiving considerable investment include basic materials and industrial machinery and equipment.

In September, Blue Water Growth brokered a deal with China’s Shenda Electric to acquire Scottdale transformer manufacturing firm R.E. Uptegraff. Although the value of the deal wasn’t disclosed, Mr. Iwinski said that out of three serious bids, Shenda’s offer contained the best mix of value, commitment to keeping the business in Scottdale and retaining employees.

Li Shun Li, the new general manager of Uptegraff, said Shenda has not only kept all existing employees but also has hired additional workers since the sale.

Like Uptegraff, Shenda Electric is a transformer manufacturing company. It operates at a much larger scale, with average sales above $100 million, according to the company’s profile on Alibaba.com.

Mr. Li said acquiring Uptegraff allowed Shenda to expand into the American market.

Eddy Wang: Twitter @eddywang21.

http://www.post-gazette.com/business/pittsburgh-company-news/2015/08/16/Chinese-investment-in-Pennsylvania-spikes-but-more-could-be-done-to-attract-interest/stories/201508060195

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