Is Chinese Investment Welcomed in the United States?
Recent business news about foreign direct investment from China into the United States must be confusing to Chinese companies seeking to invest here. On the one hand, there is the controversial acquisition by the Japanese bank, Softbank of the U.S. telecommunications operator Sprint. The deal is controversial because the Sprint network includes hardware provided by Huawei, a Chinese telecommunications manufacturer. (Disclosure: Huawei is a client of FleishmanHillard). There are reports that U.S. national security officials have demanded that Huawei equipment be removed as a condition of approving the deal. This condition could be read as further evidence that the U.S. does not welcome Chinese investment.
On the other hand, there is the just announced acquisition of Smithfields Foods by Shuanghui International Holdings, Ltd. While this deal has only been in the news for a few days, early coverage is mostly, though not entirely, favorable. In a sign that Chinese companies have become more sophisticated in how they communicate around their business activities outside of China, the messages around the Shuanghui/Smithfields deal were delivered mostly by Americans. Here’s Smithfield CEO C. Larry Pope, seeking to anticipate and rebut criticism:
I know how people react — that we are selling out to the Chinese. This is not selling out to the Chinese. This is Smithfield being part of a global organization. There will be no impact on how we do business in America and around the world. . . . This is about America exporting.
While his quote is a bit more defensive than I would like to see, he does seek to turn the potential criticism around and make the business case that shows how this acquisition provides benefits to Americans.
Clearly, the communications team prepared well for this announcement by getting outside voices to emphasize how this deal will help Americans. Conservatives in America are very suspicious of China from a geopolitical perspective. Yet, the Secretary of Agriculture and Forestry from Virginia’s very conservative state government said the following:
We’re looking at this as a really good thing. China represents the grand prize, as far as pork exports are concerned.
The other lesson from this rollout out is that, while Chinese investment often faces challenges in Washington, it is welcomed at the state and local levels. Chinese investment in the U.S. becomes controversial when it draws the attention of the federal government, mostly on issues of national security, but also when American economic supremacy is threatened. In some ways, Huawei runs into both challenges. With the global focus on cybersecurity, telecommunications is clearly a sensitive industry. Moreover, Huawei enormous success throughout most of the world, threatens the U.S. self-image as a leader in technological innovation. The fact is there is no longer any significant manufacturing in telecommunications in the U.S. Most is done in China by both Chinese and non-Chinese companies alike.
Frankly, Huawei bears the burden of being a pioneer in foreign direct investment from China. While the company is quintessentially global in both its ambitions and its business practices, in the U.S., it has become symbolic of all that Americans fear about China. And Washington has become the locus of that fear. Demonstrating how different it is in the states, even Huawei, with all its challenges in Washington, received a warm endorsement from very conservative Texas Governor Rick Perry that is preserved in video on YouTube in which he compared Huawei’s founder, Ren Zhengfei, to his own father.
So, Chinese companies seeking to invest in the U.S., are advised to do so in ways that do not raise concerns in Washington. Either coincidentally or by design, the Smithfield acquisition was announced while Congress was in recess. If by design, it is further evidence of the sophistication of this rollout and the extent to which Chinese companies are learning from the experiences of deals that went before.
A former U.S. Treasury official who once had oversight of foreign direct investment in the U.S., once said to me, “If Huawei wants to be accepted in the United States, it should seek to acquire a hot dog stand.” His point was that getting a non-controversial deal approved is the best way to gain the U.S. “seal of approval” that could open the door to future opportunities. Shuangui appears to have taken that advice to heart and executed on a grand scale with its acquisition of the world’s largest pork producer. Other Chinese companies “going out” should take note.