Sticking with China: Local firms -- shrugging off criticism of China's currency, acquisition moves -- press on with plans to expand in world's most populous country Sticking with China: Local firms -- shrugging off criticism of China's currency, acquisition moves -- press on with plans to expand in world's most populous country
Sunday, July 03, 2005
By Jim McKay, Pittsburgh Post-Gazette
While the takeover bids by Chinese companies for Unocal Corp. and Maytag are grabbing headlines and roiling public opinion, Bayer, Alcoa and other companies with ties to Pittsburgh are quietly marching forward with large projects in China.
The other story is of interest too.
Critics say China's currency policy gives it unfair advantage: "Critics say China's currency policy gives it unfair advantage
Sunday, July 03, 2005
By Jim McKay, Pittsburgh Post-Gazette
From Dave Frengel's perspective, there's not a lot of good to say about China these days.
The government affairs director for Penn United Technology, a tool, die and spare parts manufacturer in Cranberry, says he's all for global trade but believes China is being given too much of a free hand.
Let's talk about some miss-information a bit. The Yuan, the casual name for China's currency (RMB is its more formal name), has a rate of exchange that is hooked directly to the U.S.A.'s Dollar. The excange rate for the YUAN and Dollar is always at 8.1. They don't change. That's the policy set up by those in power now in Beijing.
There is nothing unfair about that policy. Zippo. What's unfair is all the crying that it's unfair. The Beijing policy means that the American politicians can't pull a fast-one on the world and deflate the value of the dollar -- or increase its value. The magic of the economic wizards -- or at least the wizards like to think of themselves as such -- is only a wish that can't be obtained nor controlled via DC's power brokers.
There is no 60% tax on US exports to China unless one thinks that there is a 100% tax on US goods to Japan because its dollar exchange is more like 1 to 100 (close enough for this blog) and not 1 to 8.1. It's just math. The US Dollar to Thai currency is 1 to 40 (or so).
That's taxing on small minds. It's called math. But, it isn't a "tax." It's called an exchange rate. Remember the lesson apples to apples and not to oranges.
I don't think it is wise for US Senators to force CHINA to revalue China's currency.
Funny then how the PG paper talks about Greenspan's meeting. The PG news is more than a month old. It is stale. China's policy was pondered. They did a double-clutch. They were going to set up a new export tax in China, but it was pulled a couple of days later and was never put into effect.
The PG must have run an old AP story. It is bad news.
Bristle onward Frengel, you protectionist who knows what is careless and reckless. Yeah right.
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Critics say China's currency policy gives it unfair advantage
Sunday, July 03, 2005
By Jim McKay, Pittsburgh Post-Gazette
From Dave Frengel's perspective, there's not a lot of good to say about China these days.
The government affairs director for Penn United Technology, a tool, die and spare parts manufacturer in Cranberry, says he's all for global trade but believes China is being given too much of a free hand.
It's manipulating its advantage in the global marketplace by keeping its currency, the yuan, artificially priced below the dollar, he said, and is buying companies, mineral rights and other assets all over the world that will only make China a much bigger economic, political and military power.
"I don't want to overreact to this -- we buy all kinds of companies all over the world, too," Frengel said of recently announced foreign acquisition plans by Chinese companies, including last month's $18.5 unsolicited bid for Unocal. "But the trends are alarming."
As much as China's moves on U.S. companies may be grabbing headlines and stirring a hornet's nest in Congress over concerns about national security, the more arcane issue of foreign currency is what really gets Frengel's goat.
He claims the yuan is pegged to the dollar in a way that it essentially acts as a 60 percent tax on U.S. exports to that country, a claim he says is backed by a recent issue of Economist magazine.
Others have put the differential closer to 40 percent -- that is, each dollar of U.S. goods imported into China cost 40 cents more after currency translation, and each Chinese product exported to the United States receives a comparable price advantage.
As a representative of Penn United and other smaller manufacturers on Capitol Hill, Frengel is pushing for passage of a bill co-authored by U.S. Reps. Duncan Hunter, R-Calif., and Tim Ryan, D-Ohio, that would define currency manipulation as an export subsidy. Such a determination would make China's pegged-dollar policy a violation of World Trade Organization laws, freeing companies and the Bush administration to seek relief through tariffs and other penalties.
But Frengel acknowledged that the White House and others do not appear willing to go the punitive route yet. Indeed, two senators sponsoring legislation aimed at forcing China to revalue its currency late last week said they would hold off pressing for a vote at the urging of Federal Reserve Chairman Alan Greenspan and Treasury Secretary John Snow.
Sens. Charles Schumer, D-N.Y., and Lindsey Graham, R-S.C., announced the delay after meeting with Greenspan and Snow at the Capitol, saying they have received indications from the officials that the Chinese were on the verge of moving voluntarily to a new currency system. The proposed legislation would impose across-the-board penalty tariffs of 27.5 percent on Chinese imports.
Frengel also fears another bill introduced last month by Rep. Phil English, R-Erie, could muddy the waters because it simply calls for imposing tariffs on China if the U.S. Treasury determines that Beijing has manipulated the currency markets by holding the yuan to an artificially low peg against the dollar. He and others note that the White House effectively has that power now.
Globalization is here to stay, said Frengel, who bristles at being called a protectionist just because he's pushing for the measures against China. "It's good for everybody. [But] There's an intelligent way to do it, and there's a careless, reckless way to do it."
(The Associated Press contributed to this report. Jim McKay can be reached at jmckay@post-gazette.com or 412-263-1322.)
Sticking with China: Local firms -- shrugging off criticism of China's currency, acquisition moves -- press on with plans to expand in world's most populous country
Sunday, July 03, 2005
By Jim McKay, Pittsburgh Post-Gazette
While the takeover bids by Chinese companies for Unocal Corp. and Maytag are grabbing headlines and roiling public opinion, Bayer, Alcoa and other companies with ties to Pittsburgh are quietly marching forward with large projects in China.
Bayer, a global company based in Germany with U.S. headquarters in Robinson, last week gave the go-ahead to construct a $450 million plant in China to produce the raw material used in making polyurethane -- the ubiquitous plastic found in a vast array of consumer goods. The facility is part of a $1.8 billion investment Bayer is making in Caojing, China, the company's largest financial commitment outside of Germany
Less than two weeks earlier, on June 20, Alcoa bought out the 40 percent interest of a joint venture partner in Shanghai to become sole owner of a 10-year-old factory that produces aluminum foil products for the pharmaceutical industry and other packaging uses in Asia. Alcoa's investment in the 360-employee facility totals $75 million.
They are among many U.S. companies with Pittsburgh connections that remain committed to China even as the high-profile bid for Unocal by a state-owned Chinese oil company and a bid for Maytag by a Chinese appliance maker, Qingdao Haier, exposes the paradox of U.S.-China relations: China is at once a land of opportunity for U.S. business -- and a source of fear.
The expanding export-driven Asian giant continues to keep its currency undervalued relative to the dollar, helping it rack up huge trade surpluses with the United States, suck away manufacturing jobs and dollars and spawn criticism on Capitol Hill and in corporate boardrooms.
But at the same time, China is recycling all that money back into U.S. Treasury securities, properties and companies, a big factor in keeping long-term interest rates low and food on the table of tens of thousands. And its increasing openness to Western investment makes it a potential gold mine for companies seeking to capitalize on the world's most populous country and fast-growing economy.
"You can't ignore it. China is both a threat and an opportunity," said Kevin O'Neill, executive director of Pennsylvania's Center for International Trade Development.
Alcoa sees China as an opportunity.
The latest purchase is one of a string of ventures for the company in China since the opening its first business office in Beijing in 1993. The investment is a recognition that China is the fastest-growing aluminum market in the world.
"We are staying the course," Alcoa spokesman Kevin Lowery said.
Alcoa now has nine wholly owned or joint-venture operating companies in China that produce foil, fasteners, automotive and construction products, plastic closures and decorative sheet.
It is also working on a major joint venture with the Aluminum Corp. of China Ltd. (Chalco), the largest producer of primary aluminum in China, to significantly increase both the aluminum refining and smelting capacity at a joint venture plant in southern China. And it is investing $200 million on a rolling mill at Bohai Aluminum, a joint venture with China International Trust & Investment, its equity partner.
Asia is a key growth area for Downtown-based PPG Industries, too. It expects next year to start up a second fiber glass manufacturing furnace in Kunshan, China, with a longtime joint venture partner, Nan Ya Plastics Corp. of Taiwan. The facility opened in 2003 and can accommodate four furnaces.
PPG's China investments began in the 1970s with chemicals. It later branched out into coatings and paints, drawn to Asia by global customers including the automobile industry.
"Our customers said, 'we're going to China, and you're coming with us.' It gave us a nice base of operations," said PPG spokesman Jeff Worden. "We started early, and we seek continued growth opportunities."
Westinghouse Electric Co., which was put up for sale last week by its corporate parent, British Nuclear Fuels, is also pinning hopes for significant future work on China.
It leads a consortium that hopes to build four huge nuclear reactors in China -- a multibillion-dollar project the company says could create or sustain some 4,000 to 5,000 jobs in the United States, many of them in this region.
Westinghouse is promoting its technology, a new reactor design said to be safer and more efficient; its ability to transfer that technology to China; and the jobs the projects would create in both countries. The award is expected to be made late this year.
On the smaller end of the scale, NeuralWare, a tiny software company in Carnegie, is starting to see the fruit of a technology license agreement it signed in 2003 with an instrumentation and control unit of the Wuhan Iron and Steel Co.
The agreement gave Wuhan the right to use NeuralWare's network technology for its own internal use and to sell it to other industrial companies in China. Two of those resale projects are now under way.
"The good news is, finally, in 2005 something is happening," said Chief Executive Officer Jack Cooper, who maintains optimism about the company's continuing prospects in China even though development to date has been slower than he had once hoped. "It is encouraging that this year there are two projects in the works."
That China is scouring the world to acquire energy resources with the wealth built by its manufacturing companies does not surprise Cooper, who travels to China four or five times a year on business. It's no different, he said, from a British or German company buying a business in the United States.
The China National Offshore Oil Corp., also known as CNOOC, has bid $18.5 billion for Unocal, a California oil company with large reserves in Asia, even though Unocal had earlier agreed to sell itself to the Chevron Corp. for $16.4 billion. A bidding war seems likely -- as well as hand-wringing and debate in the White House and Congress as free traders and protectionists debate the merits of global trade vs. the security implications of having a Chinese company own a domestic energy concern.
Dennis Unkovic, a Pittsburgh attorney who helps structure joint ventures and other alliances between U.S. firms and foreign companies, compares the current debate over China's buying spree to the years when Japan was buying up chunks of corporate America -- properties such as Rockefeller Center in New York and the Pebble Beach Golf Links in California.
At the same time, of course, Japanese companies also were building new plants in the United States -- a move that helped reinvigorate the nation's auto industry as domestic car companies were forced to match Japanese quality and one that ended with a big Sony plant landing in Western Pennsylvania, employing thousands.
"I didn't think then that the Japanese would take over the world and obviously, they didn't -- or if they did, I missed it," Unkovic said, noting that the Japanese sometimes paid inflated prices for what they bought, enriching American sellers. "Frankly, I think this time the Chinese potentially have more to invest in the United States over the long run than the Japanese did."
The Chinese acquisitiveness, including the purchase by Lenovo in December of IBM's personal computer business, has raised alarms among some politicians in Washington. The bids come as the U.S. trade deficit with China is rising and the country becomes more reliant on an inflow of Chinese capital to keep interest rates low.
CNOOC has hired expensive U.S. financial and media advisers and already is trying to blunt concerns that the transaction could hurt the American oil and gas markets. It notes that Unocal's U.S. reserves represent a minuscule amount of America's oil consumption, none of it now supplying the military.
The deal, if CNOOC ultimately beats out Chevron, must be approved by the Committee on Foreign Investments in the United States, a federal multi-agency group that can prevent foreign investment on national security grounds. The same panel already has approved the $1.75 billion sale of IBM's personal computer business to Lenovo.
The Chinese are, in part, picking up brand names known around the world and perhaps more importantly investing back in the United States some of the enormous sums sent over there in the last decade or two, Unkovic noted.
"For the last 20 to 30 years, American companies like General Electric have been investing vast amounts of money into China. For us to say, 'we can invest in you, but you can't invest here' -- you sort of can't have it both ways," Unkovic said. "They would not be investing here if they didn't think it was the best place in the world to invest."
(Jim McKay can be reached at jmckay@post-gazette.com or 412-263-1322.)
China is building a dozen or so new NUKES. They need the electrical power. They need it bad.
But, China has set a new target. It wants to build 30 new power plants -- all nukes -- in the next 10 years. (I'm not 100-percent sure on the timeline, but it is soon.)
Westinghouse folks are going to be happy with four? I don't think so.
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