China and the World

Reds under the bed

Congress remains wary of Chinese acquisitions in the US

Reds under the bed

Ports tend to cause a storm

Prior to this year Amory, Mississippi was best known for a song: Carl Perkins wrote Blue Suede Shoes there in 1955, during a concert trip with Elvis and Johnny Cash.

Fast-forward 50 years or so and Suspicious Minds looks like a more appropriate soundtrack. At least as far as the US Congressional Steel Caucus is concerned. The Caucus, a bipartisan group of 50 lawmakers, wants to prevent Anshan Iron and Steel from investing in a steel venture in the town. “We believe that this investment allows the full force and financing of the Chinese government to exploit the American steel market from American soil,” it warned Treasury Secretary Timothy Geithner in a recent letter.

In particular lawmakers want a review from the Committee on Foreign Investment (CFIUS), the inter-agency panel that probes deals on security grounds. Are there grounds for concern? Zhang Xiaogang, president of Anshan, professed surprise to the Wall Street Journal, noting that Anshan will only be a small shareholder in the project and won’t be involved in managing the joint venture. “I don’t understand how [they] can link our investment with national security or attaining new technology,” he complained.

That sounds a little different from two months ago, when Zhang told the Global Times that technology was a factor in the deal. Anshan is keen to get up to speed on electric arc furnace (EAF) production, a more advanced steel-making technique.

But Zhang is entitled to cite technology as a motivation for investing. In calling for a CFIUS review, the lawmakers are implying something more – that Anshan’s arrival on American soil poses some kind of national security threat. That looks tenuous. The joint-venture plans to produce reinforcing steel bars, commonly used in concrete and masonry structures. Not a skill set likely to trigger security risks.

Lawmakers have broadened the scope by saying that Anshan could get access to information on national security projects. Xinhua treats this with scorn, calling it “irrelevant”.

The fear of American job losses is also a difficult one to substantiate. Anshan and local partner Steel Development Company say that they will be creating jobs (1,200 in construction, then 100 at the finished plant). Amory is hardly a hotbed of economic activity.

In response the Caucus will probably argue that this is a Trojan Horse moment, the first of many potential incursions into the US market, and that Anshan is hoping to sidestep existing (and potential) tariffs on Chinese steel imports.

“We welcome market-based investment by private enterprises, including foreign investment,” said Dan DiMicco, chief executive of America’s largest steel firm Nucor. “But Anshan should not be confused with a private investor. It is executing the official state plan to go abroad for strategic reasons.” That might well be the best line of attack: to draw attention to Anshan’s controlling shareholders in Sasac (see WiC45). Other Chinese companies are running into a similar crossfire, accused that their state shareholdings mean that they report to political masters.

And sometimes to military ones too, which might make it easier for CFIUS objections to stick. The Financial Times reported last week on Huawei’s difficulties in tendering for business with SprintNextel, the third largest mobile operator in the US. Allegations that Huawei has longstanding relationships with the People’s Liberation Army mean that security officials aren’t keen on seeing its products embedded into the US communications network.

Sun Jiaking, executive vice-president at shipping giant Cosco, complains about similar attitudes. “If Cosco wants to invest in a US port, they consider it the equivalent of the Chinese navy [investing] there”, he told the FT. Cosco was blocked by Congress from investing in container terminal facilities in Long Beach in 1998.

Keeping Track: In WiC69 we wrote about Anshan Iron and Steel’s controversial plan to invest in a steel mill in Amory, Mississippi. The steel bar factory will be built with Steel Development, a US firm in which Anshan will take a 14% stake. The CEO of Steel Development told the Financial Times that the vocal opposition of congressmen to the deal was “ludicrous”, saying there were no national security issues. “I don’t know of any tanks or guided missiles that will be made using the kind of steel we will produce at the Amory plant,” CEO John Correnti told the FT.(10 ctober 2010)

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