Tycoon behind Syngenta bid China's most aggressive dealmaker

By Joe McDonald
Associated Press
Mar. 26, 2016

BEIJING (AP) — The tycoon who is offering $43 billion for Swiss agrochemicals giant Syngenta keeps a low profile, but is China's most aggressive dealmaker.

  Ren Jianxin, chairman of state-owned ChemChina, is behind most of China's big foreign acquisitions, from Italian tire brand Pirelli to Norwegian chemical supplier Elkem and KraussMaffei, a German industrial machinery maker.

  Since 2010, Ren has splashed out an eye-popping $63.9 billion on foreign assets, some 60 percent more than the No. 2 Chinese buyer, according to Dealogic, a financial data provider.

  It is unusually ambitious, but Ren is an unusual figure — a private entrepreneur who built an empire by gobbling up more than 100 state-owned enterprises.

  ChemChina, also known as China National Chemical Corp., already is one of China's biggest companies, with $45 billion in 2015 revenue. Its 140,000 employees include 48,000 abroad in 140 countries.

  Its acquisitions reflect the appetite of cash-rich but young Chinese companies for foreign technology and brands. Some want to sharpen their competitive edge at home. Others want to get into more profitable global markets as Chinese economic growth slows.

  Chinese acquisitions include Swedish automaker Volvo, French tourism company Club Med and the American cinema chain AMC.

  Ren, 58, started out by founding a maker of solvents, Bluestar Co., with seven employees in 1984 in the northwestern city of Lanzhou, far from China's eastern industrial heartland. The Pirelli website calls him "the pioneer of China's modern cleaning industry."

  Unlike other state industry managers who are career bureaucrats, Ren can draw on that experience to talk to foreign executives, said Andre Loesekrug-Pietri, chairman of A Capital, a private equity fund in Beijing. He said Ren also has recruited a handful of Western executives, bringing in knowledge of foreign business cultures.

  At a news conference with Syngenta's president in February, Ren "looked like an investment banker. He talked to reporters. That makes a difference," said Loesekrug-Pietri. "They realize that today, money alone does not buy you love. It's the way you present your strategy that is key."

  In the mid-'90s, Ren began taking control of a string of small government chemical producers. The state retained ownership while Ren was given management powers as the Communist Party tried to revive money-losing industries. According to news reports, he avoided layoffs by transferring idle employees to noodle restaurants owned by his company.

  In 2004, the party bestowed on Bluestar's patchwork empire the elite status of a national-level state-owned enterprise. Today, it is one of 106 companies controlled directly by the Cabinet, alongside PetroChina Ltd. and China Mobile Ltd.

  In another pioneering move, ChemChina sold 20 percent of a subsidiary, China National Bluestar Group, to U.S. private equity fund Blackstone Group for $600 million in 2007. The company said it was the first direct foreign investment in a Chinese state-owned enterprise.

  Ren lacks the fame of e-commerce pioneer Jack Ma of Alibaba Group or of Wang Jianlin, the Wanda Group chairman who agreed in January to pay $3.5 billion for Hollywood film studio Legendary Entertainment.

  Last month, Hong Kong's South China Morning Post newspaper called Ren the "mystery man" behind ChemChina. He "may be the most important dealmaker you've never heard of," the newspaper said.

  Abroad, Ren's buying spree began in 2006 with Adisseo, a French maker of food additives, and Qenos, an Australian supplier of polyethylene. ChemChina bought France's Rhodia Global Silicone the next year, becoming the No. 3 producer of organic silicon.

  In 2011, China National Bluestar Group paid $2 billion for Elkem, a maker of silicon and carbon parts.

  In the United States, ChemChina has so far avoided major acquisitions. But China National Bluestar Group has manufacturing, sales or research sites in California, Georgia, New Jersey, Pennsylvania and South Carolina. The company reported $2.4 billion in U.S. revenues last year.

  ChemChina's approach shows Chinese companies are increasingly willing to pay what it takes to obtain premium brands, instead of bargain-shopping and possibly being stuck with underperforming assets.

  Last year, it stumped up $7.7 billion for a majority stake in Pirelli. ChemChina already has its own tire brand, Aeolus, but it is low-priced and little-known abroad, while Pirelli commands premium prices.

  Ren's first offer of 449 Swiss francs ($460) per share for Syngenta, valuing the company at about $42 billion, was rejected, according to the South China Morning Post. Citing unidentified sources, it said he raised that to 480 Swiss francs ($491), which the board endorsed.

  To pay for it, ChemChina has lined up $50 billion in lending from Chinese and foreign banks, according to the business magazine Caixin.

  ChemChina would gain access to Syngenta's advanced fertilizer and other agrochemical technology at a time when rising Chinese incomes are boosting demand for food, creating new profit opportunities for suppliers.

  Also, taking on Syngenta could help Ren stay in charge as Beijing carries out plans to cut the total number of major state-owned companies to as few as 53 through mergers. That can end the careers of managers at companies that wind up being absorbed by bigger rivals.

  "There is a race for size," said Loesekrug-Pietri. "The bigger and more international you are, the bigger the chance you will be the acquirer, rather than the target, in these mergers."

  In a possible hurdle to the deal, members of the U.S. Senate agriculture committee called for a review by the Committee on Foreign Investment in the United States. Led by the Treasury Department, it looks at possible threats to national security. The lawmakers asked Treasury Secretary Jacob Lew to include the Department of Agriculture and the Food and Drug Administration in the review.

  "We believe that any foreign acquisition of an important U.S. agricultural asset should be reviewed closely for potential risks to our food system," the senators said in a letter Thursday to Lew. They cited possible "consequences for food security, food safety, biosecurity and the highly competitive U.S. farm sector as a whole."

 

Made In China, with American Technology

  Do people really believe that North Korea, all by itself has the capability to design, manufacture and launch a nuclear weapon or are the North Koreans’ doing the same thing that Apple, and so many other “American” companies do; did the North Koreas’ make it, or is it Made In China?

  Any idea where the Chinese got the technology; that came from America.

 

Photos Show China Has
Removed Secret Equipment
From US Spy Plane

By Pamela Hess

April 3, 2001

WASHINGTON (UPI) - Chinese officials have removed equipment from a U.S. Navy spy plane that made an emergency landing at a Chinese base after a mid-air collision with a fighter jet March 31, a former intelligence official who has seen classified satellite photos of the base told United Press International Tuesday.

  The source also echoed the fears of many Pentagon officials that the Chinese are unlikely to ever return the plane.

"The chances of getting this airplane back are pretty close to nil," he said.

  The official said he had seen four images from two KH-11 "Keyhole" satellites, which are clear enough to see details -- including racks of the plane's equipment sitting on the tarmac around the aircraft and damage to the EP-3's propeller, engine and wing.

  The EP-3 was forced to make an emergency landing on Hainan Island after a Chinese fighter sent out to intercept the aircraft instead collided with it.

  The Chinese fighter and its pilot are still missing. China has blamed the United States for the incident, saying the aircraft violated its airspace.

  The sun-synchronous KH-11s pass over the Earth at an altitude of around 500 miles twice a day, taking high-resolution snap shots. The electro-optical pictures have better than one-meter resolution and are beamed to a U.S. ground station in near-real time.

  The EP-3 is an electronic signals surveillance aircraft and is loaded with sophisticated equipment used to collect intelligence on an adversary's weapons, command and control capabilities and operations. The equipment is mounted on metal racks inside the shell of the 100-foot long plane, which carries a crew of 24.

  The EP-3 could not have landed in a better place for China or a worse one for U.S. military intelligence. Hainan island is host to one of China's largest electronic-signals-intelligence complexes and is manned by experts who can glean critical information on the aircraft's capabilities if they gain access to the Navy's EP-3, also a "SIGINT" collector, Pentagon sources said. Hainan is also home to a major Chinese satellite-communications intercept facility.

  The United States claims that the aircraft, because it made an emergency landing, should be considered sovereign territory like a U.S. embassy and is therefore off limits to the Chinese.

  President Bush Monday warned China against "further" tampering with or damage to the aircraft.

  "The airplane itself, military aircraft of all countries in situations like this, have sovereign immunity. That is, no other country can go aboard them or keep them," said U.S. Pacific Command chief Adm. Dennis Blair said Sunday in a press conference.

  However, the Navy presumes Chinese boarded the plane shortly after it landed on a military base on Hainan Island. The last radio message from the crew said it was being ordered to shut down its operation.

  In the event of just such a landing, the crew was trained to destroy classified paperwork and wipe clean computer memories, and may have even physically destroyed some of the equipment.

  "If I were them I would have been pitching stuff out the back," said a U.S. intelligence official.

  The Chinese military is well-known for its ability to reverse engineer sophisticated equipment -- that is, deconstruct a finished product to discern how it works, its capabilities and recreate it for their own use, the official said.

  Pentagon officials say they are concerned the aircraft will never be returned. They speculate that China will say it is holding it as evidence of U.S. violation of international law.

They made clear Tuesday that even if the Chinese strip and dismantle the aircraft in order to reverse engineer it, the U.S. would still -- for political reasons -- demand its return.

 

China accuses U.S. plane of ramming fighter jet

By WILLIAM LOWTHER, Daily Mail

  President George W Bush was facing his first international crisis last night after a Chinese fighter jet and a U.S. spy plane collided over the South China Sea.

  The top secret EP-3, with 24 crew on board, was forced to land on the Chinese island of Hainan where it was immediately placed under heavy guard.

  The Chinese F-8 fighter fell into the sea and searchers have found no trace of the pilot.

  While Washington tried to play down the seriousness of the incident last night, China was accusing America of invading its airspace and ramming one of its jets.

  U.S. Pacific Command spokesman Colonel Dewey Ford said: 'The planes actually bumped into each other.'

  Pentagon officials insist the aircraft - a Navy surveillance plane described as the most sensitive in the U.S. inventory - was flying in international airspace when it was suddenly approached by two Chinese fighters.

  The fighters flew within a few feet and appeared to be preparing to force the EP-3 to land.

  In an effort to get away, the American pilot suddenly changed direction.

  But one of the Chinese fighter pilots did not react quickly enough, causing the two planes to 'bump' in midair.

  While no Americans were injured, the plane was too badly damaged for the pilot to return to base in Okinawa, Japan.

  At first, U.S. officials believed the Chinese had deliberately bumped the spy plane to force it to land, but Pentagon officials later acknowledged the collision was an accident.

  President Bush has demanded the crew be treated well and returned to American hands immediately.

  Last night, U.S. sources said the initial reaction from China had been 'positive' with indications that the crew could be released today.

  However, the Chinese have also said the American plane was illegally in Chinese airspace and was responsible for the accident.

  'A Chinese aircraft was conducting normal flight operations six miles south of Hainan island when a U.S. plane suddenly veered towards it,' the foreign ministry in Beijing said.

  'The nose and left wing of the U.S. plane hit the Chinese plane and caused it to crash. China is now searching for the crew.'

  The statement also threatened further 'representations' over the U.S. plane entering Chinese airspace and landing without permission.

  Pentagon sources said the Chinese were asking for compensation for the crash.

  'They'll try to drag this out as long as possible,' said one source.

  For China, the capture of an EP-3 is a major intelligence coup.

  Sources say the four-engine aircraft contains intelligence gathering computers, cameras, sensors and eavesdropping equipment that is far more advanced than anything China has developed.

  And while the Chinese argue about compensation, they can also keep hold of the EP-3, allowing technicians and scientists to conduct a detailed analysis.

  Mr Bush has asked the Chinese to allow the U.S. to fly out a substitute crew and repair team to fly the plane back to its Japanese base immediately. But Chinese officials are stalling on this issue.

  The incident could not come at a more sensitive time. Despite major objections from China, Mr Bush is currently considering the highly delicate and potentially explosive policy of selling weapons to Taiwan.

  A confidential review by the U.S. Navy has just concluded that Taiwan needs a significant infusion of new weapons - including a sophisticated radar system - if it is to continue to maintain a realistic defence against Chinese threats of invasion.

  At the same time, China is continuing a military build-up which appears to be directed against Taiwan.

  In fact, sources say the EP-3's flight was almost certainly undertaken to gather information about that build-up.

 

China Gets a Reverse Path to Secrets

    April 13, 2001|RODGER BAKER and VIKTOR GOBAREV | Rodger Baker and Viktor Gobarev are senior analysts for an Internet service based in Austin, Texas, that provides intelligence reports to corporate customers. Terese Schlachter contributed to this report

 

  There are clear winners and losers stemming from the incident in Hainan. The People's Liberation Army has gained valuable knowledge and technology from the United States with which to protect its secrets and understand how Washington uses its own. The Chinese government has put a finer point on its geopolitical position.

  China is undergoing a major modernization of its military forces, focusing most heavily on developing a navy capable of operating from its 7,400-mile shoreline far out into the South China Sea. Some of the technology on board the U.S. Navy EP-3 could play well into their efforts. Beijing has been working to overcome its deficiency in protecting and intercepting military communications and radar traffic--two things the EP-3 was designed to do. The electronic capabilities they might steal would have taken them years to develop on their own.

  The U.S. spy plane on Hainan island could provide Beijing not only with technology and information to help hide its own military activities from the U.S. and others but also with critical knowledge of how to monitor other countries' military operations and gauge their motives. Although an increasingly difficult task, technological know-how gained from reverse engineering--breaking down and reformulating the electronic components and other high-tech eavesdropping devices--could propel China and its military further toward its long-term goal of being a major conventional military power.

  The EP-3 system is designed to detect and classify a wide range of electronic signals, from satellite transmissions to radar waves. That technology could be used to block China's own emissions and prevent the U.S. and others from listening in. By knowing the frequencies the U.S. zeros in on, Beijing can set about developing effective counter measures.

  It's likely that missions flown by the EP-3 were specifically for information gathering of this sort. U.S. crew members were most likely listening for emissions from a new class of submarine--two vessels specifically. One is a Russian designed Kilo-class submarine, equipped with anti-ship weapons. The other is a more powerful, 6,000-ton Victor III submarine. It is designed to launch cruise missiles while submerged, a feat the Chinese navy has long been incapable of mastering. If it has in fact launched such a sub, U.S. aircraft carriers in the area would become vulnerable. Thus the mission, and thus the Chinese insistence that the U.S. stay away. Sources inside China confirm that the Chinese military's sharp reaction to the incident was because of Beijing's desperation to keep the tests under wraps. The technology gleaned from the U.S. spy plane may help them do just that.

  One of China's main military objectives is in the area of intelligence. "Beijing's highest priority for strategic modernization is in the realm of information," says Mark Stokes of the Army War College's Strategic Studies Institute. "One of the most important pillars in China's quest for information dominance is denying an adversary information on [military] plans, force deployments and vulnerabilities."

  The EP-3 landing provided the perfect opportunity to push forward with that priority. And China is equipped with one skill that will make it happen: a mastery of reverse engineering. Reverse engineering has come in handy to the Chinese on a number of occasions, most recently when it reportedly pilfered U.S. nuclear weapons secrets.

  The extent to which China can reverse engineer the EP-3's onboard systems will probably depend on two factors: how much the crew destroyed before landing and how much of the aircraft's high-tech systems are software-based versus hardware-based. The software is the prize because it is computer code that allows the aircraft to process what it is listening to, while the hardware is not as important from an intelligence perspective.

Articles in this series explore how China is exerting its financial heft and economic influence around the world.

From The New York Times

International Business | The China Factor | Part 1

China’s Global Ambitions, Cash and Strings Attached

  The country has invested billions in Ecuador and elsewhere, using its economic clout to win diplomatic allies and secure natural resources around the world.

By and

JULY 24, 2015

  EL CHACO, Ecuador — Where the Andean foothills dip into the Amazon jungle, nearly 1,000 Chinese engineers and workers have been pouring concrete for a dam and a 15-mile underground tunnel. The $2.2 billion project will feed river water to eight giant Chinese turbines designed to produce enough electricity to light more than a third of Ecuador.

  Near the port of Manta on the Pacific Ocean, Chinese banks are in talks to lend $7 billion for the construction of an oil refinery, which could make Ecuador a global player in gasoline, diesel and other petroleum products.

  Across the country in villages and towns, Chinese money is going to build roads, highways, bridges, hospitals, even a network of surveillance cameras stretching to the Galápagos Islands. State-owned Chinese banks have already put nearly $11 billion into the country, and the Ecuadorean government is asking for more.

  Ecuador, with just 16 million people, has little presence on the global stage. But China’s rapidly expanding footprint here speaks volumes about the changing world order, as Beijing surges forward and Washington gradually loses ground.

  While China has been important to the world economy for decades, the country is now wielding its financial heft with the confidence and purpose of a global superpower. With the center of financial gravity shifting, China is aggressively asserting its economic clout to win diplomatic allies, invest its vast wealth, promote its currency and secure much-needed natural resources.

  It represents a new phase in China’s evolution. As the country’s wealth has swelled and its needs have evolved, President Xi Jinping and the rest of the leadership have pushed to extend China’s reach on a global scale.

  China’s currency, the renminbi, is expected to be anointed soon as a global reserve currency, putting it in an elite category with the dollar, the euro, the pound and the yen. China’s state-owned development bank has surpassed the World Bank in international lending. And its effort to create an internationally funded institution to finance transportation and other infrastructure has drawn the support of 57 countries, including several of the United States’ closest allies, despite opposition from the Obama administration.

  Even the current stock market slump is unlikely to shake the country’s resolve. China has nearly $4 trillion in foreign currency reserves, which it is determined to invest overseas to earn a profit and exert its influence.

  China’s growing economic power coincides with an increasingly assertive foreign policy. It is building aircraft carriers, nuclear submarines and stealth jets. In a contested sea, China is turning reefs and atolls near the southern Philippines into artificial islands, with at least one airstrip able to handle the largest military planes. The United States has challenged the move, conducting surveillance flights in the area and discussing plans to send warships.

  China represents “a civilization and history that awakens admiration to those who know it,” President Rafael Correa of Ecuador proclaimed on Twitter, as his jet landed in Beijing for a meeting with officials in January.

  China’s leaders portray the overseas investments as symbiotic. “The current industrial cooperation between China and Latin America arrives at the right moment,” Prime Minister Li Keqiang said in a visit to Chile in late May. “China has equipment manufacturing capacity and integrated technology with competitive prices, while Latin America has the demand for infrastructure expansion and industrial upgrading.”

  But the show of financial strength also makes China — and the world — more vulnerable. Long an engine of global growth, China is taking on new risks by exposing itself to shaky political regimes, volatile emerging markets and other economic forces beyond its control.

  Any major problems could weigh on China’s growth, particularly at a time when it is already slowing. The country’s stock market troubles this summer are only adding to the pressure, as the government moves aggressively to stabilize the situation.

  While China has substantial funds to withstand serious financial shocks, its overall health matters. When China swoons, the effects are felt worldwide, by the companies, industries and economies that depend on the country’s growth.

  In many cases, China is going where the West is reluctant to tread, either for financial or political reasons — or both. After getting hit with Western sanctions over the Ukraine crisis, Russia, which is on the verge of a recession, deepened ties with China. The list of borrowers in Africa and the Middle East reads like a who’s who of troubled regimes and economies that may have trouble repaying Chinese loans, including Yemen, Syria, Sierra Leone and Zimbabwe.

  With its elevated status, China is forcing countries to play by its financial rules, which can be onerous. Many developing countries, in exchange for loans, pay steep interest rates and give up the rights to their natural resources for years. China has a lock on close to 90 percent of Ecuador’s oil exports, which mostly goes to paying off its loans.

  “The problem is we are trying to replace American imperialism with Chinese imperialism,” said Alberto Acosta, who served as President Correa’s energy minister during his first term. “The Chinese are shopping across the world, transforming their financial resources into mineral resources and investments. They come with financing, technology and technicians, but also high interest rates.”

  China also has a shaky record when it comes to worker safety, environmental standards and corporate governance. While China’s surging investments have created jobs in many countries, development experts worry that Beijing is exporting its worst practices.

  Chinese mining and manufacturing operations, like many American and European companies in previous decades, have been accused of abusing workers overseas. China’s coal-fired power plants and industrial factories are adding to pollution problems in developing nations.

  Issues have already surfaced in Ecuador.

  A few miles from the site of the hydroelectric plant, the Coca River vaults down a 480-foot waterfall and cascades through steep canyons toward the Amazon. It is the tallest waterfall in Ecuador and popular with tourists.

  When the dam is complete and the water is diverted to the plant, the San Rafael falls will slow to a trickle for part of the year. With climate change already shrinking the Andean glacier that feeds the river, experts debate whether the site will have enough water to generate even half the electricity predicted.

  Ecuadoreans on the Chinese-run project have repeatedly protested about wages, health care, food and general working conditions. “The Chinese are arrogant,” said Oscar Cedeno, a 20-year-old construction worker. “They think they are superior to us.”

  Last December, an underground river burst into a tunnel at the site. The high-pressure water flooded the powerhouse, killing 14 workers. It was one of a series of serious accidents at Chinese projects in Ecuador, several of them fatal.

The Rise of China

  When the research arm of China’s cabinet scheduled an economic development conference this spring, the global financial and corporate elite came to Beijing. The heads of major banks and pharmaceutical, auto and oil companies mingled with top Chinese officials.

  Some had large investments in the country and wanted to protect their access to the domestic market. Others came to court business, as Beijing channeled more of its money overseas.

  At the event, the managing director of the International Monetary Fund, Christine Lagarde, commended China’s efforts to engage globally through investment and trade, as well as to enact economic reforms. It “is good for China and good for the world — their fates are intertwined,” she said in her keynote address.

  China’s pull is strong.

  It is the world’s largest buyer of oil, which gives China substantial sway over petropolitics. It is also increasingly the trading partner of choice for many countries, taking the mantle from Western nations. China’s foreign direct investment — the money it spends overseas annually on land, factories and other business operations — is second only to the United States’, having passed Japan last year.

  Chinese companies are at the center of a worldwide construction boom, mostly financed by Chinese banks. They are building power plants in Serbia, glass and cement factories in Ethiopia, low-income housing in Venezuela and natural gas pipelines in Uzbekistan.

  The evolution has been swift. When China started to open its economy in the late 1970s, Beijing had to court companies and investors.

  One of the first multinationals to enter was the American Motors Corporation, which built a factory in Beijing. The project was initially aimed at producing Jeeps for export to Australia, rather than building cars for Chinese consumers.

  “We didn’t devote a lot of our boardroom discussions to it,” said Gerald Meyers, then the chief executive of the carmaker. “We were really trying to scrape out a living in our domestic market.”

  Today, China produces two million cars a month, far more than any other country. It mirrors the broader transformation of the economy from an insular agrarian society to the world’s largest manufacturer.

  While the change has showered wealth on China, it has also brought new demands, like a voracious thirst for energy to power its economy. The confluence of trends has compelled China to look beyond its borders to invest those riches and to satisfy its needs.

  Oil has been on the leading edge of this investment push. Energy projects and stakes have accounted for two-fifths of China’s $630 billion of overseas investments in the last decade, according to Derek Scissors, an analyst at the American Enterprise Institute.

  China is playing both defense and offense. With an increased dependence on foreign oil, China’s leadership has followed the United States and other large economies by seeking to own more overseas oil fields — or at least the crude they produce — to ensure a stable supply. In recent years, state-controlled Chinese oil companies have acquired big stakes in oil operations in Cameroon, Canada, Kazakhstan, Kyrgyzstan, Iraq, Nigeria, São Tomé and Príncipe, Sudan, Uganda, the United States and Venezuela.

  “When utilizing foreign resources and markets, we need to consider it from the height of national strategy,” Prime Minister Li said in 2009, when he was a vice premier. “If the resources mainly come from one country or from one place with frequent turmoil, national economic safety will be under shadow when an emergency happens.”

Road to Dependence

  For President Correa of Ecuador, China represents a break with his country’s past — and his own.

  His father was imprisoned in the United States for cocaine smuggling and later committed suicide. At the University of Illinois at Urbana-Champaign, Mr. Correa focused his doctoral thesis on the shortcomings of economic policies backed by Washington and Western banks.

  As a politician, he embraced Venezuela’s socialist revolution. During his 2006 campaign, Mr. Correa joked that the Venezuelan president Hugo Chávez’s comparison of President George W. Bush with Satan was disrespectful to the devil.

  In an early move as president, Mr. Correa expelled the Americans from a military base in Manta, an important launching pad for the Pentagon’s war on drugs. “We can negotiate with the United States over a base in Manta if they let us put a military base in Miami,” President Correa said at the time.

  Next, he severed financial ties. In late 2008, Mr. Correa called much of his country’s debt, largely owned by Western investors, “immoral and illegitimate” and stopped paying, setting off a default.

  At that point, Ecuador was in a bind. The global financial crisis was taking hold and oil prices collapsed. Ecuador and Petroecuador, its state-owned oil company, started running low on money.

  Shut out from borrowing in traditional markets, Ecuador turned to China to fill the void. PetroChina, the government-backed oil company, lent Petroecuador $1 billion in August 2009 for two years at 7.25 percent interest. Within a year, more Chinese money began to flow for hydroelectric and other infrastructure projects.

Spreading Its Wealth

  China has lent nearly $11 billion to Ecuador, much of which has gone for hydroelectric, bridge, road and other infrastructure projects.

  “What Ecuador wants are sources of capital with fewer political strings attached, and that goes back to the personal history of Rafael Correa, who holds the United States directly or indirectly responsible for his father’s death and suffering,” said R. Evan Ellis, professor of Latin American studies at the United States Army War College Strategic Studies Institute. “But there is also a desire to get away from the dependence on the fiscal and political conditions of the I.M.F., World Bank and the West.”

  The Ecuadorean foreign minister calls the shift to China a “diversification of its foreign relations,” rather than a substitute for the United States or Europe. “We have decided that the most convenient and healthy thing for us,” said the foreign minister, Ricardo Patiño, is “to have friendly, mutually beneficial relations of respect with all countries.”

  The Chinese money, though, comes with its own conditions. Along with steep interest payments, Ecuador is largely required to use Chinese companies and technologies on the projects.

  International rules limit how the United States and other industrialized countries can tie their loans to such agreements. But China, which is still considered a developing country despite being the world’s largest manufacturer, doesn’t have to follow those standards.

  It is one reason that China’s effort to build an international development fund, the Asian Infrastructure Investment Bank, has faced criticism in the United States. Washington is worried that China will create its own rules, with lower expectations for transparency, governance and the environment.

  While China has sought to quell those fears over the infrastructure fund, its portfolio of projects around the world imposes tough terms and sometimes lax standards. Since 2005, the country has landed $471 billion in construction contracts, many tied to broader lending agreements.

  In Ecuador, a consortium of Chinese companies is overseeing a flood control and irrigation project in the southern Ecuador province of Cañar. A Chinese engineering company built a $100 million, four-lane bridge to span the Babahoyo River near the coast.

  Such deals typically favor the Chinese.

  PetroChina and Sinopec, another state-controlled Chinese company, together pump about 25 percent of the 560,000 barrels a day produced in Ecuador. Along with taking the bulk of oil exports, the Chinese companies also collect $25 to $50 in fees from Ecuador for each barrel they pump.

  China’s terms are putting countries in precarious positions.

  In Ecuador, oil represents roughly 40 percent of the government’s revenue, according to the United States Energy Department. And those earnings are suddenly plunging along with the price of oil. With crude at around $50 a barrel, Ecuador doesn’t have much left to repay its loans.

  “Of course we have concerns over their ability to repay the debts — China isn’t silly,” said Lin Boqiang, the director of the Energy Economics Research Center at Xiamen University in China’s Fujian province and a government policy planner. “But the gist is resources will ultimately become valuable assets.”

  If Ecuador or other countries can’t cover their debts, their obligations to China may rise. A senior Chinese banker, who spoke only on the condition of anonymity for diplomatic reasons, said Beijing would most likely restructure some loans in places like Ecuador.

  To do so, Chinese authorities want to extend the length of the loans instead of writing off part of the principal. That means countries will have to hand over their natural resources for additional years, limiting their governments’ abilities to borrow money and pursue other development opportunities.

  China has significant leverage to make sure borrowers pay. As the dominant manufacturer for a long list of goods, Beijing can credibly threaten to cut off shipments to countries that do not repay their loans, the senior Chinese banker said.

  With its economy stumbling, Ecuador asked China at the start of the year for an additional $7.5 billion in financing to fill the growing government budget deficit and buy Chinese goods. Since then, the situation has only deteriorated. In recent weeks, thousands of protesters have poured into the streets of Quito and Guayaquil to challenge various government policies and proposals, some of which Mr. Correa has recently withdrawn.

  “China is becoming the new company store for developing oil-, gas- and mineral-producing countries,” said David Goldwyn, who was the State Department’s special envoy for international energy affairs during President Obama’s first term. “They are entitled to secure reliable sources of oil, but what we need to worry about is the way they are encouraging oil-producing countries to mortgage their long-term future through oil-backed loans.”

Plagued by Problems

  A pall of acrimony surrounds the Coca Codo Sinclair hydroelectric plant, Ecuador’s largest construction project.

  Few of the Chinese workers speak Spanish, and they live separately from their Ecuadorean counterparts. When the workers leave their camp in the village of San Luis at noon for lunch, they walk down the main street in separate groups. At night, they also walk in separate groups up the hill to the local brothel. (Prostitution is legal in Ecuador.) The workers sit at separate tables drinking bottles of the Ecuadorean beer, Pilsener.

  When the Chinese and Ecuadorean workers return to camp, typically drunk, there have been shoving matches. Once a Chinese manager threw a tray at an Ecuadorean worker at mealtime.

  “You make a little mistake, and they say something like, ‘Get out of here,’ ” said Gustavo Taipe, an Ecuadorean welder. “They want to be the strongmen.”

  Like other workers, Mr. Taipe, 57, works 10 consecutive days. Then he drives seven hours home to spend four days with his family, then returns for another 10 days. Mr. Taipe and others have complained about low pay for grueling work. He initially made $600 a month. After work stoppages, he now earns $914 a month, a decent wage by Ecuadorean standards.

  Kevin Wang, a Chinese supervisory engineer at the project, played down the issues, saying, “Relations are friendly.” He predicted that the project would be a success. “We can do something here really important,” he said.

  The hydroelectric project — led by Sinohydro, the Chinese engineering company, and financed by the Chinese Export-Import Bank — was supposed to be ready by late 2014. But the project has been plagued by problems.

  A drilling rig jammed last year, suspending the excavation for a critical tunnel. Then in December, 11 Ecuadorean and three Chinese workers were killed and a dozen were hurt when an underground river burst into the tunnel and flooded the powerhouse. Workers drowned or were crushed by flying rocks and metal bars.

  At a legislative hearing after the accident, one worker, Danny Tejedor, told the lawmakers, “I am a welder, and on various occasions I have been obligated to work in extreme conditions of high risk, deep in water.”

  The environmental impact, too, has been controversial. The site sits in an area prone to earthquakes and near the base of a volcano that erupted this spring and produced short lava flows. “We all thought it was too dangerous to put the project there,” said Fernando Santos, a former energy minister who served in the late 1980s.

  The construction of multiple access roads threatens the Amazon ecosystem. The roads allow farmers and cattle ranchers to push their way into some of the most remote tropical rain forests in Ecuador, a major corridor for roaming bears and jaguars.

  The dam, which will divert water to produce electricity, will nearly dry up a 40-mile stretch of the Coca River for several months of the year, including the falls. An entire aquatic system will be wiped out, because the life cycles of many fish and other species are linked to variations in water flow.

  “It would be like leaving Niagara Falls without water,” said Matt Terry, executive director of the Ecuadorian Rivers Institute.

  Sinohydro said the location of the project had been determined by its employer, Ecuador’s government.

  The Ecuadorean foreign minister brushes aside many environmental concerns. “If you worry about earthquakes, you wouldn’t build anything,” said Mr. Patiño, pointing to the experience of California.

   “I don’t know if with climate change, after 50 or 30 years we will have a deficit of water, but in 50 years we may be living on Mars,” added Mr. Patiño, who is on a brief leave of absence to help organize popular support for President Correa. “Right now, there is plenty of water.”

  When Ecuadorean delegations visited China in recent years to seek support for the refinery project outside Manta, a festive atmosphere pervaded the trips. The Ecuadorean representatives stayed in penthouse suites at luxurious hotels, with Chinese businesses paying the bills. The Chinese provided buses and Spanish-speaking guides to tour the Forbidden City and the Great Wall.

  After each meeting, Chinese government and officials were eager to celebrate, taking their Ecuadorean counterparts to dinners in Beijing of boiled seafood and steamed rice. “They were gracious to take us to restaurants that suited Western tastes,” said a consultant who attended one trip, but was not authorized to speak publicly about it. “There were no scorpions served.”

A ‘White Elephant’

  Officials took turns toasting one another, hoisting baijiu, the traditional Chinese spirit. With each drink, the Chinese and Ecuadoreans pledged their commitment.

  Confident of China’s support, Ecuador has been moving aggressively on the refinery project. Outside the port of Manta, Ecuadorean workers have flattened 2,000 acres for the Refineria del Pacifico. Workers are busy laying Chinese-made pipe. Ecuador has already spent $1 billion of its own money on the project.

  But for now, the pipes just go to several empty white sandy plateaus. The Chinese banks have not officially agreed to finance $7 billion of the project, which is expected to cost roughly $10 billion.

  Depending on what happens, the refinery will either be the crown jewel of Ecuador’s relationship with China or an expensive monument to the limits of its largess.

  For the Ecuadorean government, the sophisticated refinery is central to making the country self-sufficient in energy. For Beijing, it could mean more gasoline and other petroleum products shipped directly to China, without depending on the American refineries that now process them.

  While Chinese officials and executives have said they are interested in the project, they are sending mixed signals and the talks have stalled. “China is definitely interested in this project because it is important for Ecuador and PetroChina,” said a Chinese diplomat in Quito, who spoke on the condition of anonymity because the talks are private. “It will be negotiated.”

  But senior executives at PetroChina have misgivings. Even before oil prices started tumbling in 2014, the company, like many in the industry, cut investment spending sharply. This year, PetroChina plans to cut it another 10 percent. A continuing anticorruption campaign has added to the chill on energy spending.

  China is broadly reassessing its global investment strategy as the country faces new economic challenges at home and abroad. Rather than blindly spreading its wealth around the world, China is growing more sophisticated about its deal-making in an effort to protect its profits and to ensure the right mix.

  The prospects for the Ecuador refinery project now look hazy.

  The chief financial officer of PetroChina, Yu Yibo, said the company’s cuts would include refinery projects, but he would not discuss Ecuador specifically. Wu Enlai, the board member who is the company secretary, said PetroChina had not yet approved the project. “It is in the stage of feasibility study.”

  Several Ecuadorean energy experts question the economic sense of the project. Ecuador, they say, cannot justify the refinery unless the country significantly increases production. For that to happen, it must drill deeper into the Amazon, an environmentally risky and expensive proposition that has been politically charged since the operations of Texaco and the state oil company caused widespread pollution in the 1970s and 1980s. “If there is no guarantee of more production, this refinery will be a white elephant,” said Mauricio Pozo Crespo, a former economy minister.

  The uncertainty worries many in Ecuador.

  “Correa says there is no limit to how much we can borrow from China,” said Mr. Acosta, the energy minister during the president’s first term. “But if the Chinese don’t put up the money, there will be no refinery. I have my doubts.”

  So does Luis Kwong Li, one of a handful of Chinese-Ecuadorean restaurateurs in Manta.

  When he and his Chinese-born parents heard about the refinery project in 2009, they closed their restaurant in Guayaquil and moved to Manta to open a new one. They thought the restaurant would cater to Chinese employees looking for dim sum. But by this spring, only two Chinese investors, who hoped to build a valve factory, had come for lunch.

  “The president built up a lot of expectations,” said Mr. Kwong Li. “Maybe it will still happen, maybe in two years. There’s a big hope among the Ecuadorean people that the refinery will create business and jobs.”

  Clifford Krauss reported from El Chaco and Keith Bradsher from Hong Kong and Washington.
  A version of this article appears in print on July 26, 2015, on page A1 of the New York edition with the headline: China’s Global Ambitions, Cash and Strings Attached

 

International Business | The China Factor | Part 2

China Falters, and the Global Economy Is Forced to Adapt

  With deepening economic fears about China, multinational corporations and countries are having to respond to a new reality as a once sure bet becomes uncertain.

By

AUG. 26, 2015

  HONG KONG — The commodities giant BHP Billiton spent heavily for years, mining iron ore across Australia, digging for copper in Chile, and pumping oil off the coast of Trinidad. The company could be confident in its direction as commodities orders surged from its biggest and best customer, China.

  Now, BHP is pulling back, faced with a slowing Chinese economy that will no longer be the same dominant force in commodities. Profit is falling and the company is cutting its investment spending budget by more than two-thirds.

  China’s rapid growth over the last decade reshaped the world economy, creating a powerful driver of corporate strategies, financial markets and geopolitical decisions. China seemed to have a one-way trajectory, momentum that would provide a steady source of profit and capital.

  But deepening economic fears about China, which culminated this week in a global market rout, are now forcing a broad rethinking of the conventional wisdom. Even as markets show signs of stabilizing, the resulting shock waves could be lasting, by exposing a new reality that China is no longer a sure bet.

  China, while still a large and pervasive presence in the global economy, is now exporting uncertainty around the world with the potential for choppier growth and volatile swings. The tectonic shift is forcing a gut check in industries that have built their strategies and plotted their profits around China’s rise.

  Industrial and commodity multinationals face the most pressing concerns, as they scramble to stem the profit slide from weaker consumption. Caterpillar cut back factory production, with industry sales of construction equipment in China dropping by half in the first six months of the year.

  Smartphone makers, automobile manufacturers and retailers wonder about the staying power of Chinese buyers, even if it is not shaking their bottom line at this point. General Motors and Ford factories have been shipping fewer cars to Chinese dealerships this summer.

  It is not just companies reassessing their assumptions. Russia had been turning to China to fill the financial gap left by low oil prices and Western sanctions. Venezuela, Nigeria and Ukraine have been heavily dependent on investments and low-cost loans from China.

  The pain has been particularly acute for Brazil. The country is already faltering, as weaker Chinese imports of minerals and soybeans have jolted all of Latin America. The uncertainty over China could limit the maneuvering room for officials to address the sluggish Brazilian economy at a time when resentment is festering over proposed austerity measures.

  The weakness in China is even compelling officials at the United States Federal Reserve to think more globally, as they consider raising interest rates. William C. Dudley, the president of the New York Fed, said on Wednesday that a September rate increase looked less likely than it did a few weeks ago.

  “The entire world is focusing now on China, watching this crisis unfold,” Armando Monteiro Neto, Brazil’s minister of development and foreign trade, told reporters on Tuesday in Brasília. “Brazil is already feeling the effects of China’s deceleration. If the situation gets worse, the impact will get bigger.”

  The trouble is, the true strength of the Chinese economy — and the policies the leadership will adopt to address any weaknesses — is becoming more difficult to discern.

  China’s growth, which the government puts at 7 percent a year, is widely questioned. Large parts of the Chinese service sector, like restaurants and health care, continue to grow, supporting the broader economy. But the signs in industrial sectors, in which other countries and foreign companies have the greatest stake through trade, paint a bleaker picture.

  Adding to the worries are recent events like the deadly explosion of a hazardous chemicals warehouse in Tianjin, which has delayed shipments through one of China’s biggest ports. Labor protests, already rising, jumped sharply across coastal China last week over unpaid wages at struggling export factories.

  The leadership, concerned with maintaining social stability, has been quick to act, making aggressive moves to prop up the stock market, inject money into the financial system, and generally stimulate the economy. But President Xi Jinping doesn’t have much experience managing a downturn, and some economists worry that the government is making knee-jerk decisions that will do more harm than good.

  Many company executives and global economists say that forecasting China’s growth has become so hard that they are hedging their bets for the time being. “This is a complete black art right now,” said Tim Huxley, the chief executive of Wah Kwong Maritime Transport Holdings, a large Hong Kong shipping company. “I can’t make any long-term decisions based on what is happening today, and so I just keep our fleet running until we get a bit of direction.”

  The problems have been building for months in areas like commodities and industrials where just modestly slowing growth in China has been having outsize effects.

  For more than a decade, prices surged for iron ore, a main ingredient in making steel, as new skyscrapers, rail lines and other infrastructure were built across China. Last year, BHP Billiton shipped enough iron ore each day to China to fill the Empire State Building.

  With Brazil’s revenues declining sharply this year, President Dilma Rousseff’s government is coming under criticism over the country’s dependence on China, which surpassed the United States as the top trading partner in 2009. Brazil’s exports to China fell 23.6 percent, to $24.7 billion, in the first seven months of the year from the same period in 2014.

  In an editorial on Tuesday, the newspaper O Estado de S. Paulo described Brazil’s relationship with China as “semi-colonial,” claiming that the country’s economy “depends in excess on Chinese prosperity.”

  Ilan Goldfajn, chief economist at Itaú Unibanco, one of Brazil’s largest banks, said he was already forecasting the economy to contract about 2.3 percent this year, without factoring in the possibility of a hard landing in China. “China is the most important risk factor for Brazil,” Mr. Goldfajn said.

  China was supposed to be the financial savior for Russia.

  Last year, Russia signed a $400 billion natural gas deal with China. China would help finance a nearly 2,500-mile pipeline to ship fuel from Siberia. Russia trumpeted that it would eventually sell more natural gas to China than Germany, now its biggest customer.

  But the prices that China is willing to pay for the gas are dropping so low that it may no longer be worthwhile to build a pipeline. The Russian energy giant Gazprom has cut its planned capital outlays this year for the first leg of the pipeline by half, Dozhd television reported.

  “China is an unclear country for us, opaque,” said Aleksandr Abramov, a professor of finance at the Higher School of Economics in Moscow. “We don’t know what to expect,” he said, adding, “Clearly, the situation will worsen in Russia.”

  Some of the latest pressures reflect a belated recognition by businesses and politicians that China had been slowing down.

  Automobile manufacturers cut their shipments of new cars to dealers by 7 percent in July, compared with a year earlier. Retail sales had not suddenly tanked, said Cui Dongshu, the secretary-general of China’s Passenger Car Association, which represents manufacturers.

  Rather, too many cars had been sent to dealers’ lots in previous months, he said. In other words, manufacturers were slow to see the economy’s deceleration and waited too long to throttle back their factories.

  “What manufacturers are doing is adjusting inventory levels to the ‘new normal,’ ” said Bill Russo, a former chief executive of Chrysler China, using a favorite phrase of President Xi Jinping of China in recent months to describe an economy that is expanding at a slower pace.

  Similar adjustments are taking place around the globe.

  For years, Germany has been well positioned to profit from Chinese growth because it specializes in machine tools and other factory equipment. Most important, China acted as a counterweight to the chronically slow-growing markets in Europe.

  Now, major German exporters are seeing signs of pressure.

  Trumpf says that sales of its signature product, machines that automakers use to cut sheet metal that sell for about 500,000 euros ($566,000) each, have continued to grow in China. But in May and June, sales of less-expensive cutting machines flattened and began to decline. At the bottom of Trumpf’s product line, sales have fallen sharply since November for machines often purchased by start-up companies.

  How industries and economies ultimately fare will depend on how long the slowdown and how deep the economic woes.

  Demand remains strong at Boeing for its 777-300ER and 787 jets, models that are capable of flights lasting 10 hours or longer, to Europe or North America. Long-haul international travel from mainland China soared nearly 30 percent in the first half of this year compared with the same period last year, Randy Tinseth, the vice president for marketing at Boeing’s commercial aircraft division, said during a visit to Beijing on Tuesday.

  So far, it has been mixed for technology players. Timothy D. Cook, the Apple chief executive, said on Monday that business had stayed strong in China in July and August. But Meg Whitman, the chief executive of Hewlett-Packard, said in an earnings call last week that China’s consumer market for printers and computers was “pretty soft,” although demand from businesses was holding up better.

  In the end, much of the China story will come down to whether the expectations meet the reality. Andrew Mackenzie, the chief executive of BHP, captured a broader corporate view on Tuesday when he spoke glowingly about China’s potential in the decade to come and predicted continued profitability. But he conceded that the country’s steel production would most likely “grow a little more slowly,” citing a forecast that works out to just 1.4 percent annually — a figure that sounds more like Europe than the formerly go-go economy of China.

  A similar realization is taking place in various corners. “We had five fabulous years in China, of course, where we grew strong double-digit, and it has been gradually slowing down,” Frans van Houten, chief executive of Royal Philips, the Dutch conglomerate, said on July 27. “I think, going forward, we need to be much more modest on expectations with regard to China growth: That’s just being realistic.”

 

  Reporting was contributed by Simon Romero from Brasília, Brazil; Jack Ewing from Athens; Andrew E. Kramer from Moscow; Paul Mozur from Hong Kong; and Vinod Sreeharsha from São Paulo.
  A version of this article appears in print on August 27, 2015, on page A1 of the New York edition with the headline: Global Economy Forced to Adapt as China Falters.

 

International Business | The China Factor | Part 3

Chinese Cash Floods U.S. Real Estate Market

By and

NOV. 28, 2015

House-Hunting, Chinese-Style

  Chinese families are looking for a safe place to invest their renminbi. From rural Texas to Silicon Valley, American real estate is an increasingly popular destination for their cash.

  Canyon Lake Ranch was once a playground for Christian day campers, and then was a corporate retreat with water-skiing, barbecues and cowboy shoot-’em-up shows. Hawks now circle above 108 sunbaked acres occupied by copperhead snakes, a few coyotes and the occasional construction truck.

  Soon this ranch will be a gated subdivision of 99 mini-mansions designed for buyers from mainland China. The developer, Zhang Long, a Beijing businessman, is keeping three plots to build his own estate along the site of an old rodeo arena.

  This luxury development 35 miles northwest of Dallas is the latest frontier in a global buying phenomenon as Chinese money becomes a major force in real estate around the world. The flood of money is likely to persist despite the current tumult in China. While a currency devaluation and stock market crash have crimped the country’s buying power overseas, the resulting uncertainty is making many Chinese individuals and companies eager to invest anywhere except their home country.

  In London, Chinese investors are purchasing high-end apartments in wealthy neighborhoods and big skyscrapers in the financial district. In Canada, they are paying $1 million for modest Vancouver bungalows. In Australia, a Chinese sovereign wealth fund bought nine office towers, one of the biggest real estate transactions in that nation’s history.

  In the United States, the home-buying spree began on the coasts, where Chinese buyers snapped up luxury condos in Manhattan and McMansions in Silicon Valley, pushing up home values in big cities. It is now spreading to the middle of the country, where prices are more modest and have room to run.

  The homes here in Corinth will feature two master suites, one for the buyers, the other for aging parents. A concierge service will help new arrivals from overseas order Internet service and pay electric bills. Chauffeurs will ferry homeowners until they learn to navigate the loops and spurs of Texas freeways.

  “When Chairman Zhang saw the strength of the Texan economy, he decided it was time that the Asian community should be presented an opportunity to invest in the American Dream,” marketing materials for the development read.

  The great property rush is part of the tidal wave of Chinese money that is pouring into the global economy and reshaping financial markets. In residential and commercial real estate, the new flow of cash is upending the traditional dynamics of buying and selling.

  This year, Chinese families represented for the first time the largest group of overseas home buyers in the United States. Big spenders on new homes are helping prop up local economies in the Midwest. But in dense areas like San Francisco and Manhattan, they are also affecting the affordability and availability of housing, as demand outpaces supply and bidding wars ensue.

  While Chinese purchases make up a small sliver of overall sales in the United States, they have had a disproportionate impact on the market for more expensive properties, buying one in 14 homes sold for more than $1 million. On average, buyers from China, including the mainland, Taiwan and Hong Kong, pay $831,800 for a home, more than three times as much as Americans spend, according to a National Association of Realtors survey.

  Some Chinese are buying homes purely as investments, capitalizing on surging rents in many parts of the United States. Others are trying to move their money beyond the reach of the Chinese government.

  Many buyers have their children’s education in mind, picking up homes in good school districts or close to universities. At the upper echelon, the wealthy are hoping for green cards, joining with developers to take advantage of a federal program that fast-tracks them for residency.

  Eric Du, a management and investment consultant from Beijing, was motivated by the potential for his family and his fortune. Over the last two years, he bought a townhouse — sight unseen — and two single-family homes in Northbrook, Ill., north of Chicago. He paid cash for all of them.

  He plans to live in one, to give his children a chance to breathe cleaner air and learn at a better school than he could find in his hometown. He will rent out the other two.

  “The price of property in Beijing is very high, the stock market is crashing, and the real economy is not stable,” Mr. Du said of the environment in China. “The people here have some money, but they don’t have enough good ways to invest their money.”

  In Shanghai, not far from the banks of the Huangpu River, the offices of Windham Realty are tucked inside a glassy tower where the walls feature a poster of a development in Michigan: the Stonewater community on 366 acres in Northville, a suburb of Detroit.

  “The most magnificent waterfront community and the most grand eco-redevelopment project in the U.S.,” the poster reads, highlighting six artificial lakes and 424 luxury villas.

  Other posters of properties line the office space. Chic townhouses in San Diego. A golf course community in Fort Myers, Fla. Spacious homes in a Los Angeles development.

  Eager to tap the new market of buyers, the American real estate firm has established two offices in China, first in Shanghai in 2007 and then last year in Beijing. It has attracted clients with events like traditional American Thanksgiving dinners and real estate showcases where Chinese film stars appear.

  “The market is definitely larger and broader than when we started,” said Steven M. Lawson, the chief executive of Windham China. “They’re very different than the people we were working with in 2007. If we want to cut right to it, they’re less wealthy, a lot younger and a lot better educated from an international point of view.”

  The company is among many hoping to capture the wealth pouring out of China.

  Chinese buyers spent $28.6 billion on American homes in the year ended in March, more than double their purchases two years before, according to the Realtors association. Chinese purchases in overseas commercial real estate jumped 49 percent last year, Jones Lang LaSalle, a big real estate brokerage firm, has estimated.

  The real estate deals follow a broader exodus of money from China to countries and companies around the world. An estimated $590 billion moved out of China in the 12 months through June, according to Fitch Ratings. And the amount of outflows most likely set a record in the third quarter, although detailed data will not be available until next month. In the past, they tended to stay under $200 billion a year.

  The swell of funds from China represents the confluence of several big trends.

  Over the last six years, the Chinese government has kept the country awash with cash to stimulate the economy, which means a lot of extra money available to slosh abroad. The Chinese government has also made it easier for individuals to move large sums out of the country, as part of a broader liberalization of the nation’s heavily regulated financial system.

  The government is loosening the rules for corporations, too. Beijing now allows insurance companies to invest as much as 15 percent of their assets overseas, helping drive a surge in commercial purchases.

  Chinese companies have been buying stakes in American trophy properties like the General Motors Building and the Waldorf Astoria in New York. The situation is drawing comparisons to the 1980s, when Japanese companies invested heavily in American commercial real estate at premium prices.

  But the highflying deals may have only just begun. By the end of last year, Chinese insurers had only 1.44 percent of their money overseas.

  “The Chinese are deliberate; there will clearly be large capital flows coming to the West,” said Stephen A. Schwarzman, chief executive of the Blackstone Group, the largest private landlord in the United States. “That will increase in frequency until the Chinese government decides it shouldn’t happen anymore — they’ve opened the spigot.”

  Companies are racing to develop services for Chinese customers. This year Zillow, the real estate search website, began publishing its database of American homes on a Chinese real estate site, Leju.com. American real estate agents are advertising in local Chinese newspapers.

  On the front lines are brokers in the Dallas suburbs like Roddy de la Garza, who arrives at homes with a video camera and a compass. The camera is for sharing video of house tours with his clients who live in China; the compass is to make sure the homes have a north-south alignment, to ensure proper energy flow in accordance with Chinese principles of feng shui.

   “I’ve learned these things,” said Mr. de la Garza, who works for the realty firm Redfin, “so they trust me.”

A Boom in the Suburbs

  Last summer, Scott Hogg, a Dallas real estate agent, helped a client bid on a home near the Plano-Frisco line for about $220,000.

  The bid from his client, who needed a mortgage, was rejected. The home went to a Chinese buyer who paid cash.

  “We lost out,” Mr. Hogg said. “It’s just this market. It’s insane.”

  For typical American home buyers who require mortgages, the influx of Chinese money makes it even more challenging in markets facing low inventory and rising prices. A majority of home purchases by Chinese buyers — 69 percent — are entirely cash, according to the Realtors association.

  Such bids often rise to the top for sellers who can then close on a deal in little more than a weekend. Even in Silicon Valley, a market awash in millionaires, Chinese buyers — if they pay cash — can edge out tech entrepreneurs whose wealth is tied up in stock options.

  “There are even bidding wars between cash buyers now,” said Sam Van Horebeek, a director at East-West Property Advisors, a China-based firm that connects Chinese buyers with American real estate agents.

  Outside the United States, the Chinese demand has been so great that some places are trying to temper it.

  Hong Kong and Singapore have each imposed 15 percent taxes on nonresident buyers of residential real estate. In Australia, the state government of Victoria, which includes Melbourne, introduced a 3 percent tax on overseas buyers.

  Still, some places are welcoming the economic activity. City coffers benefit from stronger property tax revenue. Many overseas arrivals are relatively wealthy, spending on new cars and furniture as well as everyday shopping and dining.

  The interest from Chinese buyers is reshaping demographics in Texas. As the volume of Asian purchases grow, the number of Mexican buyers, historically the largest category from abroad, is leveling off.

  In fast-growing Plano, a northern suburb, the number of people born in mainland China swelled to nearly 6,000 in 2010, from 3,600 in 2000 — and the group has since expanded. The area is such a popular destination that this spring American Airlines began operating a direct flight to Beijing, the airline’s second nonstop from Dallas to a mainland Chinese city, after Shanghai.

  In Corinth, a town of just 20,000, the development on the old ranch site is expected to bring hundreds of thousands of dollars a year in property taxes and fees. The average price of the new homes is $2 million.

  The City Council unanimously approved the development in Corinth, where a Chicken Express and an AutoZone abut a highway along the south side of town. Mr. Zhang’s company is planning a strip of luxury stores, including high-end restaurants, a spa and a wine shop that will sell bottles from a vineyard that the developer started just across the Oklahoma border.

  “This will be a positive cash flow,” said Rick Chaffin, Corinth’s city manager. “I’d say it would be significant.”

   In the Dallas area, the current Chinese boom traces its roots to Taiwanese immigration in the 1980s.

  Back then, Texas Instruments was starting to make headway in the semiconductor business. The company had a strong presence first in Taiwan and later in mainland China, recruiting there for its operations.

  As Texas Instruments grew and the technology boom in America took off, students from China began arriving to study engineering in hopes of getting a job at the home office. The company hosted English classes for its new employees and cultural events to help them feel at home.

  Soon a small strip of Chinese restaurants and an Asian market sprouted in Richardson, along with a community center offering a library of Chinese books, tai chi classes and country line dancing. In 2001, Huawei, a major Chinese telecom company, opened its American headquarters in Plano.

  With their own economy growing quickly, the Chinese arrivals were armed with more money and wanted newer, more expensive homes than Richardson’s usual stock of ranch-style homes built in the 1950s. They found them nearby in towns including Plano and Frisco, part of the supercharged suburban sprawl. Chinese families have clustered in the miles upon miles of new brick houses in subdivisions fortified by brick walls, with names like Whiffletree, Spring Ridge and Hunters Glen North.

  “Chinese people like newer areas,” said Charlie Yue, who moved from Beijing to the Dallas area in the late 1990s as a student. He bought a new house in Frisco five years ago and now runs a real estate investment firm, snapping up homes that linger on the market.

   “I’ve traveled to Los Angeles and San Francisco, and I feel like I’ve gone back to China. Texas is wide open, with so much space, which I really love,” said Mr. Yue, who is also vice president of the Association of Chinese Professionals in Richardson. “If you consider how expensive housing is in Beijing or Shanghai, this is a bargain.”

School Pride

  Steve Robinette, an administrator at Missouri State University, often plays tour guide to newly arriving Chinese students. The university, which operates a campus in China, has about 900 Chinese students at its main campus in Springfield.

  Not long ago, one student’s mother came to him seeking help with a major purchase. He assumed she wanted a recommendation for a car dealer, but she was looking for a real estate agent.

  “When I take them around to the better areas of Springfield, if there’s a For Sale sign they’ll jump out and grab a flier,” said Mr. Robinette, the university’s associate vice president for international programs.

  Education plays an outsize role in Chinese families’ decisions to buy American real estate.

  While college enrollment in China is soaring, top schools have limited space. Almost all of the expansion is taking place at poorly regarded universities and polytechnics. Students unable to win admission to prestigious universities frequently apply to American schools if their families can afford it.

  At the university level, the Chinese now make up 31 percent of all international students in the United States, according to the Institute of International Education. While New York, Los Angeles and Boston are popular destinations for Chinese students, more are attending universities in the Midwest, with its giant institutions like Ohio State and Michigan State.

  Their parents often buy homes in college towns. St. Louis real estate listings — homes that average nearly $800,000 — are attracting mainland buyers on the Chinese real estate website Juwai.com. The influx of Chinese students is most likely the reason, said Simon Henry, the company’s co-chief executive.

  “If you look at the student populations of any major or nonmajor university,” Mr. Henry said, “you’ll get a really good indication of what property prices are going to do.”

  The push starts young. About 23,500 Chinese citizens were enrolled in American high schools in 2013, the most recent year for which figures were available.

  Echo Zha, from Beijing, is renting an apartment in Naperville, Ill., so her 12-year-old daughter can attend school there. She also spent about $200,000 on a small, one-bedroom apartment in Chicago, where she hopes to collect enough rental income to also buy a home in Naperville.

  “In the schools in Beijing, students with high-powered parents or rich parents are given special treatment by the teachers,” Ms. Zha said. “I want my daughter to be in a more fair environment and to grow up with more character and values.”

  Ann Irvine, the principal of Harrington Elementary in Plano, said several Chinese families whose children attended her school had bought two homes simultaneously.

  One, she explained, was for attending Harrington, which has a bilingual Mandarin-English preschool, and the other to ensure spots later for their children at a high school in a different area.

   “We’re not talking mansions,” Ms. Irvine said. “We’re talking nice homes with research done thoroughly and the best price point attained.”

  An Eye for Investment

  For Mr. Zhang, the old ranch in Corinth was somewhat of an impulse buy.

  A lawyer by training, Mr. Zhang, 42, first came to know Texas during airport layovers while traveling between the coasts for his work, which spans technology, mining, wealth management and other industries. A Chinese friend in Dallas started talking about a patch of undeveloped land in Corinth.

  Two years ago, Mr. Zhang paid $6.8 million in cash for Canyon Lake Ranch, his first foray into American real estate. He renamed the lake after himself; it’s now officially Long Lake.

  “I chose Dallas because the unique culture of the city was evident on my first visit and has since impressed me with every return visit,” Mr. Zhang said in a statement. “Compared to other U.S. metropolitan areas, Dallas presents numerous prospects for all walks of life, drawing people from across the country and globally.”

  Vivian Tsou, chief operating officer and president of Lelege USA, Mr. Zhang’s development company, put it bluntly: “The bang for your buck is higher here.”

  Overseas real estate speculation by Chinese investors started to rise after the recession in America began to recede in 2009. The two markets have been out of sync, creating opportunities. American home prices have been in a recovery phase, while the Chinese boom has been fading.

  Millions of Chinese are looking to park their money in countries where there is less risk of arbitrary confiscation and more political stability. Some want to obscure the true extent of their wealth, while others are trying to diversify their assets.

  China’s history of corruption has also left people vulnerable.

  According to state media, a top government official, Bo Xilai, and his aides ordered the confiscation of as much as $15 billion from wealthy families, who were accused of crimes based on sometimes flimsy evidence. Mr. Bo, a former member of the Politburo, is now serving a life sentence for bribery, embezzlement and abuse of power.

  A recent Goldman Sachs analysis found that some types of capital outflows closely follow Chinese anti-corruption campaigns. As crackdowns intensify in China, outflows tend to increase.

  Investments in the United States provide another advantage: a pathway to a green card.

  Chinese investors have been particularly aggressive at using a federal visa program called EB-5 that allows overseas citizens to put $500,000 to $1 million into a project that will create at least 10 jobs. Investors can get a green card in about two years. So far this year, 86 percent of the EB-5 visas issued worldwide have gone to Chinese.

  While the homes in the development at Long Lake are also being marketed locally, mainland buyers are eligible for this program. “These high-caliber homes will bring high-caliber residents,” said Ms. Tsou of Lelege.

  Ida Hung, a real estate agent and feng shui specialist in the Dallas office of the Virginia Cook agency, which now has the exclusive listing for the Long Lake development, peddles the homes to contacts in the area’s Chinese community and beyond. On a recent afternoon, she stopped at Tam’s, a Chinese buffet in Richardson.

  In the last decade or so, the restaurant’s owner, Wing Tam, has bought seven condos and houses that ranged in price from $20,000 to $500,000 — one for his sister, one for an employee in his kitchen, one for his wife, one because it was a good price, one for investment purposes and so on. He paid cash for them all, except for his own Dallas home, which he bought in 2008 with a mortgage he has since paid off.

  During a busy lunch hour, he pored over the materials for the Corinth development but decided the location was a bit too remote. He offered to put Ms. Hung in touch with Chinese friends who live in Arkansas.

  “They are very rich. They don’t know how to spend their money,” said Mr. Tam, tucking one of the brochures under his arm. “They need to invest.”

 

  Correction: November 29, 2015
An earlier version of a picture caption with this article misstated the history of a Chinese community center in Richardson, Tex. It was built in the 1980s; it did not pop up recently in response to a growing Chinese population.

  Dionne Searcey reported from Corinth, Tex., and Keith Bradsher from Hong Kong. Vanessa Piao and Zhang Ruoyao contributed research.
  A version of this article appears in print on November 29, 2015, on page BU1 of the New York edition with the headline: The Great Sprawl.

 

International Business | The China Factor | Part 4

China Creates a World Bank of Its Own, and the U.S. Balks

  In setting up the Asian Infrastructure Investment Bank, China enlisted American allies, including Britain, even as Washington expressed skepticism.

By

DEC. 4, 2015

  BEIJING — As top leaders met at a lush Bali resort in October 2013, President Xi Jinping of China described his vision for a new multinational, multibillion-dollar bank to finance roads, rails and power grids across Asia. Under Chinese stewardship, the bank would tackle the slow development in poor countries that was holding the region back from becoming the wealth center of the world.

  Afterward, the United States secretary of state, John Kerry, caught up with Mr. Xi in the corridor. “That’s a great idea,” Mr. Kerry said of the bank, according to Chinese and American aides briefed on the encounter.

  The enthusiasm didn’t last long, as the Obama administration began a rear-guard battle to minimize the bank’s influence.

  The United States worries that China will use the bank to set the global economic agenda on its own terms, forgoing the environmental protections, human rights, anticorruption measures and other governance standards long promoted by its Western counterparts. American officials point to China’s existing record of loans to unstable governments, construction deals for unnecessary infrastructure, and villagers abruptly uprooted with little compensation.

  But the administration suffered a humiliating diplomatic defeat last spring when most of its closest allies signed up for the bank, including Britain, Germany, Australia and South Korea. Altogether 57 countries have joined, leaving the United States and Japan on the outside.

  The calculation for joining is simple. China, with its vast wealth and resources, now rivals the United States at the global economic table. That was confirmed this week when the International Monetary Fund blessed the Chinese renminbi as one of the world’s elite currencies, alongside the dollar, euro, pound and yen.

  Countries are finding they must increasingly operate in China’s orbit. And backing the new bank would bring financial advantages, as well as curry favor with Beijing. While many countries had similar doubts as the United States, they figured they could just shape the organization from the inside.

  The new bank “is an instrument for China to lend legitimacy to its international forays and to extend its sphere of economic and political influence even while changing the rules of the game,” said Eswar Prasad, former head of the China division at the International Monetary Fund and a professor at Cornell University. “And it gives the existing institutions a kick in the pants.”

  The Chinese-led institution, the Asian Infrastructure Investment Bank, is now in the process of picking its first projects. The choices, expected to be announced in coming months, will provide insight into how China plans to wield its power.

  Either China is serious about taking a leadership role in the global economy and prioritizing projects that broadly benefit Asia, or it plans to use the bank as a conduit to further its own ambitions.

  So far, China appears to be navigating the two extremes. It is assuaging critics by compromising on issues like board makeup, project oversight and procurement. But China is hardly yielding control, raising concerns about where the bank will land on issues like climate change and labor rights. The bank, for example, is still weighing whether to approve coal-fired power plants.

  China is taking direct aim at the current development regime, the Bretton Woods system established under the leadership of the United States after World War II to help stabilize currencies and promote growth.

  Beijing officials say they want to take a faster approach than their counterparts at the World Bank, the International Monetary Fund and the Asian Development Bank. The new bank, China promises, will not be bogged down in oversight.

  The Chinese-led bank will also focus solely on infrastructure. To China, the World Bank and the Asian Development Bank failed to deliver on big projects meant to transform backward parts of Asia, resulting in an estimated $8 trillion of needed investment in rails, ports and power plants.

  As a complement to the new bank, China is rolling out the “One Belt, One Road” program for the construction of a network of roads, rails and pipelines along the old Silk Road route through Central Asia to Europe. A maritime equivalent calls ports from Southeast Asia to East Africa to the Mediterranean.

  “The U.S. risks forfeiting its international relevance while stuck in its domestic political quagmire,” Jin Liqun, the president-designate of China’s bank, wrote in a chapter for a recently released book, “Bretton Woods: The Next 70 Years.” He added, in reference to the United States, “History has never set any precedent that an empire is capable of governing the world forever.”

  At the signing of the agreement for the bank in June, Mr. Jin and Mr. Xi posed for a photo alongside officials from the other 56 founding member nations in the Great Hall of the People.

  An unexpectedly large group, it included countries as diverse as Iran and Israel, Russia and Poland, and an array of American friends. The total capital commitment, $100 billion, was double the amount originally envisioned.

  Having underestimated the interest, the Obama administration is now starting to soften its stance. Three months after the signing, Mr. Xi met with President Obama at the White House, in the Chinese leader’s first state visit. At the summit meeting, Mr. Obama urged the existing banks to cooperate with the new institution. The United States, though, would still not join.

Birth of the Bank

  In late 2007, an influential Chinese official visited remote villages along the Mekong River in Laos.

  The official, Zheng Xinli, a senior figure in the policy research office of the Communist Party’s Central Committee, noticed communities pockmarked with stilted huts and fertile ground that failed to produce. Any crops were difficult to sell, since farmers were far from markets and transportation was scarce.

  Mr. Zheng saw an opportunity for China, which has faced similar infrastructure issues. “Economically, it was complementary to China,” said Mr. Zheng, who is referred to as the bank’s godfather.

  He initially proposed the bank plan to aides of Hu Jintao, the president then. But they were not interested and the idea languished. Mr. Zheng left the party committee for an economic think tank.

  When Mr. Xi was named president in 2013, Mr. Zheng and his new colleagues saw a chance to revive the plan. The think tank, the China Center for International Economic Exchanges, thought the bank played to Mr. Xi’s nationalistic strategy.

  A newly assertive Beijing felt that it had been unfairly treated for years by the United States. President Obama did not invite China to join the American-driven Trans-Pacific Partnership trade pact, insisting that Beijing should not be allowed to write the rules for 21st-century commerce.

  During the 2008 financial crisis, China’s economy had continued to perform well, serving as a stabilizing force for the world when the United States was on the verge of a collapse. Yet Congress blocked an I.M.F. proposal, backed by the Obama administration, to make China the third-most-powerful country at the fund after the United States and Japan.

  “The U.S. Congress was delaying its approval of the I.M.F. reform, and we had a different view,” said Xu Hongcai, head of the economic studies department at the China center. “The U.S. agreed to the conditions when the economy was in the downturn, but it backed down on its words when things got better.”

  They turned to Mr. Jin, an economist fluent in English who had worked at the World Bank in the 1980s and served as China’s first vice president at the Asian Development Bank. A former chairman at China’s sovereign wealth fund, Mr. Jin had a passion for Shakespeare and the Australian novelist Patrick White.

  Courting China’s Asian friends was easy, with smaller countries like Singapore readily signing up. The major developed countries were a little more reluctant.

  In May 2014, the grandees of British and European capitalism gathered in London, where Mr. Jin spoke to representatives of several hundred wealth funds. “We all thought it was pie in the sky,” said David Marsh, managing director of the Official Monetary and Financial Institutions Forum, an advocacy group for public-private finance.

  Mr. Jin also tried to woo the Japanese, calculating that the Europeans would be impressed if the country, a Group of 7 member, joined. But the Japanese prime minister, Shinzo Abe, had his own plans to promote development.

  Undeterred, Mr. Jin decided to tackle Washington instead.

A Skeptical Washington

  By the time Mr. Jin arrived in Washington in September 2014, the administration was already wary of the bank.

  The deputy national security adviser for international economics, Caroline Atkinson, who headed a series of high-level meetings on the bank, was known as a strong defender of the existing system. A graduate of Oxford and a former journalist, Ms. Atkinson had worked at the I.M.F., the Bank of England and the United States Treasury.

  Although Washington recognized the bank would go ahead, Ms. Atkinson and others wanted to influence the membership, according to a participant in the meetings. Important allies — Australia and South Korea, in particular — were discouraged from signing up, and G-7 countries were advised that the United States wanted a united front.

  Ms. Atkinson declined to be interviewed. A press representative for the National Security Council referred to earlier comments by President Obama about the need for more infrastructure in Asia, albeit with high standards.

  Behind the public argument lay deep suspicions about China’s real goal. China’s economic clout in Asia was strengthening yearly, and there were fears that Beijing would use the bank as another tool to project its influence.

  The China Development Bank and the Export-Import Bank of China already financed big-ticket projects in Asia and Africa. By Chinese estimates, their combined overseas assets stood at $500 billion, more than the combined capital of the World Bank and the Asian Development Bank.

  Also, the Treasury secretary, Jacob J. Lew, the figure who would normally drive this agenda, knew little about the country. Mr. Lew had not visited China until he became secretary in 2013. His predecessors Timothy F. Geithner and Henry M. Paulson Jr. were steeped in China before joining the Treasury Department.

  Mr. Lew was not really involved in the administration’s deliberations about the bank. In a sign the bank was not a priority for him, a cabinet meeting was never called on whether the United States should consider joining, said officials with knowledge of the discussions.

  During his visit to Washington, Mr. Jin tried to soften the Americans’ objections. He suggested that the administration wait to see how the bank defined its standards before passing judgment.

  “He was encouraging us to be more positive,” the official involved in the administration’s deliberations said. “He was saying, ‘You can be an ombudsman on transparency,’” meaning that the United States could measure the bank on its standards and make its findings public.

  But the National Security Council hung tough. “I am not going to buy the cake you have cooked,” Evan S. Medeiros, the council’s senior adviser on China, said, according to a person with knowledge of the conversation.

  To which Mr. Jin replied: “You are always welcome into the kitchen to help with the baking.”

Finding an Ally

  With a March 31 deadline for membership fast approaching, Mr. Jin started courting other G-7 countries in earnest. He concentrated on Britain, a country he knew and liked, and where his daughter was an assistant professor of economics at the London School of Economics.

  His timing was serendipitous.

  China had put Britain in a diplomatic deep freeze after Prime Minister David Cameron met with the Dalai Lama in 2012. By early 2015, Britain was trying to claw its way out of the doghouse by adopting a mercantilist approach to China.

  As a practical matter, George Osborne, the chancellor of the Exchequer, wanted London to be a prime center for trading in the renminbi. He also thought that Chinese investment was paramount for the nation’s health.

  “There are some in the West who see China growing and they are nervous,” Mr. Osborne said in a speech at Peking University in 2013. “I totally and utterly reject that pessimistic view.”

  The British government kept the negotiations quiet. After deciding to join the bank in early March, the British gave Washington 24 hours’ notice, a senior administration official said.

  To Washington, it was a major affront. The British were supposed to be America’s most steadfast ally, but now they had chosen to side with China. Days later, other European allies rushed in. Australia and South Korea eventually followed.

  A deeper relationship with China is already paying dividends. During a four-day state visit by Mr. Xi to Britain in October, the two countries signed commercial agreements worth 40 billion pounds, or about $60 billion, including one for a major stake in the British nuclear industry. Mr. Osborne said Mr. Xi’s visit had ushered in a “golden era” between the two countries.

  For China, British membership in the bank was a defining moment. Back in Beijing, Mr. Jin reached for his copy of Shakespeare’s drama “Cymbeline.”

  The play takes place in Roman-occupied Britain and part of the action revolves around the British refusal to pay tribute. Mr. Jin read two lines by the character Cloten, who tells the Roman ambassador: “Britain’s a world by itself. We will nothing pay for wearing our own noses.”

  Mr. Jin realized that just as ancient Britain had refused to pay Rome in an earlier age, contemporary Britain had defied the United States and joined the Chinese bank.

Shaping China’s Vision

  When Mr. Jin sat down with the Japanese head of the Asian Development Bank in May, he had some criticism.

  The bank’s board, 12 officials from member countries who all live and work in Manila, was intended to provide direct supervision over loan disbursements, and is actively involved in the bank’s management. But Mr. Jin considered it expensive patronage that justified its existence by demanding extra work on overanalyzed projects.

  At their meeting, the head of the Asian Development Bank, Takehiko Nakao, noted that the Chinese-led institution would not have a similar board. Mr. Jin responded: “Your board is a disaster,” according to a participant in the meeting.

  Mr. Jin now faces a balancing act between China’s vision and critics’ concerns.

  To speed up project approval, China had originally suggested that a technical panel would make final decisions, rather than a board of senior officials from member countries. But the setup, the British complained, was not transparent enough.

  By the time of a two-day workshop in Beijing attended by several hundred people, there was a compromise. The Chinese agreed to establish a 12-member board. Unlike the Asian Development Bank’s board, however, members will not be involved in day-to-day management and will not live and work in Beijing.

  The bank adopted an Australian idea that procurement should not be limited to member countries, a pledge that would distinguish the bank from the existing institutions. That means companies in the United States and Japan can compete for contracts.

  Staff members could also be hired from nonparticipant countries. Two American veterans of the World Bank are working with the new bank: Stephen F. Lintner, a former senior adviser on quality assurance, and Natalie Lichtenstein, who recently retired as assistant general counsel.

  As the host of the workshop, Mr. Jin said he wanted the bank to be part of an orchestra working with other development banks, not a solo player. To allay fears that China would dominate, he sat at the end of the head table, letting delegates from other countries take the limelight. United States Treasury officials attended as observers.

  At the outset, China will have slightly more than 26 percent of the total votes, far short of the 50 percent the Americans understood to be in the proposal. China will not exercise veto power on day-to-day operations. But Beijing retains enough votes to block decisions on the matters it really cares about, like membership and the president.

  Mr. Jin promised a bank that would be lean, green and clean. There will be zero tolerance on corruption, he says.

  Still, concerns remain. The new bank, for example, is deciding whether it will give the go-ahead for highly polluting coal-fired power plants, which the World Bank and Asian Development Bank have effectively stopped financing.

  Mr. Jin suggested that the bank might make exceptions for poor places where people have no access to power. “Do you leave these people in the dark? It’s a human rights issue,” he said.

  When Mr. Xi met President Obama in September, the administration’s icy resolve over the bank had thawed, at least publicly.

  Washington has started encouraging the Bretton Woods banks to finance jointly with the Chinese institution. The Chinese, in turn, have pledged to increase their contributions to the World Bank, a sign they will continue to support the existing system.

  The Asian Development Bank has already agreed to finance a project or two with the Chinese-led organization. On an October visit to Washington, Mr. Jin was finishing a similar deal with the World Bank.

  He is not giving up on the United States, even if the chances are remote.

  “We have a standing invitation” for the United States to join the bank, Mr. Jin said, during an appearance at the Brookings Institution. “Anytime you think you are ready, pick up the phone, give me a ring.”

 

  UPDATE: After this article was published, Evan S. Medeiros, a former senior adviser on China for the National Security Council, disputed the account of his conversation with Jin Liqun of the Asian Infrastructure Investment Bank. Mr. Medeiros, who originally declined to be interviewed for the article, said the exchange involving the analogy of buying a cake did not take place. The original source who described the conversation stood by the account.

Yufan Huang contributed research.
  A version of this article appears in print on December 5, 2015, on page A1 of the New York edition with the headline: Beijing’s Rival to World Bank Moves Forward Without U.S

 

International Business | The China Factor | Part 5

In Nigeria, Chinese Investment Comes With a Downside

By and

DEC. 5, 2015

  Emeka Ezelugha was excited to open a computer training center. He could teach his countrymen some skills and earn a living.

  But soon after the center opened in a rough, two-story concrete building in Lagos, a blaze broke out in the main classroom. The flames incinerated 30 desktop computers, as well as televisions and air-conditioners.

  The culprit was unmistakable: one of two dozen power strips in the classroom. The faulty equipment was made in China, even though the salesman said it was British.

  “The guy tried to convince me it was from the U.K. — I was surprised when it happened,” Mr. Ezelugha said.

  Across this populous African nation, low-cost Chinese goods are everywhere, evidence of Beijing’s growing dominance in global trade. The trade flow has helped keep life affordable for millions of Nigerian families, at a time when the country is struggling with economic stagnation and plunging prices, as well as the deadly costs of the Boko Haram insurgency.

  But shoddy or counterfeit products are a national problem in Nigeria, Africa’s largest economy, where impoverished consumers have few alternatives. Some shoddy goods are benign, like the Chinese-made shirts, trousers and dresses with uneven stitching and stray threads that fill street markets. But electrical wiring, outlets and power strips from China, ubiquitous in new homes and offices, are connected to dozens of fires a year in Lagos alone.

  The relationship between China and Nigeria is a complex web of dependency, one replicated in dozens of developing countries around the world, like Chile, Ethiopia and Indonesia. Such ties are integral to China’s global ambitions. President Xi Jinping of China, who was in Africa this week emphasizing economic diplomacy, just committed $60 billion in development assistance to the Continent.

  But such efforts also pose new and unpredictable challenges for Beijing. China has lent heavily to commodity-exporting countries, which are now struggling with low commodity prices. At the same time, China’s highly competitive manufacturing sector has devastated many smaller-scale rivals across Africa, Asia and Latin America. Mr. Xi’s pledge in Africa, in part, seemed aimed at quelling criticism over what some see as a lopsided relationship that largely benefits China.

  To support its swelling trade in Nigeria, China is funneling billions of dollars to build roads, rail lines, airport terminals, power plants and other desperately needed infrastructure. China is the top lender to Nigeria, where political instability and violence have made Western interests skittish.

  Nigeria, in turn, has become the biggest overseas customer of Chinese construction companies. It is an important market for Beijing, at a time when China’s own growth is slowing.

  But China’s extensive reach is now meeting resistance in Nigeria, part of the broader risks for Beijing’s global strategy.

  In Abuja, the capital, the new government is conducting anticorruption investigations into large Chinese construction contracts signed by the previous leadership. Nigerian state governments are struggling to pay for many of those projects, exposing China to potentially heavy losses.

  In Kano, angry protesters in the streets blame widespread joblessness on China, which is manufacturing African fabric designs in shimmering hues more cheaply than Nigeria. Employment in Nigeria’s textile and apparel sector has plummeted to 20,000 people, from 600,000 two decades ago.

  In Lagos, authorities are trying to stamp out subpar Chinese electric goods. Imported power strips and wiring have inadequate copper to handle Nigeria’s 240-volt system, said Wanza Kussiy, the chief safety officer of the Nigerian government’s Standards Organization.

  Zhang Sen, the vice secretary general of China’s government-controlled Electronic Product Association, said that the group was reviewing Nigeria’s fires. “We still need to do some research before we can say the quality of the Chinese products is to blame,” he said.

  Nigerian authorities are stymied. Corruption is endemic, making it more difficult to enforce safety standards. And Chinese goods are so dominant that consumer have few other choices.

  In Lagos, Mr. Ezelugha borrowed heavily to reopen his computer training center after the fire. But the power strips are still made in China. He couldn’t find anything else.

Idle Factories, Idle Hands

  Kano’s cloth industry started in the walled ancient city, a labyrinth of mud brick houses and dirt roads.

  The city’s blue dye has long been made from the leaves of local indigo plants, which are crushed and mixed with cooking ashes and potassium. Swaths of white cotton fabric are dunked in the dye, which fills six-foot-deep pits lined with animal skins.

  But employment at the centuries-old dye pits has dropped to 250 people, from nearly 1,500 a decade ago. Chinese companies produce virtually identical patterns of fabrics using synthetic dyes, and their sales now dominate in Kano’s open-air market.

  “They are learning our arts and taking them to their country and doing them similarly to us, and bringing the goods back to Nigeria and selling them to our people,” said Bala Ibrahim, 45, who has labored in the pits since his early teens. Now he spends whole days idle.

  Such stories are common across Nigeria’s garment industry. The city’s tanneries, which made Moroccan leather from goatskins for centuries, have laid off most of their staffs. Dozens of modern fabric factories on the outskirts of Kano have closed.

  In theory, Nigeria should have a manufacturing edge, at least in labor-intensive industries like sewing.

  With high unemployment in Nigeria, factory owners can easily find workers willing to accept the minimum wage, just $80 a month. By comparison, garment factories in coastal China now pay around $550 a month and still can’t find enough workers.

  Despite the high cost of labor, it remains cheaper and easier to mass-produce garments in China.

  One obstacle to setting up a large-scale sewing industry like Bangladesh’s is that Nigeria imposes significant tariffs on imported fabric, a legacy of its past as a big producer of hand-woven fabric and as a large grower of cotton. Another challenge is that electricity from Nigeria’s national grid is unreliable. So operations must rely on diesel generators, buying fuel at a cost per kilowatt-hour generated that is six times what garment makers in China pay.

  The Nigerian government wants to revive manufacturing, particularly given low prices now for its oil exports. Abdulkadir Musa, the recently retired permanent secretary of Nigeria’s ministry of industry, trade and investment, said the government was mulling reductions in tariffs on garment materials that are not produced in Nigeria, possibly including buttons. “We want to start that all over now that oil is no longer at a high price,” Mr. Musa said, adding that overreliance on oil exports “has been more of a problem for us than a solution.”

The Rise of China

  Since 2000, China has supplanted the United States as the top source of imports for many countries around the world.

  For now, Nigerians just can’t compete.

  Chimezie Cyril Okwuosa scrimped for years to set up his own small garment factory near Lagos in 2005. He had 25 sewing machines, 30 workers and a noisy diesel generator. The factory failed within five years.

  “I was spending so much on diesel that at the end of the day, I had no profit — and some days, there was no diesel at all, and I could not operate,” Mr. Okwuosa said.

  Mr. Okwuosa now runs Greentomato Apparels, a small-scale importer of children’s trousers. He pays $2.50 a pair to a factory in Guangzhou, China, and then only 10 or 12 cents a pair for shipping. He sells the pants for about $3.25 a pair, leaving him a small profit margin.

  The collapse of manufacturing is more than just a financial issue.

  It has also fanned worries about the possible spread of Boko Haram, an insurgency condemned for its large-scale abductions and sexual enslavement of women and girls. Boko Haram has drawn young men to its ranks in destitute northeastern Nigeria, the country’s poorest region.

  Emir Muhammadu Sanusi II, the traditional ruler of Kano in northern Nigeria, has seen the devastation up close. Outside his palace, a low maroon building with battlements, is a large burn mark. Late last year, a group linked by the government to Boko Haram set off three bombs in a large crowd and then used automatic weapons to spray bullets at the survivors. As many as 500 people were killed.

  “The Chinese basically copy every textile product in Nigeria,” Emir Sanusi said. “I worry about what could happen to Kano when we have a large number of youths and large numbers of industries are down.”

A Flood of Chinese Steel

  At a Lagos steelyard of Dorman-Long Engineering, the only activity on a recent afternoon was the welding of an oil storage tank. With the steep drop in world oil prices, longtime customers like Exxon Mobil and Royal Dutch Shell are no longer commissioning as many helipads and footbridges for their offshore drilling platforms.

  The locally owned engineering firm had expected Chinese construction companies operating in Nigeria to help offset the slump. But Chinese construction companies, mostly state-owned, have largely imported their steel girders, reinforcing beams and other materials from home.

  “I just don’t see a lot of local content in what they do,” said Timi Austen-Peters, the company’s chairman.

  Infrastructure financed and built by China was supposed to be the great hope for Nigeria.

  Nigeria endured coups and a civil war in the 1960s, then effectively nationalized many foreign-owned companies in the 1970s. Nigeria developed a reputation for breaking or renegotiating contracts, antagonizing many foreign partners.

  The risks have prompted Western companies to demand very fat profits before putting money into the country — returns on the order of 25 to 40 percent a year. Their Chinese counterparts have been willing to accept 10 percent or less.

  “Unless the West changes its risk assessment, the Chinese will beat them to the African market,” said Osadebe Osakwe, a former Nigerian banker who is now the managing director of North China Construction Nigeria. The company is a subsidiary of a state-owned enterprise in Beijing. “The Chinese are trying to prove that they can do what the Western companies can do and they can do it better.”

  Chinese companies have piled into the country. Mostly state-owned Chinese construction companies have started $24.6 billion worth of projects since 2005, the highest of anywhere in the world, according to the American Enterprise Institute, a Washington research group.

  “Africa has a real demand for infrastructure and industrial developments — in those areas, China has strong ability and surplus capacity to invest and build,” China’s prime minister, Li Keqiang, said during a visit to Nigeria last year.

  But as demand at home falters, Chinese companies have been shipping huge quantities of steel girders, piping and other industrial materials at extremely low prices to emerging markets like Nigeria. So there is little benefit for local players like Dorman-Long Engineering that used to fabricate much of this equipment.

  Executives at Chinese construction companies say they do buy some local materials. But they add that China’s exports are often more readily available and better made, so they can be quickly and reliably included in complex projects.

  The new Nigerian government is starting to question whether all the construction projects are in the country’s best interest. Many projects, like new international or refurbished airport terminals in Lagos, Abuja, Kano and Port Harcourt, help the country’s elite but may do less for the poor.

  The new government is now searching for signs of fraud, corruption or other misconduct in existing contracts. President Muhammadu Buhari of Nigeria announced on Aug. 10 that his government had already found that hundreds of millions of dollars were mysteriously diverted from one Chinese-backed rail project to other government projects, although it was not immediately clear if corruption was involved.

Bullet Train Boondoggle

  The pride of the previous Nigerian administration, which left office in May, was supposed to be a new passenger train line that links Abuja to Kaduna. With trains traveling at nearly 120 miles per hour, the $874 million line is supposed to cut the three-hour highway trip in half.

  But the line may not draw many passengers.

  A graceful new train station is a 40-minute drive from downtown, surrounded by cornfields and cow pastures. The extension of the line into downtown Abuja has been severely delayed, and money is running short for its completion. And even though Nigeria desperately needs more freight trains, the rail line with its fragile-looking bridges is too lightly built to support heavily laden cargo cars.

  The fate of the line — like dozens of Chinese projects around Nigeria — is a potential problem for Beijing.

  Infrastructure projects in Nigeria have been fueled by the same manic lending that has also created mountains of debt for China’s economy at home. State-controlled Chinese banks have lent money at rock-bottom interest rates in deeply indebted Nigeria.

  They have done so based on the assumption that the Chinese government will repay them if Nigeria cannot.

  A little-known Chinese government agency, Sinosure, has guaranteed the loans. Sinosure insured $427 billion worth of Chinese exports and overseas construction projects around the world in 2013, the most recent year available. The Export-Import Bank of the United States, by comparison, issued just $5 billion worth of credit in each of the last two years.

  Nigeria is a particularly shaky bet for China. The corruption investigations could prompt the government to cancel contracts outright. Government revenue has dropped by more than half since the fall in world oil prices, so the country may not have the money to make good on the Chinese deals.

  The riskiest projects of all may be those like the high-speed rail line that are widely viewed as the previous administration’s vanity projects.

  A Chinese construction manager at the new station on Abuja’s outskirts, who identified himself only as Mr. Zhang, said the project would be finished by next March. It was only behind schedule, he added, because of shipping delays.

  “We’re waiting for materials from China,” Mr. Zhang said, “like toilets.”

Owen Guo contributed research from Beijing.
  A version of this article appears in print on December 6, 2015, on page BU1 of the New York edition with the headline: A Friend With Detriments.

 

Business Day | The China Factor | Part 6

China Plans a New Silk Road, but Trade Partners Are Wary

  Beijing’s effort to revive ancient trade routes is causing geopolitical strains, with countries like Turkey increasingly worried about becoming too dependent on China.

By

DEC. 25, 2015

  ANKARA, Turkey — As tensions in the Mideast and Ukraine rose in recent years, Turkey moved to jointly manufacture a sophisticated missile defense system. The $3.4 billion plan would have given Turkey’s military more firepower and laid the foundation to start exporting missiles.

  But Turkey abruptly abandoned the plan just weeks ago in the face of strong opposition from its allies in the North Atlantic Treaty Organization.

  Their main objection: Turkey’s partner, a state-backed Chinese company. Western countries feared a loss of military secrets if Chinese technology were incorporated into Turkey’s air defenses.

  As one of its highest economic and foreign policy goals, China has laid out an extensive vision for close relations with Turkey and dozens of countries that were loosely connected along the Silk Road more than 1,000 years ago by land and seaborne trade.

  But Beijing’s effort to revive ancient trade routes, a plan known as the Belt and Road Initiative, is causing geopolitical strains, with countries increasingly worried about becoming too dependent on China.

  Kazakhstan has limited Chinese investment and immigration for fear of being overwhelmed. Kyrgyzstan has pursued warmer relations with Moscow as a balance to Beijing.

  With the missile deal, Turkey was turning toward China partly to reduce its reliance on NATO. “Our national interest and NATO’s may not be the same for some actions,” said Ismail Demir, Turkey’s under secretary for national defense.

  But the deal immediately raised red flags in the West.

  Besides the technology issues, the Chinese supplier, the China Precision Machinery Import-Export Corporation, was the target of Western sanctions for providing ballistic missile technology to Iran, North Korea, Pakistan and Syria. So Turkish exports based on a partnership with China Precision could have also been subject to sanctions.

  Complicating matters, China and Russia are close allies on many issues. Russia is especially distrusted in Turkey because of its military intervention in Syria and its annexation of Crimea from Ukraine. And Turkey had been a close American ally ever since it sent a large contingent of troops to fight North Korea and China during the Korean War.

  The Chinese missile project “was one of the things that really made people say ‘Turkey is shifting, wow,’” said Mehmet Soylemez, an Asian studies specialist at the Institute for Social and Political Researches, an independent research group in Ankara. “China wants to remake the global financial and economic structure.”

  With its wealth and markets, China is a tantalizing partner.

  Many countries along the former Silk Road are frustrated by the difficulty of developing closer economic ties to the European Union. And they are alarmed that the American-led Trans-Pacific Partnership, a major regional trade deal, could give an edge to Malaysia and Vietnam.

  “So many years, we have been kept waiting at the edge of the E.U., and people are losing hope,” said Sahin Saylik, the general manager of Kirpart Otomotiv, a large Turkish auto parts manufacturer. “Turkey is not in the Trans-Pacific Partnership and problems in the Arab world are pushing Turkey to have other alternatives.”

  But the relationship with China is lopsided. Turkey imports $25 billion a year worth of goods from China, while exporting only $3 billion there.

  In Turkey, stores are full of Chinese goods, from vacuum cleaners to tableware. Chinese companies have purchased coal and marble mines, as well as a 65 percent stake in Turkey’s third-largest container port. China is helping build nearly a dozen rail lines, and it is already a military supplier, selling lower-tech battlefield rockets to Turkey.

  Companies are increasingly turning to China for cost reasons, buying components or importing fully assembled products. Arzum, one of Turkey’s best-known appliance manufacturers, did the engineering and marketing for its popular new Okka single-cup Turkish coffee brewers locally. But the brewers are manufactured in southeastern China.

  “Ten years ago, Turkey didn’t exactly see the threat of China for manufacturing,” said T. Murat Kolbasi, Arzum’s chairman. “The threat has to be changed to the opportunity.”

  Chinese companies can quickly sever ties as well.

  The state-controlled China Machinery Engineering Corporation abruptly backed out of a $384.6 million deal to buy a 75 percent stake in the electricity grid of Eskisehir and nearby provinces in Turkey. It happened days after national elections in Turkey last June cast uncertainty on the future of the industry’s regulations.

  China Machinery provided no official reason to the Turkish Electricity Distribution Company for canceling the deal. The Chinese company declined to comment.

  Turkish Electricity, a nationwide grid company, is suing the Chinese company in an effort to collect a breakup fee. Mukremin Cepni, chief executive of Turkish Electricity, said that he had worked 18 months on the Eskisehir deal and was unenthusiastic about any more tie-ups with China.

  “I won’t think well of them, because personally I struggled a lot, and their going away without giving any reason exhausted us,” said Mr. Cepni.

  Ethnic issues have further complicated China’s relations. Many countries in the region are Muslim, and versions of Turkish are spoken in more than a dozen countries, partly a legacy of the Ottoman Empire.

  That history has fanned regional tensions over Beijing’s stringent policies toward the Uighurs, Muslims in China’s Xinjiang region who speak a Turkic language. Beijing has blamed Uighurs for a series of attacks on Han Chinese from eastern China.

  When China suppressed Uighur protests in 2009, Recep Tayyip Erdogan, the Turkish prime minister at the time, condemned the actions as “a kind of genocide.” Last July, Turks and Uighurs held two rounds of protests in Istanbul and Ankara.

  Now the president of Turkey, Mr. Erdogan is prioritizing ties with China. He calmed the anti-Chinese protests last summer by urging his countrymen to be wary of rumors on social media about China’s treatment of the Uighurs.

  Nationalistic Turkish groups like Anatolia Youth, previously outspoken about the Uighurs, have responded by softening their stance toward China. Mahmut Temelli, the chairman of Anatolia Youth’s foreign relations council, said that he believed that on missiles, “the bid should have remained with China.”

  The missiles became an international issue two years ago, when Turkey’s defense ministry announced it favored a Chinese bid. It beat out an American offer to sell fully built Patriot missiles, as well as similar deals with Western Europe and Russia.

  Turkey wanted to churn out missiles, potentially for export in a few years, and to stop relying on NATO’s occasional deployments of Patriots. “You cannot protect a 911-kilometer border just with Patriots,” said Merve Seren, a security specialist at the Foundation for Political, Economic and Social Research, a pro-government public policy group in Ankara.

  And Turkey’s F-16 fighters, like the two that shot down a Russian warplane in late November, cannot be on patrol continuously, said Mr. Demir, the defense under secretary. Missile systems can be ready around the clock.

  As the Syrian conflict worsened, NATO’s limited supply of Patriot missiles meant that it sent only enough to protect three Turkish cities. NATO had begun to withdraw them when the Russian warplane was shot down.

  “NATO’s deployment of air defense systems is on and off,” Mr. Demir said, just hours after the the episode with the Russian warplane, videos of which played on the television in the background. “I don’t know if it gives a message that your partners can rely on.”

  But Turkey had a huge blind spot with the missile project.

  Turkish military analysts compared a long list of variables, like missile range and the willingness to share technology and manufacturing. The analysis was approved by a committee including the defense minister, generals and Mr. Erdogan, Mr. Demir said.

  But nobody consulted the foreign ministry on how Turkey’s allies would react, partly because NATO had already tolerated Greece’s acquisition of Russian air defense missiles from Cyprus. “They were informed after the process was completed,” Mr. Demir said. “It was not treated as a special project that will have a lot of political results.”

  Within days of the announcement about China’s leading bid, NATO member countries organized a campaign to overturn the decision. President Obama, Western European heads of state and top NATO commanders contacted Turkish leaders.

  NATO officials have been cautious, saying any country has a right to choose its own equipment. But they have publicly expressed concern that Chinese missiles might not be compatible with NATO equipment — and privately that they were loath to share technical details to make compatibility possible.

  Last month, Turkey opted to go ahead on its own. It will probably subcontract some components to foreign manufacturers, possibly China Precision.

  An engraved metal plate from China Precision in a polished rosewood box still sat on a shelf outside Mr. Demir’s office the morning the Russian warplane was shot down. Hours of negotiating with Chinese arms makers has forged a relationship that will make future military cooperation easier, Mr. Demir said.

  “There is a value,” he said, “in the time we have spent with these companies.”

 

  A version of this article appears in print on December 26, 2015, on page A1 of the New York edition with the headline: Allure and Alarm as China Paves Way for New Silk Road.

 

International Business | The China Factor | Part 7

A Chinese Company in India, Stumbling Over a Culture

By

DEC. 30, 2015

Solitude and Industry Collide Near Mumbai

  An industrial zone for blue-chip multinationals is changing the landscape in western India. But three years after the biggest leaseholder signed on, some land once used for grazing still stands empty.

  SHINDE, India — When a Chinese truck company wanted to open a factory in India, its president looked at sites that had a mountain in back and a river in front — especially auspicious locations in the traditional practice of feng shui.

  The company, Beiqi Foton Motor, found a seemingly ideal spot, securing 250 acres of farmland in this western Indian village. Foton wants another 1,250 acres nearby to build an industrial park for suppliers.

  But the mountain here is sacred to many Hindus. For at least 2,000 years, the cliffside caves have been home to generations of monks. One of the most revered Hindu saints is said to have attained a pure vision of his god during the 17th century while meditating in the highest cave overlooking what is now Foton’s site.

  The culture clash was immediate.

  Foton erected barbed-wire fences and hired uniformed guards to keep out trespassers. Cattle herders and Hindu pilgrims have repeatedly trampled the fences. The monks do not want a noisy neighbor.

   “In today’s life, spirituality and science are both important, and neither should deny the other,” Kailash Nemade, a monk, said during a pause from chanting religious poems. “But this factory should not come here, because it will ruin the spirituality of the mountain.”

  Chinese companies have embarked on ambitious overseas expansion efforts, snapping up land in dozens of countries to build factories, industrial parks, power plants and other operations. While the investments provide critical support for many economies, Chinese businesses are struggling to navigate complex cultural, political and competitive dynamics.

  China’s economic slowdown this year, along with a stock market plunge and a currency devaluation, have not deterred the country’s companies. Many have accelerated their global shifts as their home market becomes less attractive.

  But Chinese enterprises lack the experience of their Western counterparts, which have spent decades developing international operations. As Chinese companies have built their businesses largely at home, they haven’t had to address the same challenges.

  In China, companies with strong Communist Party connections can bulldoze communities and religious sites. The Chinese government bans independent labor unions. While strikes and other labor protests are becoming more common, they are quickly squelched by the government if they show signs of spreading.

  As Chinese companies now venture overseas, they are dealing with a wave of resistance.

  In Africa, workers at Chinese-run oil fields and copper mines have gone on strike over low pay and dangerous working conditions. The Myanmar government halted China’s construction of a hydroelectric dam there after protests over environmental damage and the displacement of villagers. And in Nicaragua, residents have resisted the planned resettlement of villages to make way for a canal proposed by a Chinese businessman.

  In India, Foton’s experience provides a look into the internal struggle that countries face.

  India desperately needs outside investment to support the 13 million young people entering its labor force every year and to begin relieving chronic unemployment in its countryside. Indian and Western factories within a few miles of Foton’s site have created thousands of jobs.

  Western companies have tried to tread more carefully in India, in some cases learning from past mistakes. They have worked closely with communities, explaining their projects to residents. The companies have typically sent teams of executives, often with overseas experience.

  Foton strongly defends its plans. The company says that its plant and supplier park will create a much-needed economic boost.

   “Because of these projects, the employment of thousands of people, even tens of thousands, will be accomplished,” said Zhao Jingguang, Foton’s executive vice president.

  But Foton keeps revising production plans and delaying construction. With the project stalled, the promised jobs have not materialized.

  Foton’s corporate style has also caused friction. It managed the project mainly from Beijing, sending executives to India for two-week visits. When Foton’s Indian managers needed to work with the main office, they sat through videoconferences that lasted hours, with Chinese executives often speaking at length in Chinese.

  Mr. Zhao denies that the company picked the location for its feng shui, which the Chinese government condemns as superstition. Still, he acknowledged that “there is a river, should be good feng shui.”

  But the land deal has been less than harmonious.

  Regulations mandate that factories be located at least 500 meters from temples, preventing construction on half of Foton’s site. A state agency also reserved land for a 15-yard-wide dirt access road to help pilgrims reach a footpath to the caves.

  Despite Foton’s efforts, many villagers and monks say the factory would still be too close. Pilgrims, who can number over 5,000 during religious festivals, would have only a half-acre site to pitch their tents.

  Sitting cross-legged in a pink-painted cave, the monks’ leader, a Hindu holy man named Vishwanath Maharaj, listened closely when asked for his view on Foton’s plans. But he merely gave a slight smile and shrugged his shoulders, preserving his 35-year vow of silence.

The Land Grab

  When President Xi Jinping of China arrived in India a year ago for a visit, he was welcomed at each stop by gleaming military honor guards, including a row of turbaned cavalry lancers on horseback.

  Mr. Xi and his host, Prime Minister Narendra Modi of India, smiled as a succession of deputies and executives exchanged more than a dozen commercial and cultural agreements with one another. One of the agreements called for the creation of the supplier park, where Foton would rent out space to Chinese parts manufacturers.

  China and India both want to strengthen their economic ties, even as their militaries remain wary of each other. The $300 million Foton project, including the plant and the industrial park, is one of China’s largest investments in India.

  “Your vision cannot be too small,” Mr. Zhao said. “Nowadays, people say you must have an international vision.”

  Following the lead of the United States, Japan, Europe and other big economies, Chinese companies are diversifying overseas to find new customers, markets and opportunities.

  A decade ago, China’s overseas purchases of companies, land, equipment and other physical assets totaled just $20 billion a year. Last year, China’s total was $120 billion. It trails only the United States, and American overseas investments have been heavily aimed at limiting taxes.

  Pune and its environs have long been a hub of foreign investment, tracing their industrial roots to a munitions factory built in 1869 under British rule. Big assembly plants now churn out Chevrolets, Mercedes, Mahindras and other cars. A Corning plant makes fiber-optic cables. A General Electric factory creates wind turbines.

  For Foton, India offered cheaper labor than its home country and a strong market for its products. India’s position between Southeast Asia and Africa provided a natural hub to supply other developing markets as well.

  Even without the supplier park, Foton has leased the biggest site in the area, 250 acres, for 95 years. Corning, G.E. and others nearby have less than 100 acres apiece for their factories. A Bridgestone tire factory occupies 185 acres.

  In Shinde, speculators have bid up the price of land, expecting that the state government will buy it and lease it to Foton. But many villagers are opposed to selling, since the deal would eliminate much of the farmland that is left.

  Kaluram Kendale, who grows onions and raises buffaloes, does not want to sell. He is upset that the state government already forced him to sell five of the 12 acres that his family farmed for generations.

  “If I sell the land, it’s one-time money,” he said. “But my land is beautiful, it’s fertile, and it’s a permanent source of income for my family.”

A Village Divided

  Chhaya Shinde, who grew up in a mud-walled sharecropper’s cabin with dirt floors, was a star student, learning to read and write Hindi and Marathi, the local tongue.

  Her father, unlike most in her impoverished hamlet, wanted his daughter to get an education. He paid $16 a year for Ms. Shinde to attend a school in a nearby village. She dreamed of becoming a social worker to help the elderly.

  Ms. Shinde’s education ended after Foton came to town.

  While landowners got paid for their fields, sharecroppers got nothing. Ms. Shinde’s father, a millet farmer, lost much of his income. Ms. Shinde had to drop out of school a year ago.

  “I had no money,” said a tearful Ms. Shinde, 18. “I was at home, so I had to be married off.”

  Since the arrival of Foton, the gulf between the rich and the poor here has widened.

  The Panmands, who owned the land where Ms. Shinde’s family farmed, sold half of their 58 acres for the Foton factory and two other factories. With the proceeds, they built a 10-bedroom villa with a large courtyard and a fish pond.

   “For people who are rich, it’s beneficial because they can buy a lot of things,” said Vijay Panmand, 28. “But for the poor, it is not good. Where will they work?”

  When Suresh Ghanwat sold land, he invested a portion of the money in a three-story apartment building, renting out the top and bottom floors. He also set up a concrete-block business, producing a daily profit of $80.

  But many families are like Ms. Shinde’s, trying to survive in cramped, dark cabins.

  Indian laws on land deals are fairly generous by developing-country standards, calling for compensation for tenant farmers and sharecroppers. But to qualify, they need to live on the land or record the arrangement in official logs. Ms. Shinde’s family did neither.

  Ms. Shinde, who wears a pair of simple barrettes to hold back her dark hair and slim golden bangles that encircle each wrist and ankle, now labors part time on one of the Panmand family’s remaining fields.

  “I wish they had never come here,” she said of Foton, wielding a hand-held scythe to cut pearl millet. “Those who were rich became richer, and the poor, poorer.”

Foton vs. the Civil Servant

  When Foton acquired the land here three years ago, young babul trees sprouted as soon as the farmers left. Today, Foton’s site has roughly 12,000 full-grown babul trees, a widely loathed plant with two-inch thorns.

  Their height, up to 10 feet, brings a tree preservation ordinance into play. When Foton eventually starts building, it will have to get permission from the forestry ministry to cut the trees down.

  As the babul trees flourish, Foton’s leadership has agonized over what to build, according to five former executives. The original plan called for welding, assembling and painting heavy-duty trucks.

  The plan shifted to building delivery trucks, and then to assembling sport utility vehicles and cars. In that time, Foton’s Indian operation has had four chairmen and at least three executive vice presidents.

  Mr. Zhao of Foton said the company hoped to start building the factory by early next year. The first vehicle most likely will not roll off the factory line until at least 2017.

  The supplier park looks less certain.

  Both the Beijing government and the New Delhi establishment regard the deal as important. But Foton did not enlist the support of local bureaucrats, and a civil servant in Mumbai could ultimately derail the project.

  The state land agency, the Maharashtra Industrial Development Corporation, has to approve the deal. And the agency’s chief executive, Bhushan Gagrani, has resisted, citing a dearth of farmland and earlier disputes with families like the Ghanwats. He wants to steer the supplier park farther inland, where unemployment is more acute and farmland abundantly available.

  But the alternative sites would require supply trucks to haul parts for several hours. Foton, Mr. Gagrani said, did not send anyone even to look at them.

  The Indian prime minister, accompanied by an entourage that included Mr. Gagrani, traveled to China in mid-May. Chinese officials pressed the case for the Foton supplier park again.

  But a deal may not be possible now.

  Foxconn, the Taiwanese contract manufacturer, has decided to build a mobile phone factory nearby. Foxconn negotiated its deal directly with the state government.

  “Any land left,” Mr. Gagrani said, “we are giving to Foxconn.”

 

  Jonah Kessel contributed reporting from Beijing.
  A version of this article appears in print on December 31, 2015, on page B1 of the New York edition with the headline: Stumbling Over a Culture.

 

Kenneth Rapoza, Contributor|

3/25/2013

After A Decade Long Wait, China And Russia Ink 'Super Jet' Military Deal

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  China finally gets her wish: 24 Sukhoi SU-35s from Russia, with love. And a warning: don't you dare try and reverse engineer this beast.

  A recent official visit to Moscow brought back some new souvenirs for the Chinese military.

  How about a reported 24 Sukhoi SU-35 fighter jets, and four submarines from Russia.

  China‘s new president Xi Jinping was in Russia this week to meet with his Russian counterpart Vladimir Putin. Both sides agreed to two arms-sale contracts in which China will buy Russian Sukhoi made fighter jets, Xinhua and Agence France Press reported on Monday.

  Move up http://i.forbesimg.com tMove down

China has been itching to buy the planes since the 1990s and has been in hot pursuit since last March.

  Russia’s Interfax confirmed the existence and date of that agreement back in February, but didn’t speculate on sales numbers. This month, official talks trimmed the order down to 24 planes from an initial discussion of 48 Sukhoi Super Flankers. The Russians are said to have more confidence that China can’t copy their engines, and are also said to need the SU-35 orders because Russia’s Defense Department is ordering follow-on buys of new upgraded Sukhoi SU-35s instead.

  The deals raised concern among some regional defense players — namely India. China Central Television reported on Sunday that the purchase deals were signed before President Xi Jinping’s ever stepped foot into Russia. The military deal marks the first time in a decade that China had bought large military technological equipment from Russia, according to official television.

  Meanwhile, the four Lada-class diesel-electric submarines will be jointly designed and built by both countries, with two of them to be built in Russia and the other two in China.

  “The Su-35 fighters can effectively reduce pressure on China’s air defense before Chinese-made stealth fighters come online,” Li Hong, secretary-general of the China Arms Control and Disarmament Association, said in a Xinhua newswire story. Li said the recent purchases and joint building plan serve as an indicator of the evolution of the overall China-Russian strategic partnership.

  “It is the natural, well-deserved fruit of bilateral defense cooperation, and both sides have made it clear that the bilateral strategic partnership is not targeting anyone,” Li said.

  The Sukhoi SU-35 is a single seat super maneuverable, acrobatic fighter plane. Russia is the only Air Force to fly the SU-35. At altitude, its top speed is Mach 2.25 compared to Mach 2 for the U.S. F-16 Fighting Falcon, another multirole fighter aircraft made by General Dynamics and Lockheed Martin. The SU-35 is designed by Sukhoi and built together with Komsomolsk Aircraft Production Association, aka knappo, Russia’s largest aircraft maker. Both are part of United Aircraft Corporation.

 

AKULA! The Soviet Shark
Original article for SUBSIM Review
by Neal Stevens Nov. 1999

  The shark. The most feared creature in the sea. Silent and lethal, this killing machine of nature can strike at a moment’s notice. The Russian word for shark is akula. In NATO, Akula is the designation given to the newest and most technologically advanced attack submarine of the Russian Navy. The Akula class submarine is Russia’s answer to the American Los Angeles class fast attack subs. Common opinion holds that Russian submarines are noisy and technologically inferior to their American and British counterparts. Expert opinion, however, knows what lies behind the traditional Russian veil of secrecy. With the Akula, the former Soviet Union has caught the US in the undersea arms race.

Construction History

  The Akula class nuclear submarine is officially deemed Project 971 Shuka B (shuka is an aggressive breed of fresh water pike). Soviet naval engineers designed Akula as the follow-up to the Victor and Sierra classes to set a new standard in stealth and serve as the vanguard of the modern Russian Navy. First of her class, the K-480 (named Bars, Russian for panther) was laid down in 1982 at the Komsomol'sk Shipyard on the Amur River (Eastern Russia) under the authority of the Malakhit Design Bureau. The Soviet Navy launched Bars in 1983 and commissioned her in December 1984. Most of the first eight Akula class submarines were built in Komsomol’sk until activities there ceased in 1993. The remaining submarines have been built or are under construction at the Sevmash Shipyard in Severodvinsk (Northern Russia near Arkhangel’sk), now the primary shipyard for the Russian Navy.

  With the Russian economy presently in disarray, shipyard activities face spiraling uncertainty. Production of most surface ships has halted. Output of Akula submarines remained steady at one-to-two a year until 1995. Funding delays and shipyards strikes have delayed completion of additonal units. To illustrate this, consider the Akula submarine Gepard. Her keel was laid down in 1991 with the sub scheduled to enter active service in 1996. According to the Severodvinsk daily Severny Rabochy, Gepard is still in the yard. The sub's crew was scheduled to arrive on board in early 1998 while the Gepard is still under construction. Western experts puts the total number of Akulas at around 13~14. At current building rates, perhaps one new nuclear submarine will be delivered every three years.

Unique Design

  When discussing the actual physical characteristic of a piece of Russian military hardware, one must always keep in mind the degree of security the government imposes on information. It is generally believed that an Akula displaces an estimated 7500 tons surfaced, 9100 tons submerged, with a length of 108-113 meters and a beam of 13.5 meters. Intelligence believes propulsion is derived from a pressurized water reactor with a model OK-650 b high-density reactor core, generating a total of 200 mwt and a shaft power of 43,000 hp. The uranium fuel is highly enriched, producing substantially more power than American submarine reactors. Some sources credit Akula with two reactors. Thomas Jandl, director of Bellona USA (a Norwegian-based environmental group), says, "My colleagues tell me that the Akula has only one reactor, as opposed to older Russian subs, which had two. The Akula does not follow the two-reactor tradition." Whichever the case may be, the Akula is capable of underwater speeds of 35 knots (claimed) and this, too, may be a conservative rating.

  The Akula uses a double hull construction. The living spaces, torpedo tubes, and most of the machinery exists within the stronger inner hull. The ballast tanks and specially adapted gear are located between the inner and outer hulls. Double hull construction calls for greater propulsion requirements and includes limber holes for the free-flooding sections between the hulls. These holes are an inherent source of unwanted noise. Akula class submarines, however, incorporate limber hole covers that can be closed to reduce or eliminate this tattletale. Offsetting the extra weight, double hull construction dramatically increases the reserve buoyancy of a submarine by as much as three times over that of a single hull craft. The greater capacity for absorbing enemy fire and still being capable of reaching the surface must have a very good effect on the morale of the 80 crewmen.

  An Akula has a very distinctive profile; a broad beam, sleek lines, and the conspicuous stern pod which houses a hydrophonic towed array. Hull material is high strength steel. The Akula does not have a titanium hull after many problems with that material during early construction. Diving depth approaches 500 meters, possibly ten percent more, placing the Akula ahead of the American Los Angeles class. The engineers have taken great care to blend the sail into the hull producing superior hydrodynamic qualities. The result makes American submarines look blocky and piecemeal in comparison. Decreased water resistance adds knots to an already potent powerplant.

  The combination of a high-density reactor and streamlined hull contours make the Akula class capable of speeds that outperform NATO submarines. Careful study of Akulas captured on film reveals another velocity weapon. Parallel sections of small-diameter tubing running down the hull are thought to be a system that, when the need arises, can emit a polymer substance that may greatly enhance underwater speeds under combat conditions.

  The Akula is quite capable of gunning as well as running. Armed with four 533mm and four 650mm torpedo tubes, Akula deploys twice as much ordnance as the Los Angeles class. Loadout consists of twenty SET 53 torpedoes, four SS-N-21 nuclear cruise missiles, four SS-N-15 nuclear torpedoes, and ten ultra-heavyweight SET 65 ASUW torpedoes. Both the SET 53 and SET 65 torpedoes are wireguided and possess active, passive, and wake-homing capabilities. The SET 65 pack a 900kg punch, enough to take out a carrier with one unit.

  Significant modifications were made to the original Project 971 Akula design beginning with the fifth unit. Classified as "Akula II", these modifications include a four-meter extension that may accommodate VLS tubes and advanced technology sensors.

Tactics and Defense

  Known countermeasures are the standard gas-producing decoy units, a holdover from the German Pillenwaffer, sonar jamming, and an ingenious acoustic decoy commonly referred to as the nixie. The nixie is a small torpedo that emulates the sound signature of the parent sub. Once launched, the nixie veers from the submarine’s track at three knots. The emissions coming from the nixie obscures the actual noise generated by the creeping submarine. While the tracking submarine is deceived into tracking and launching on a decoy, the Akula may silently alter course and counterattack. At the very least, a nixie will force the NATO submarine to track multiple targets, uncertain which is the Akula.

  However, even more intriguing is the layman’s theory that the newer Russian subs can actually operate at lower sound levels than documented. Learning of the spectacular achievements of US sub quiteness from the Walker revelations (see below), Soviet military doctrine may dictate that all submarines routinely emit a level of noise that exceeds their minimum capability. The theory follows that NATO submarines track, record, and catalogue the Akulas at these artificial sound levels and US naval intelligence may be misled into believing that the profiles represent the best the opposition can do. In the event of actual conflict, doctrine would then direct the Russian submarines to shift into a combat mode of silent running and eliminate the false noise levels, effectively disappearing from NATO’s view. "The submarine versus submarine engagement profile is a lot more complicated than the simple comparison of radiated noise, which is too often used to oversimplify relative effectiveness," a Navy expert said. "Other equally important factors include tactical handling and sonar performance, and even non-acoustic sensors must be taken into account."

Gains Through Borrowed Technology

  As we have seen, the Russian naval mindset stresses performance over stealth. The Akula follows a line of boats that can outdive, outrun, and outshoot American subs in most categories. The notable exception is quietness. One American submarine captain described the acoustic profile of a seventies Russian sub as similar to that of a "threshing machine". American submarines are capable of a highly touted degree of stealth that no Russian sub can match. That is, until Akula. Western intelligence experts had expected the US lead in submarine acoustics to last well into the 21st century. The advent of the Akula class has many NATO military planners convinced that US subs have lost the advantage they enjoyed since the end of the Second World War.

  Originally, the Soviet fast attacks (Victor class) were deployed in the sixties off the US coasts to shadow US boomers. When this strategy failed because the boomers were too quiet, the Soviet fast attacks received reassignments to escort their own boomers and provide retaliation deterrent against US fast attacks. To overtake the Americans, Russian engineers adopted and improved the machinery rafting designs that had proven successful in damping the turbine noise on American nuclear submarines. However, as one high-ranking American officer cautiously stated during an interview, the Russian technology may achieve a high level of noise suppression initially but degrades after service. The signature of an Akula grows more prominent with age, whether through inferior design, materials, or maintenance.

  Other reported Russian design innovations included three separate anechoic coatings on the hull. The most significant achievements in reducing radiated noise were obtained through espionage. The spying efforts of American naval personnel John Walker and radioman Jerry Whitworth made the Soviet Union’s military chiefs aware of how far advanced American submarines were. Substantial efforts to marginalize the sound profile of the Akula can be traced to intelligence gained from the Walker spy ring. A separate but equally empowering sequence of events for the Russians was the illegal sale of propeller milling technology by the Japanese firm Toshiba and the Norwegian firm Kongsberg. The combined results generated a steep drop in broadband acoustic noise profiles.

Leading the Undersea Arms Race

  Rapid gains are not won without some setbacks. Four Soviet-era submarines have been lost with the loss of over 500 men. There have been ten known nuclear accidents and many lesser accidents involving fires. Some of the blame, no doubt, is due to the acquisition of technology through espionage rather than painstaking research that includes thorough comprehension. There have been no known accidents of the Akula class boats operating from the Northern and Pacific Fleets, which leads one to believe the Russians have survived their lengthy trials and have produced a world-class product. Although Western military buffs are often quick to dismiss the former Soviet Union as technologically inept, the Akula class has raised serious doubts of who is leading whom.

  This turnaround was painfully evident when US officials recently acknowledged for the first time that US submarines could not readily locate an Akula submarine operating off the coast of the USA. "It is difficult to find the most advanced Russian Akula class submarines when they operate at tactical speed or less," Admiral Jeremy Boorda said. Other military experts sounded the alarm as early as 1988. Anthony Batista, senior staff member of the Armed Forces Committee declared, "The Akula is the best submarine in the world today." A recent report from the Office of Naval Intelligence noted that the improved Akula submarines could indeed surpass the quieting of the Los Angeles class at tactical speeds. On August 9, 1995, during a lobbying effort on behalf of the Seawolf and the following Virginia class submarines, retired Vice Admiral E.A. Burkhalter announced that the $7 billion-per-year Russian program had produced "the Akula submarine, which is quieter than Seawolf." In an effort to raise public awareness, Martin Marietta, a leading defense contractor, ran ads featuring the Akula class in a number of newspapers including the San Diego Union-Tribune. While it may be difficult to separate the hype military supporters chronically use to "talk up a potential threat, in order to justify their own building programs" from the actual capabilities obscured by Russian secrecy, one impression remains: America can no longer claim uncontested dominance of the oceanic strata.