China’s N.C. love affair
This countryside is a world apart from the state’s thriving metropolises. It’s fall, and farmhouses and barns dot the browning landscape as Andy Garrett drives through Warren County. He’s worked in fields like these all his life, grueling days with clothes, arms and hands coated with sticky black, nicotine-laced gum, stooping and breaking off suckers — growth-sapping sprouts — and squashing leaf-eating hornworms as big as his thumb.
Across the state line, Virginia’s faded South Hill was once a thriving tobacco town. After wrapping up a meeting here, Garrett heads back to North Carolina, pleased with his day. The tobacco buyers he met agreed to pay about $2.18 a pound for 19 bales. At more than 700 pounds per bale and 15 cents or more per pound than others are offering, the deal will gross more than $30,000. “We’ve done pretty well,” he says.
Farmers like Garrett are the soul of Tar Heel agriculture, powering the state’s economy. “It’s made a life for me,” says Garrett, who farms about 100 acres of tobacco near Vicksboro.
On this day, though, the buyers crucial to his future are from the opposite side of the globe. Deqing Liang and his delegation from China Tobacco International (North America) Ltd. are based in Raleigh, but Garrett’s tobacco will eventually go up in the smoke of premium Chinese cigarette brands such as Huanghelou and Panda. Last year, North Carolina sent China about $184 million in tobacco, while overall exports to the Asian nation topped $2.1 billion.
Garrett’s tobacco sale exemplifies the degree to which China has penetrated North Carolina commerce, from bucolic family farms to golf courses, urban apartment projects and pharmaceutical and computer factories, plus new industries in moribund towns.
“The Chinese have for several years been on an investment splurge throughout the world,” says Michael Walden, an N.C. State University economist. “They want to diversify their portfolio. They’re a global power and want a presence in major countries. And they’ve got the money.”
The creation of 15,000 jobs in North Carolina by Chinese companies since 2000 is more than any other state, topping California’s 8,300, says New York City-based Rhodium Group LLC, which tracks international investment. The state ranked third nationwide in dollar value of Chinese investment for that period, while another source estimates the Asian nation’s representatives spent $13.6 billion from 2006 to mid-2016, says Kim Genardo, spokeswoman for the N.C. Department of Commerce. Chinese investors have acquired about 60 companies here.
North Carolina is ardently courting China. N.C. Agriculture Commissioner Steve Troxler has led three trade missions, the latest including about 50 business leaders, while Commerce Secretary John Skvarla has led others. “We’ve invested a lot of time and energy over there,” Troxler says.
Behind the international romance are major misgivings. Donald Trump’s election may slow the pace of Chinese-U.S. integration. He has repeatedly categorized China, and its ruling Communist Party, as a principal adversary and promised to crack down on alleged currency manipulation, impose trade tariffs and expand
the U.S. military presence in the South China Sea.
Wary politicians including U.S. Rep. Robert Pittenger of Charlotte fret about the national security threat posed by China’s growing role in technology, particularly Lenovo Group Ltd., which bought IBM’s Triangle-based personal-computer business for $1.75 billion in 2005, then its server unit in 2014. The company employs about 3,200 in North Carolina. Pittenger raises the specter that Lenovo might program computers sold to, among others, the U.S. military for spying.
Others worry that Chinese investment will prompt intellectual-property pilfering and, in a worst-case scenario, endanger America’s food security. State-owned China National Chemical Corp. is offering $43 billion for Basel, Switzerland-based Syngenta AG, which has more than 1,500 employees in the Research Triangle and Greensboro. North Carolina’s Syngenta operations include seed development and crop protection.
Anecdotes like those underscore the circular paradox of Chinese trade in North Carolina: The state wants the jobs and export market, but they come with caveats. Timber’s an example. Struggling timber growers and sawmillers in western North Carolina welcome sales to China, Troxler says. But environmentalists warn of denuded forests, and manufacturers argue that the wood comes back as cheap furniture, costing the state thousands of jobs.
Ironic is how John Bassett III describes the trade situation. He is president of Galax, Va.-based Vaughn-Bassett Furniture Co. His company maintains a distribution center in Elkin, but Vaughn-Bassett closed its 400-worker manufacturing plant there in 2009, a victim of domestic recession and Asian competition. Bassett lists a half-dozen Piedmont makers of wood furniture that have met similar fates. “All those plants basically don’t exist anymore.”
The reach of Chinese influence over its citizens extends half a world away. Four members of a Raleigh-based Chinese cultural group contacted by Business North Carolina to discuss their daily lives declined to return calls. Two of them teach Chinese in public schools.
Wake County real-estate investor Sue Googe, born as Jiangxiu Fu in poverty in China but an American for 18 years via marriage, winces. “God, it’s just a propaganda organization,” she says. Googe, whose grandfather was executed in a Communist purge in the 1940s, no longer has family in China and speaks freely. She unsuccessfully ran for Congress this year. “They’ll never tell you what they really think,” she says. If her parents, now deceased, still lived in China, “no way I would run for office, I can tell you that.”
Others raise questions about the source of Chinese wealth pouring into North Carolina. One reason is the slowing China economy; another is a corruption crackdown by President Xi Jinping that has snared as many as a million Chinese executives and Communist Party officials. A small number of people “who made money in not a clean way probably feel not so safe to keep the money in China,” says Lian Xie, a marine-science professor at N.C. State University and president of the Carolina China Council, a Morrisville-based nonprofit that promotes business and cultural exchange.
One unmistakable truth is that corporate corruption is dealt with in a very different style than in the U.S. In 2014, Liu Han, 46, a multi-billionaire mining executive fond of Ferraris and fine cigars, was executed for business-related crimes. Jailings of executives are common.
Representatives of Chinese investors in North Carolina scoff at the critics while emphasizing the economic benefits of globalization. Lenovo’s joint world headquarters is in Morrisville, shared with Beijing. It has two sprawling campuses in Wake County and a smaller one in Whitsett in Guilford County.
“We’re the world’s largest personal-computer maker three years in a row, and when you consider how competitive that market is, that’s not easy,” says spokeswoman Milanka Muecke. “When I started here 10 years ago, that was just a dream.” The N.C. Department of Commerce estimated Lenovo’s annual impact at $1 billion in the state in 2014, now probably $1.5 billion or more after Lenovo’s acquisition of IBM’s server division.
From Lenovo’s Triangle campus, a two-hour drive south along U.S. 401, the sights, sounds and smells are dramatically different in the Bladen County town of Tar Heel. Day and night, steam rises from the globe’s biggest hog-butchering plant, the flagship of Richmond, Va.-based Smithfield Foods Inc., which was bought for more than $7 billion by Hong Kong’s publicly traded WH Group in 2013. More than 5,000 people process as many as 32,500 hogs a day here, most grown by North Carolina farmers under contract to Smithfield. Much of the pork is exported to help feed China’s 1.3 billion people.
Including its Tar Heel site, Smithfield has 11,242 North Carolina employees in a dozen locations, from Charlotte to farms in Laurinburg, Rose Hill and Warsaw, spokeswoman Joyce Fitzpatrick says. “Since Smithfield joined forces with WH Group, not a single American job has left the country’s borders,” she says. “In fact, [the company] has added more than 1,000 American jobs since 2013.”
Some 70 miles east of Bladen County, Chinese investment takes an unexpected turn. In the late-afternoon sun, gulls flap around a windowless cold-storage warehouse that covers 101,000 square feet. Here, pork, poultry, sweet potatoes and other Tar Heel products are flash frozen and stored to await refrigerator ships bound for ports spanning the globe. This is the Port of Wilmington, which is owned by the state — except for this warehouse, built by Chinese investors who put up most of its $17 million cost.
Scores of smaller Chinese-owned companies operate in the state, including Uniquetex LLC in Cleveland County’s Grover, with a population of 700. Benny Deng, Chinese passport in hand, commutes here from his home in Sydney, Australia.
“My family, my father, began 17 years ago from nothing, in the trading business and then changed to manufacturing,” Deng says. Educated in Shanghai, Deng, 47, is president of Uniquetex, which will make nonwoven fabrics for industrial use, adult diapers and other purposes. It’s a joint venture of his family’s Foshan Nanhai Beautiful Nonwoven Co., a large textile conglomerate, and a Chinese textile- machinery company.
Machine assembly starts early next year with production kicking off in May or June, Deng says. “We’re very comfortable manufacturing in America.” Attracted by an $800,000 state grant and Grover’s proximity to Interstate 85, Uniquetex will spend about $31.6 million on the plant. It will employ about 150 workers averaging $36,313 a year, about $1,000 more than Cleveland’s average.
Similar state courtship attracted Chinese investors to the pickle capital of Mount Olive. Hancy Cheng, CEO of U-Play Corp., cites the state’s “business-friendly environment,” plus a $200,000 grant, in his decision to locate another nonwovens plant there, making products similar to Uniquetex. U-Play will spend about $21 million and hire roughly 90 workers.
Once in North Carolina, Chinese companies generally melt into the workday rhythms of their industries and localities in which they operate, says Jack Narcotta, a senior analyst who tracks Lenovo for Technology Business Research Inc., a Hampton, N.H.-based consulting firm. Lenovo’s view is that if it’s making money, don’t mess with it, he says. “The markets they conduct business in are worldwide and largely apolitical.”
Lenovo has stuck with IBM’s manufacturing technology and management framework. Like IBM, it has cut staff periodically, including layoffs of 1,110 U.S. workers in September. (The company wouldn’t say how many were in the Triangle.) Another 165 Triangle jobs were cut last year.
“If you let employees go, you might expect the ‘Lenovo Evil Empire’ reaction,” Narcotta says. “But such decisions are not driven by foreign political means. Lenovo makes decisions based on the markets it competes in, because they’re so cost-competitive.”
Lenovo’s diverse workforce transcends local influences, with its top 100 executives coming from 17 countries, says Muecke, a native of Montenegro. “When you think of Chinese investment — or that of any Asian countries — you often see a lot of leadership stays in the home country,” Muecke says. “That’s not the case with us. We’re proud of our Chinese heritage but just as proud of our American heritage. We acquired IBM’s PC division, and now a lot of that heritage is still here. A majority of our people still report to IBM heritage lines.”
While Lenovo and others blend into the landscape, it doesn’t altogether erase suspicions of China’s motivations. China has built stockpiles of tobacco that are three times larger than those maintained by the two largest U.S. companies, says Bill Collins, who heads the N.C. Tobacco Foundation Inc. China Tobacco bought about 20,000 tons of U.S. tobacco in 2015, with 80 Tar Heel farmers on contract, though China is already the world’s largest tobacco-growing nation. Like many importers, the Chinese like the rich flavor of North Carolina tobacco.
There’s a similar pattern with cotton, another big North Carolina export, says Peter Thornton, assistant international marketing director of the N.C. Department of Agriculture. “They have large stocks that nobody knows what they are doing with, and that scares the heck out of the market,” he says. “Sure, they could potentially dump it and disrupt world markets. Or if there’s ever an embargo against them, they would make sure they have enough cotton.”
Another Chinese investment in North Carolina attracting controversy is Vertex Railcar Corp. in Wilmington. The railcar maker has minority backing from partially state-owned China Railroad Stock Corp., which could opt to use cheap Chinese steel instead of buying U.S. products. Less than a year after its first freight cars rolled out of the plant, U.S. Rep. Walter Jones of Farmville and about 50 members of Congress asked the Committee on Foreign Investment in the United States to investigate the business. While Jones cited “China’s cybercrimes,” others note that Charlotte-based Nucor Corp., which has a 480-employee plant in rural Hertford County, has long complained to trade regulators about unfair “dumping” of China-subsidized steel and currency manipulation. Vertex scoffs, saying it welcomes the investigation.
As North Carolina courts the Chinese and their money, Allison Tucker, Jones’ press secretary, voices the congressman’s fear. “They’re a communist government,” she says. “They have different ways of doing things.”
Also in Wilmington, Chinese money is flowing into projects that pump new life into Civil War-era buildings and glitzy 21st-century commercial ventures alike. But it also gives rise to accusations that the Chinese are using their new wealth to buy American citizenship, or, as one critic says, “buying their way to the front of the line.” Sen. Charles Grassley of Iowa, the Republican head of the Senate Judiciary Committee, and the Government Accountability Office have questioned whether applicants are sufficiently vetted.
Under an immigration provision called EB5, or Employment Based Program 5, a half dozen companies in the area specialize in real-estate projects funded by the Chinese, totaling $160 million. USA InvestCo. has relied on its investment for the $42 million Northern Riverfront Marina and Hotel Indigo, says President Chuck Schoninger. “We’ve been able to do projects you wouldn’t see for 20 years otherwise,” he says.
For an investment of $500,000 or more and creation of 10 jobs, foreigners get green cards, or permanent legal resident status, for themselves and family members to age 21. The program began in the early 1990s and is open to all nationalities, but the Chinese dominate at an unprecedented rate, says William Cocks, a U.S. State Department consular affairs spokesman.
Capped at 10,000 slots a year nationwide, more than 90% were filled by Chinese in 2014 and 83% last year, probably hundreds coming to North Carolina. (State and federal authorities don’t track the numbers.) Schoninger has structured his business around meeting the demand. He’s raised more than $40 million from about 80 Chinese investors, including $17 million to finance construction of the cold-storage warehouse at the Wilmington port. No state or local incentives are involved, he says.
A typical Chinese investor is wealthy, middle-aged — in his 40s— and knows China discourages families with more than two children, Schoninger says. “They’re excited about coming to America and becoming a citizen. I’d say more than half our investors, the father is very wealthy and has a business over there, so he doesn’t have the ability to leave China. But culturally, it’s acceptable for his wife and kid to move and start westernizing.”
Not far from Wilmington, just north of the South Carolina line in Sunset Beach, Chinese money has bailed out a failed project. In 2013, an investor known locally only as “Mr. Pan,” plopped down $8.5 million — “in cash,” notes Sunset Beach Mayor Robert Forrester — for Sea Trail Golf Resort and Conference Center in a bankruptcy auction. The resort was once valued at $34 million.
Forrester, who lives in the Sea Trail community, says Pan has left management in the hands of North Carolinians, with only a Chinese liaison on site. The development includes three golf courses, some badly deteriorated before Pan’s investment, and residents give Pan high marks for rejuvenating the resort. It is among more than 20 Myrtle Beach-area golf courses acquired by the Chinese in recent years, Forrester says.
Controlling the links may be the ultimate paradox of Chinese investment in North Carolina. “Mao Zedong outlawed golf in China,” Forrester says. The communist ruler from 1949 until 1976 considered it the epitome of capitalist decadence.
Illustration by Mariano Santillan
Chinese by birth, American by choice
They’re still less than 1% of the state’s 10 million-plus population. But another barometer of the growing Chinese presence in North Carolina is found not in investment portfolios but people. Just outside Raleigh’s southern beltline, in a neighborhood of softly curving streets and half-million-dollar homes, Lian Xie reflects on his 24 years in North Carolina.
“When I came in 1992, I I pretty much knew every Chinese in town,” says the North Carolina State University professor. “There were maybe 100 families from mainland China, certainly no more than 200. I worked with my Chinese friends to set up the first Chinese-language school here in 1995, and we had maybe 60 kids. Today, we have seven Chinese-language schools here, each one with more than 200 students.”
Many in the early wave of Chinese emigres like Xie were lured by higher education and were strongly motivated to serve their home country, says Susan Wolcott, a UNC Greensboro geography professor who specializes in Asia. But the latest flow includes students likely to stay and use their college ties as jumping-off points for business careers, she says.
Others, like Sue Googe, Xie’s former neighbor, disdain the hyphenated Chinese-American identity. “Now, I’m American. I don’t even think about my ethnicity,” she says. “I don’t believe in the notion of identity politics.”
Googe grew up on China’s impoverished Hainan Island and worked her way into a good-paying accounting job. She came to North Carolina on a student visa in 1998 to study computer science at Wake Technical Community College. She received a library science degree from UNC Chapel Hill in 2005, became a citizen in 2010, worked in information technology and then formed a real-estate investment company.
Fond of the outdoors, horses and flying, Googe ran for Congress in November on a Republican platform — reduce regulations, cut corporate taxes, create jobs. (She lost to incumbent U.S. Rep. David Price.) She’s assimilated, but cautions that “there’s no such thing as a Chinese community — we don’t all speak with one voice.” Some first-generation arrivals in North Carolina “have more loyalty to China than America. They don’t like me to say that, but they do.”