Why China Wants to Scoop Up Your Company
By Paul Kaihla

(Business 2.0) – The same Chinese firms that have been crippling American manufacturers with cut-rate goods could soon be viewed in an entirely different light: as sugar daddies. Right now thousands of entrepreneurs from the People's Republic are trolling the United States for acquisitions, part of a worldwide shopping spree the Chinese government calls the "go global" initiative. This year China could pour as much as $15 billion into overseas acquisitions, about $5 billion more than it shelled out between 1979 and 2002, says Don Straszheim, a former chief economist for Merrill Lynch who runs a China-focused research firm in Los Angeles. Because Americans have spent $390 billion more on Chinese goods during the past three years than China has spent on U.S. imports, China is flush with dollars. And by 2010 it will surpass Canada as the largest U.S. trading partner. Meanwhile, the world's fastest-growing economy wants to lighten up on U.S. bonds and load up on corporate assets, says Bernie Filler, senior VP at Kinsella Group, a Chicago-area consulting firm that brokers deals for Chinese buyers.

The prime targets? American brands and manufacturers, as well as distributors that peddle Chinese goods. "The Chinese want to cut out the middleman by buying him," says John Rogers, a Chicago lawyer and investment banker who last year formed the MidWest U.S.-China Association to play matchmaker. One manufacturer on the prowl is Chenghai Yongjia Enterprises, a Guangdong-based industrial group whose construction tools are sold at Home Depot. Last year the company enlisted Anita Tang, a Chicago consultant and China expert, to help it find a distributor. "They went into a Home Depot and nearly fainted," Tang recalls. "The tools were priced 10 times higher than what they were paid for them." Because prices tend to double every time goods change hands, the firm could fatten its margins dramatically by buying a middleman.

The biggest deal so far has been Chinese computer maker Lenovo's $1.75 billion purchase of IBM's PC division. But for every deal that size, Filler says, there will be dozens of acquisitions in the tens-of-millions range. Consider Robert Parker, whose family business, Adams Pressed Metals, was struggling because former customer John Deere had started buying pulleys at half the cost from Shanghai-based Tri Star International. In 2003, Parker sold a majority interest in his Galesburg, Ill., firm to Tri Star for about $1 million. "We saved 40 jobs, and they got American know-how in sales," Parker says.

Often, it's name recognition that Chinese companies crave, since a history of communism has left them relatively clueless about building brands. Shandong-based appliance maker Haier may be eyeing Maytag or GE's white-goods division, Straszheim says. Last year Hong Kong's Li & Fung bought New York-based Ralsey Group, which makes teen apparel labels including Rocket Girl; M&A specialists think the company might go after Bill Blass next. Other experts predict that Shanghai Automotive Industry might scoop up a car-parts firm like Delphi or a division of a big automaker. These sorts of moves may not make the front-page headlines like trade deficits and price wars, but they're sure to make some lucky Americans a whole lot of money. -- PAUL KAIHLA