• Sat
  • Dec 20, 2014
  • Updated: 2:20pm
BusinessMoneyMarkets & Investing

Distressed US cities look to China for cash boost

While bankrupt Detroit has grabbed headlines, other troubled cities are courting mainland investment, sending inflows to record highs

PUBLISHED : Thursday, 01 August, 2013, 12:00am
UPDATED : Thursday, 01 August, 2013, 5:35am

With United States cities such as Detroit in financial trouble, Chinese investments in the world's biggest economy have hit a record high. However, such investments alone cannot save the country's debt-ridden cities, analysts say.

According to some estimates, up to 100 US cities were in financial distress, said Mao Tong, a partner at international law firm Squire Sanders. Last month Detroit became the biggest US city to file for bankruptcy.

Several cities in Michigan (the state where Detroit is) are under emergency management, indicating their severe financial conditions

"Many US cities have pension and other obligations far beyond their tax revenues, and it is troubling that some of these obligations are not required to be disclosed," Mao said.

"Several cities in Michigan (the state where Detroit is) are under emergency management, indicating their severe financial conditions."

Daniel Rosen, a founding partner of the Rhodium Group, a US economic advisory, said American cities, like many municipalities in Europe and China, were going through painful financial adjustments. "Many US states and cities have developed plans to court investment internationally," Rosen said.

Some US state governments have recently sent delegations to China seeking investment. California governor Jerry Brown, on a visit to China in April, announced a US$1.5 billion Chinese investment in Oakland, and sought investment in a high-speed railway for the state. Also in April, several state governors attended a US-China governors forum on the mainland, Mao said.

In May, four US mayors from North Carolina and Alabama visited China, and President Xi Jinping met Los Angeles Mayor Antonio Villaraigosa during the latter's visit to the mainland, Mao said. "There are US state and city delegations to China every year," Mao said. "Their missions often include attracting Chinese investment."

The first half of this year saw the largest Chinese investment in the US ever recorded at US$4.7 billion, while more than US$10 billion of potential Chinese deals in the US are pending, according to Rhodium. In comparison, Chinese investment in the US was US$3.6 billion in the first half of last year.

In the second quarter alone, Chinese firms spent US$2.46 billion on seven acquisitions and 10 greenfield projects in the US, Rhodium said. The number of jobs in the US provided by Chinese firms had grown to more than 33,000, the advisory said.

"Chinese investment cannot fundamentally alter the financial outlook for US cities or states, but it can serve as an important validation of their future economic potential," Rosen said.

Mao agrees that US cities in deep financial crisis cannot be saved by Chinese investments.

Rich people and businesses were leaving troubled US cities like Detroit, Mao said. "These insolvent or bankrupt cities have cut public services to the bone, so no investor would want to risk investing in such places. What is worse is the credit rating of these cities has been downgraded to junk status, so it will be very hard for them to raise money by issuing municipal bonds," he said.

China has its own debt problems. The State Council, led by Premier Li Keqiang, has called for an audit of debts of all levels of government to assess the severity of the risks facing the mainland.

Investments are made by firms, not countries, Rosen pointed out. "So the question is not whether the Chinese government's debt is serious or not, but whether it makes sense for individual Chinese companies to invest in operations, technologies and brands abroad. In many cases it does make sense."


For unlimited access to:

SCMP.com SCMP Tablet Edition SCMP Mobile Edition 10-year news archive



This article is now closed to comments

problem w/ US state/municipal govts is "democracy". citizens vote for ever expanding govt services/programs supported by PUBLIC unions (e.g. AFSCME which is also the largest union in US with 1.6 million members). this "democratic" system is people voting for "gift givers" such that union members' receive extremely generous pension, retirement healthcare benefits, something private sector employees could never even dream of. sounds good except these "benefits" are all UNfunded, virtual pipe dream beyond state/local govt ability to pay. unlike the federal govt, state/local govt cannot print money, the only option is default (declare bankruptcy). as early as 1980s, state/local govts saw what is coming and attempted to fix these unfunded liabilities by 1) trimming down generous payout to union retirees and 2) sell pension/liability obligation bonds to partially fund the liability gap. both strategies failed miserably as unions rejected the trim down proposal and elected officials who further expanded their pension/retiree healthcare benefits. selling bonds also failed as the liability is too big to fund and then the stock market bubble burst also negated the arbitrage vehicle of the bonding process. HongKong is expanding welfare programs. better take a very careful look at the US experience. history always repeats itself.
thanks for the interesting perspective
1. where are the "boom towns"? it certainly doesn't show in any US stats (*else Obama will be touting it big time).
2. min. pay is 3x HKG? tell it to the 7.6% unemployed plus additional 5% chronic unemployed. that is over 17 million people who have had no job for more than 9 months. also tell it to those who want full time job but could only get part time work.
3. 3000 sq ft mansion next to golf course cost less than HK$2M? couldn't be LA, SF or NYC. an average 2 Br/2Bth condo in Bay area cost at least HK$3.9 mil and that's condo. you can't compare smalltown USA to a world class glamor city like HKG.
4. US is heaven? tell it to those living in inner cities who are subject to violent crime, random gun violence, poor schools....
bottom line, US is "heaven" IF YOU HAVE $$$. but then, if you are rich, you can live in many heavenly places.
Even if China can handle its local debt problem and still have capacity to invest in the US. Why would they? Consider that even buying a butcher company in the US will still provide ammo to the China bashing congress and dc. The additional cost of dealing with these political hiccups may outweigh the benefits of investing in the US, especially when there are plenty of places there are in dire need of investments.
Let me share with people who is not living in US as I now live 50 50 in US and Hk. uS is not as bad as most think and in fact is a heaven. Very nice weather w over 300 days of blue sky here, restaurant are more busy than wan chai most days, grocery about 70 to 80% cheaper than Hk and much more fresher n more choices, housing definitely 80 to 90'% cheaper than Hk (I live on a golf home with double garage n close to 3000 sq ft costs less than 2m HKD n my master bedroom is bigger than one floor of my village house in Hk), min pay here is double to 3 time more than HK.
I don't brother to play golf in HK as my clubhouse in US is within walking distant here in US. The clubhouse restaurant n gym is better than most of 5 stars hotels in HK. But my management fees including free golf is only around 4k HKD a month.
Also as a retired tech executive, I see here everywhere is much hi tech than Hk...and that's why US can keep the cost so low that people can enjoy life much better than HK.
I always say I am like a millionaire here in US and when I came back to HK in Sept I am a poor man again!
Many people in asia do not understand here in US, yes there are many Detroit alike cities but also there are many boom towns! Some towns here housing is booming and u have to bid for houses! Bid higher than asking price and some houses are sold within days...
When u try to bid for a house and in a week there are more than 10 bids above you, would u call them boom town? I'm involving in US real estate I know what I am talking about, sorry. uS is not like Hk, it is a big countries with many up and down.
If Hk pay a min wages of around 7.5 to 10 Usd like here, I guarantee u Hk unemployment is over 7.5%. What I'm trying to illustrate to u is Hk is a big rip off
as our building cost is Usd 500 per sq ft claimed by some developers but in US is around 100 exclude land. But min pay in uS is much higher than HK so guess who is getting rip off?
The word heaven is not from me only but from my neighbor from all over Europe and Canada. I live here 50% and the rest in Hk. I would put it this way, if Hk is a heaven, here is a double heaven, if Hk is hell here is heaven. I will be back to Hk to "suffer" in late October.
About guns, yes US is 50 times big than HK in population. If u want to argue that rememberer there was 2 murdering parents in Hk in a week few months ago, if you translate that into US that is 100 cases of murdering parents in US, must be alarming? Does all Hk people live in cage home? It is media!
Hk a world city of what? I live in both but honestly I don't see it. Bad weather, polluted air, low tech, food getting worst as food as old shops are gone and owners cut down on food cost due to high rent, no or little special shops, little golf or marina, no car racing track, etc....
I would compare Hk as a HELL vs heaven in US here for: better air, blue sky, cheaper shopping in goods and grocery, fresher n more choices, easier to shop as most shops are within 5 to 10 mins drive and many open 24 hrs a day like Walmart, online shopping is supper easy and cheap like amazon, I have golf, swimming pool, tennis court, a clubhouse better than most 5 star hotel in Hk at 50% price and only 30 seconds from my home. Central air Cond and electricity is cheaper than what I pay in Hk even my house here is double the size. I can goto car racing track within 15 to 20 mins and is legal....not like the illegal tai Mei Tuk racing....I can also join a polo club to play polo, off course access to 50 gold course and 10 marinas within 10 to 20 mins drive plus a world class beach of 8 miles stretch of white sand...is that not heaven?
I don't why SCMP sensor the word hel*
JayB and most HKers as he said your are rich you are ok everywhere. Yes or no. According to UbS survey people are considered rich if u have 5m USD of wealth. But honestly this is still very poor life in Hk. Why? Ok u have 5m assets. How about I have a very modest place to live say 1000 sq ft in tai Koo Shing or mid level that probably take away 1.5 to 3m Usd of your asset already. How about getting a golf membership in Fanling or clearly water bay or a marina in Aberdeen? Another 300k to 2m Usd? Are you really rich? But u still inhale the polluted air. Ok u can eat cheap food from china but if u want to get some imported stuff from Citysuper you will blow your budget by now.
Here for half a million USD I could have a home of a modest 3000 sq ft. on the golf plus with my private pier for my 40 foot long boat at my backyard. I can get a BMW M3 for around 70k or a Model S electric car from Tesla for 60+ so how much is still in my pocket? Likely 4m Usd. Assuming I'm reach with 5m Usd...BTW we are in a small town of less than 100k population but many world class athlete are living here and I'm sure they are more wealthy than most average Hk people...
How do u you like that? What I'm trying to picture is HK developers is ripping off Hk people as house in Hk are poorly built with no insulation, hot in summer n cold in winter, but charging a lot! Here if u are a middle class professional making around 800k to 1M HKD a year, u will have a very good life..no need be rich
It is a Global economy nowadays. US is still China biggest customer with over 300b Usd trade deficit with China. That means US is still buying more than 300b from china than what china buy from US. So who is the real net customer? I always believe customer always have a say...


SCMP.com Account