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The Honolulu Advertiser
Posted on: Thursday, December 26, 2002

Rise seen for Chinese investment in U.S.

By Blair Pethel
Bloomberg News Service

GAINESVILLE, Fla. — The recent purchase by a Chinese state-owned company of a bankrupt Florida manufacturer — propelling the company to become one of the world's four biggest battery makers — is prompting officials to forecast a wave of Chinese investment in the United States.

Shanghai Huayi Group paid $20 million for Moltech Power Systems Inc., and will operate the Gainesville, Fla., battery maker as a wholly owned subsidiary, Moltech Chief Executive Officer Martin Higgins said.

"This shows that it's possible, and I wouldn't be surprised to see a lot more investment like this," Higgins said.

Moltech, which sought Chapter 11 protection in May 2001, will compete with Gillette Co., Energizer Holdings Inc. and Rayovac Corp. It will make batteries under the Millennium brand, for sale in Wal-Mart and Home Depot stores, Huayi's advisers said.

After China joined the World Trade Organization last December, most analysts and officials expected the country's acceptance of market-opening rules to spur U.S. investment in the world's most populous country. That China also was emboldened shouldn't be surprising, said former U.S. Trade Representative Charlene Barshefsky.

"This is a natural outgrowth of China's economic development and integration into the world system," said Barshefsky, who as trade representative negotiated the U.S.-China accord that paved the way for China's membership of the WTO. "This deal won't be the last."

Huayi is the second Chinese company to be acquiring U.S. assets in the past six months as businesses in the world's largest economy slow and profits flounder. In June, Shanghai Haixin Group Co., a fabrics maker owned by Shanghai's Songjiang county council, became the world's biggest plush-toy maker, paying New York-based Glenoit Corp. $25 million for 46 trademarks and two factories.

China's government-owned companies accounted for slightly more than half of the country's gross domestic product as of March. The government holds more than $250 billion in foreign currency reserves, providing the means for overseas ventures.

U.S. Commerce Secretary Donald Evans, who witnessed the deal being completed in New York, said in a statement it is a "tangible example of the vital trade relationship between the United States and China."

He Weiwin, economic and commercial counselor at the Chinese Consulate in New York, said the acquisition is a sign of things to come, and reflects market pressures on state-owned companies, following China's WTO accession.

"This is a natural extension of business, it is not a government function," he said. "This is part of the companies' natural development, because they need to extend their product line, get into new markets and integrate."

Expressions of interest from Chinese companies have been flooding his office since early this year, He said.

"There have been many cases of U.S. companies purchasing Chinese companies, so this is the other way around, maybe unexpected," he said.

Eric Li, chairman of San Francisco-based Business Data Integrated Inc., which advised Huayi on its takeover of Moltech, said the purchase plays to the strengths of both companies.

"It combines the technical expertise of the U.S. company with the capital and market potential of China and the rest of Asia," he said.

Moltech in Florida will have access to low-cost steel, nickel and cadmium from China, giving the company's rechargeable batteries a price advantage in North America. Moltech supplies manufacturers such as the U.S. subsidiary of Japanese power toolmaker Makita Corp., and Mag Instrument Inc., maker of Mag lite brand flashlights.

In exchange, Moltech will ship some of its advanced manufacturing technology to China, Higgins said. Huayi will set up a plant in Shanghai to provide batteries for the Chinese domestic market, including Huayi's electric bicycles.

Huayi's $20 million investment will probably lead Moltech to triple annual sales in the next three years from $50 million currently, Higgins said. It will also create more than 2,000 jobs in Florida, China and Juarez, Mexico, where Moltech sends its U.S.- made batteries duty-free to be packaged.