State Does About-Face On China

Gov. Asa Hutchinson and Chairman Yafu Qiu announced in 2017 that Shandong Ruyi Technology Group would invest $410 million in the former Sanyo plant in Forrest City and employ about 800 people. Shandong Ruyi ultimately backed out. (File photo)

Four years ago, then-Gov. Asa Hutchinson joined state and local officials and the Chinese management team of Hefei Risever Machinery Co. Ltd. for a ribbon-cutting ceremony for the company’s $20 million plant in the Craighead Technology Park.

Attracting Chinese investments was fashionable back then. Jonesboro beat out 69 other cities for Risever’s first production facility outside of China.

First announced in 2017, the 125,000-SF plant was expected to create 130 jobs. The Jonesboro Economic Development Commission, owner of the Technology Park, gave Risever 27.5 acres. The company, a producer of machine parts for heavy-equipment makers like Caterpillar, also qualified for a $1 million grant from the governor’s Quick Action Closing Fund.

“Risever is one of several Chinese companies that are choosing to locate in Arkansas thanks in large part to our skilled workforce and low business costs,” Hutchinson said in a statement released on the day of the ceremony in October 2019. “Because foreign investment is vital to our state’s economic health, we hope that other companies across the world will see the advantages Arkansas has to offer.”

Attitudes toward foreign investment, especially from China, have changed. A state law signed last year by Hutchinson’s successor, Gov. Sarah Huckabee Sanders, restricts ownership of land by certain foreign investors, including the Chinese. Instead of being feted, Risever was investigated — and cleared.

While Sanders cites safety concerns as a higher priority, some observers fear the new law could discourage future foreign investment in Arkansas and could even lead to retaliatory measures that would impact the billions of dollars of products exported from Arkansas to China each year annually.

“If a company came [to Arkansas] on a promise or on a set of policies, and they invest a lot of money, and then the rug is pulled out from underneath them, that just makes it look like an unreliable and politically risky place to invest,” Bill Bishop, a China analyst and publisher of the Sinocism newsletter, told Arkansas Business.

“There are valid reasons for very limited restrictions on purchases of land by foreign nationals, not just specifically Chinese, around military bases or sensitive government sites, but what seems to be happening is being done in an incredibly broad-brush way that echoes some of the worst excesses of America’s past,” Bishop said. “The problem is this lack of any ability for subtlety or nuance in U.S. politics around anything, and especially around China.”

The former governor agrees. “If we mistreat foreign investment, then, sure, we’re going to be treated as an untrustworthy business partner,” Hutchinson said during a recent interview with Arkansas Business. “It’s either going to be retaliation or a decrease in foreign investment.”

“If you’re going to target existing companies that are here, and their investments, then I think there are a lot of questions about the fairness of that law,” Hutchinson said. “I support restrictions on the Chinese government purchasing our farmland or around sensitive military installations. I just think you have to be careful whenever you’re going after existing industry in the state that we actually recruited to come here and to create jobs.”

Asked for comment, Sanders’ office said, “The safety of Arkansans is the Governor’s top priority, and we will not continue to let dangerous adversaries like China exploit our farmland and put our nation at risk.”

As for potential job losses and any negative economic impact to the state, the statement said: “Last year the Governor cut income and corporate taxes, transformed our education system to prepare our students for high demands jobs, and successfully recruited companies from all over the world to make over a billion dollars in new investment in Arkansas. She will continue enacting pro-growth policies to make Arkansas the best place to live, work, and raise a family.”

At the request of Arkansas Secretary of Agriculture Wes Ward, the AG’s office investigated Risever for potentially violating Act 636 of 2023, which prohibits the ownership of agricultural land and other property by businesses or investors from China, Iran, North Korea and Russia. Just before Christmas, state Attorney General Tim Griffin announced that Risever Machinery “is not in violation of Arkansas’s law regarding foreign ownership of real property.”

Another company being investigated at Ward’s request is Jones Digital LLC, a crypto mining operation near DeWitt.

While Arkansas is far from the only state that has proposed or enacted laws restricting Chinese ownership of real estate because of national security concerns, it does not have a “grandfather clause” for existing investments. And it is one of the first to take action against a Chinese-backed business.

In October, Griffin ordered Syngenta Seeds LLC to sell 160 acres of farmland in Craighead County that it acquired when it bought Northrup King Seed Co. in the 1990s. Griffin also ordered Syngenta, which is majority-owned by China National Chemical Corp., to pay a $280,000 civil penalty for violating Act 1046 of 2021, which requires reporting of foreign ownership of agricultural land to the state.

‘The Big, New Market’

Courting Chinese investment to Arkansas was one of the flagship economic policies of the Hutchinson administration.

Arkansas was one of numerous states and even cities that took part in a frenzy of activity aimed at bringing over Chinese companies that were also eager to set up overseas operations, particularly in the U.S.

That activity flourished from the early 2000s up until about 2018, when the start of a trade war under the Trump administration created tariffs and other trade barriers with China. Chinese investment activity ground to a halt, with Chinese investment in the U.S. plummeting from $46 billion in 2016 to less than $5 billion in 2022, according to economic research by the Rhodium Group of Washington, D.C.

Bilateral relations have continued to decline.

“At the beginning of my administration, in 2015, China was the big, new market opportunity for states to attract industry from,” Hutchinson said. “The goal, of course, was to manufacture things here in the U.S. versus overseas and to create good-paying jobs in Arkansas and to build our manufacturing base.”

“Of course, no one could foresee the decline in our relationship [with China] starting with the tariff wars and then deteriorating from there,” the former governor said. “But yes, it was an early priority, and we had some early successes.”

The Hutchinson administration contracted a Chinese national to work as an in-country trade representative for Arkansas. The governor was such a frequent visitor that an October 2017 article in the state-run China Daily newspaper was headlined, “Arkansas’ Asa Hutchinson going to China — again.”

For a couple of years during his administration, there was a stream of announcements of deals being inked with Chinese companies.

In October 2016, Hutchinson announced via a Facetime call during a trade mission in China that Suzhou Industrial Park Tianyuan Garment Co., a massive apparel maker with factories near Shanghai, would invest $20 million in a plant near Little Rock that would create 400 jobs. TY Garments announced in 2019 it was increasing its investment in the state by $10 million, bringing the total investment to $30 million.

In April 2017, the Arkansas Economic Development Commission announced Pet Won Products of Shandong province would invest $5 million in a facility to produce pet treats in Danville.

Then in May 2017, Shandong Ruyi Technology Group executives joined Hutchinson at the state Capitol to announce a $410 million investment in a manufacturing facility in Forrest City that would spin yarn from Arkansas cotton. That project was to create up to 800 jobs.

A few months later, the Risever deal in Craighead County was unveiled.

But the most significant deal was announced in April 2016: Shandong Sun Paper planned to build a nearly $2 billion paper plant in Clark County, marking one of the largest private industrial investments in the state’s history.

Talks with Sun Paper began during the administration of former Gov. Mike Beebe, according to Grant Tennille, head of Beebe’s economic development team from 2012 to 2015.

“Word was out that a Chinese company was looking in the U.S. for access to trees to make these fluff pulp products, like diapers,” Tennille said. “It was going to be massive.”

In March 2020, Sun Paper notified economic development officials that it would back out of the deal because of the coronavirus pandemic, political friction and economic instability, the Arkansas Democrat-Gazette reported, citing a letter sent from a Sun Paper international project director.

“It was disappointing in the sense that we did devote time and energy to that [project],” Hutchinson said. “The communities lost because they were big job creators. It was a game-changing opportunity for the timber industry in south Arkansas.”

Shandong Ruyi Technology Group, the firm with plans to build a textile plant in Forrest City, also backed out.

“People ask me, ‘Do you have any major regrets about your time as governor?’” Hutchinson said. “Well, one of them was my investment of time and energy in China. I wish I would have devoted the same efforts early on in Japan and South Korea, but that’s easy to say now.

“It was a very competitive arena. Governors were competing to bring back manufacturing jobs,” Hutchinson said. “It was a great opportunity.”

$1.1B in Exports to China

In November 2012, during a meeting with the Arkansas State Chamber of Commerce at the Capital Hotel in downtown Little Rock, Wenzhong Zhou, the Chinese ambassador to the U.S. at the time, told business leaders that if Arkansas farmers “keep trying” there could soon be new opportunities to sell rice in China.

“I wish you success,” Zhou said. “More Americans now perceive China as a positive opportunity rather than as a threat.”

There have been significant trade relations between Arkansas and China, which ranks as one of the state’s top three export markets, according to data from the U.S.-China Business Council.

In 2022, Arkansas exported $1.1 billion worth of goods to China, a 28% increase from the previous year, according to the Business Council. That included nearly $800 million in grains and oilseeds and $152 million in “miscellaneous crops.”

There has not been evidence yet of retaliatory measures aimed at Arkansas exports as a result of the new law, which experts say could have far-reaching implications for Chinese companies operating in the state. But there has been some response in China.

In October, the state-run Global Times newspaper published an editorial titled “Arkansas’ land sale farce a daily absurdity of incapable U.S. politicians.” That could be a harbinger of what’s to come.

“States like Arkansas, which are becoming less and less competitive, and increasingly marginalized in the U.S., are inclined to adopt inexplicable reasons to restrict competition, especially through restrictions against Chinese companies,” the editorial said. “Arkansas’ latest move shows that the American investment environment is awful, completely driven by politics, and not worthy of trust.”

Gov. Sanders has had words for China as sharp as the Global Times’ words for Arkansas. “China is a hostile foreign adversary, and under my administration, we will follow the law and not allow companies controlled by the Chinese Communist Party to buy up and exploit Arkansas land,” Sanders said in a news release.

“We simply cannot trust those who pledge allegiance to a hostile foreign power,” Sanders said.

In an emailed statement to Arkansas Business, Jason Brown, director of policy communications for the Arkansas Farm Bureau, said that members “have interest in the topic of foreign-owned agricultural land” but have not adopted a policy addressing the issue.

“As for retaliatory export actions, we would have concerns over any trade decisions that negatively impact Arkansas farmers and ranchers, no matter who took such action,” Brown said.

In another emailed statement, Ward, the Arkansas secretary of agriculture, said China “is currently taking advantage of United States citizens, especially our farmers.”

Act 636 created an Office of Agricultural Intelligence, part of the Agriculture Department, that is charged with collecting information concerning the “unlawful sale or possession of agricultural land by prohibited foreign parties,” Ward said.

“Because China is a large export market for agricultural commodities from the United States, they attempt to use that to their advantage to prevent stronger action from leaders in the United States,” Ward said.

Micah Brown, a staff attorney with the National Agricultural Law Center in Fayetteville, said the state’s new foreign ownership law could have broader impacts for the state, for Chinese companies and for the Arkansas economy.

Arkansas’ failure to protect from divestiture Chinese companies that already owned property in Arkansas “would be something that could be challenged in court,” Brown said.

“When I testified at the state Legislature on these issues, one common question was unintended consequences,” Brown said. “There are some when you want to restrict foreign investment.”

Renewable energy businesses, a popular industry for foreign investors, could be stymied, for example, Brown said.

“You have costs to regulatory agencies within the states,” Brown said. “How much will it cost to investigate and enforce this? Then at the global level would be trade. States may lose money to local economies that could have been there because of restrictions.”

New Opportunities

Arkansas Commerce Secretary Hugh McDonald said he “understands the concern” that there could be fallout from Act 636.

“I am going to let the politicians, the governor and the Legislature set the tone on that,” McDonald told Arkansas Business. “I believe it is manageable. Up to this point, there has not been any sort of pushback or blowback that we have seen.”

“There is no strategy to court current investment from China,” he said. “We do get inquiries from Chinese companies that are interested, and, of course, we have to conduct our own due diligence.”

The commerce secretary said economic officials will continue to explore foreign direct investment from Europe. India, he said, could also become a focus for new opportunities.

“We’re seeing a lot of manufacturing actually moving from China to Southeast Asia, whether that is Singapore, Thailand, Vietnam or India,” McDonald said. “It’s something we are looking at, for sure.”

But Hutchinson cautioned that cutting “all economic ties with China” is the “wrong approach.”

“It is short-sighted,” Hutchinson said. “It does not serve our national interests.”