US Companies Winning Big From Better China Relations
During President Hu Jintao's visit to Washington, $45 billion worth of deals between China and U.S. corporations were announced. It made for impressive headlines, but keep in mind, China almost always visits a major world power with trade gifts in hand.
For example, before a recent visit to India, it announced $16 billion in trade deals.
Despite the public relations reality of the announcements, the $45 billion is real money, and some high-profile companies are now a lot better positioned in China than they were a week ago.
The industrial multi-nationals might be the biggest winners, beginning with General Electric . That's an interesting development, considering just last summer, it was reported CEO Jeff Immelt, while addressing Italian business leaders, expressed extreme disappointment with China's business practives.
GE did not meet its goals to double revenues on the mainland, but last fall, GE ramped up its efforts, announcing $2 billion in investments through 2012.
The shift paid off this week with several deals worth approximately $4 billion. They involve a range of efforts from gas turbines and coal gasification to rail and aviation technology.
Boeing, which has said that China needs at least 4,000 commercial planes over the next 20 years, obtained orders for 200 planes with a total value approaching $19 billion through 2012. That would translate into more than $1.5 billion more revenue per quarter.
Two other winners are Navistar and Cummins . Navistar agreed to a joint venture with a state-owned automotive company that could be worth $400 million. Cummins could see $500 million in annual sales as it develops hybrid power systems in China.
"China is in desperate need of advancement and US, European, Japanese and Korean industrial firms have the technology it craves," Jim Oberweis told CNBC. Oberweis runs the China Opportunities Fund , which is up about 30 percent in the last six months.
"We would expect all industrial firms globally to do well if China continues to advance."
Other industrial names Oberweis likes because of their China exposure: United Technologies , Johnson Controls Rockwell Automation .
Companies involved in clean technology also capitalized on the China visit, and the reason is clear: China needs to clean up its collective enrvironmental act.
"U.S. and China are the two largest emitters of greenhouse gases," said David Riedel of the Riedel Research Group. "China needs to move quickly on the clean tech front.
"It's willing to import a lot of American know how (to do it)."
Here are four companies which will directly benefit from these most recent trade deals.
- American Electric : It made a deal with China's biggest utility to help with electric grids.
- Alcoa : The aluminum giant agreed to clean energy and smelting projects that could be worth $7.5 billion.
- Duke Energy : The company will launch clean energy projects to help projects like the "eco-city" Langfang.
There is an inherent risk with almost all of these deals. The fear in the marketplace is that in the near term, China will pay for technology it does not have. In the long term, it could appropriate it and make the know-how its own.
For instance, China wants to build its own planes to compete with Boeing, and GE's technology from this most recent set of agreements will help China move closer to that goal.
"However, at the end of the day almost all foreign firms (with the exception of Google ) have decided that the China opportunity outweighs the risk," Oberweis told CNBC.