Public pays for McAullife ‘photo opportunity fund’

By Kenric Ward | Watchdog.org Virginia Bureau

RICHMOND, Va. — A Chinese paper company’s decision to open a plant in Virginia reflects a larger strategy to bring more of China’s business to the United States.

The prospect of reaping $30 million-plus from Virginia taxpayers — and millions more through a federal immigration program — sweetened the pot for Shandong Tranlin Paper Co., Ltd.

“We are at the beginning of a new chapter in the Chinese economy: the age of outbound private investment,” notes Dan Redford, vice president of investor relations at Civitas Capital Group.

“Currently, there is $4 trillion of private wealth sitting around in China.”

Tranlin’s Virginia operation — headed by University of Virginia business school grad Jerry Peng — plans to invest $2 billion and hire 2,000 workers in Chesterfield County by 2020.

Beating out California and North Carolina to host the paper plant on the James River, Gov. Terry McAuliffe pledged $5 million from the “Governor’s Opportunity Fund.”

“Five million dollars? I wouldn’t give them five cents,” grumbled state Delegate Bob Marshall, a conservative Republican from Manassas.

Yet the $5 million is just a token down payment to Tranlin, which the McAuliffe administration describes as “a leading pulp and paper company.”

“The $5-million Opportunity Fund grant certainly didn’t move the needle on a $2 billion decision,” said Greg LeRoy, an analyst at GoodJobsFirst.org.

“That’s why we call such subsidies ‘photo opportunity funds.’”

Bigger money will come through a host of tax breaks and subsidies from state and local governments.

Vince Barnett, spokesman for the Virginia Economic Development Partnership, said Tranlin would be eligible for up to $31 million in state assistance, including job-training funds and a long list of targeted tax breaks.

Will Davis, executive director of the Chesterfield Economic Development Department, said that by locating in the county’s “Technology Zone,” Tranlin stands to qualify for machinery and tool rebates, as well as waivers on building inspection fees.

Foreign-based conglomerates enjoy additional subsidies if they generate more than half their revenue from outside Virginia, as Tranlin does.

Peng told the Washington Post it was “very possible” that Tranlin eventually would tap into the federal EB-5 program, which issues U.S. green cards to foreign investors.

“The nice thing is, the potential funds coming out from the EB-5 would be a very small portion, probably less than 10 percent … of the entire project,” Peng said.

At up to $1 million per investor, EB-5 proceeds can pile up quickly.

“I can’t imagine they wouldn’t use (EB-5),” said Tom Watkins, a Michigan businessman who has studied China’s business practices for the past 30 years.

“The Chinese are looking to move their resources. What better way to do it than to buy a green card?” Watkins asked.

Redford, who manages EB-5 funds, agrees.

“Chinese individuals are more and more looking for ways to get their assets out of China,” he wrote.

“More and more investors understand that high-exposure markets like Los Angeles and New York are becoming saturated. They are starting to look for answers elsewhere.”

The McAuliffe-founded company — McLean, Va.-based GreenTech Automotive — has used EB-5 to attract foreign investment, mainly from China.

George Mason University’s Mercatus Center questions the value of states waging public bidding wars to lure business. Instead, its policy analysts argue that low overall taxes produce for the best investment environment.

“If Virginia is so great, surely no great subsidies are needed to get (companies) here,” Lotta Moberg, a Mercatus researcher, told Watchdog.

Last year, China’s Shuanghui International Holdings bought Virginia-based Smithfield Foods, America’s largest pork producer.

Barnett said talks with Tranlin Paper began during the administration of Republican Gov. Bob McDonnell.

Kenric Ward is a national correspondent for Watchdog.org and chief of its Virginia Bureau. Contact him at kenric@watchdogvirginia.org or at (571) 319-9824. @Kenricward