Banking with China: How a state-owned firm will end up building homes on the San Francisco Bay

Posted by mmcmullan on 12/13/2012

More housing is coming to the Bay Area! That’s a good thing. But who’s going to benefit from its construction? That’s another thing altogether.

The Wall Street Journal reports that Lennar Corp., one of America’s largest home builders, has secured a $1.7 billion loan from China Development Bank (CDB) to build two housing development projects on the San Francisco Bay.

With access to Beijing’s massive foreign currency holdings, China’s state-owned banks fund infrastructure projects around the world. But dealings with these banks often come with a noteworthy requirement: A Chinese state-owned contractor must get a piece of the pie.

That’s the case with Lennar’s dealings with the CDB. As a condition of access to financing, Lennar must employ a Chinese construction contractor for some – if not all – of the work on both projects. In this case, the frontrunner for the bid is the state-subsidized China Railway Construction Company.

When the Journal called for comment, Alliance for American Manufacturing Executive Director Scott Paul had this to say:

"The intent of having state-owned construction firms from China in the U.S. is getting that beachhead here so that other state-owned companies can get their materials here, because that's where the money is. A state-run company like China Railway has different profit motives and incentives than an American contractor. Its purpose is to generate jobs, not to generate profits, and they receive generous subsidies for it. You have to ask, is that a level playing field?"

That's a good question. Here's another one: Where are the American banks with the confidence and wherewithal to invest in large-scale investment projects?

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