China’s economic growth, fueled in part by its insatiable appetite for natural resources to fuel its manufacturing sector, has led it to invest in production facilities and real estate around the world. However, few would have guessed that one of those investments is tucked away in rural south-central Oklahoma. In October 2017, Maersk Group (a conglomerate that owns the global shipping company of the same name) purchased approximately 40 acres of land near Pryor, OK. The deal represents just one of several recent Chinese investments in rural American real estate with many wondering whether China is buying land in Oklahoma and why. Below we take a look at three examples of Chinese investment in American properties and what they mean for both countries.
Is China Buying Land In Oklahoma?
Yes, China is buying land in Oklahoma. According to Bloomberg, a subsidiary of Chinese automobile company Chery is buying 100 acres of land near Pryor, Oklahoma. The land will be used to build a $1 billion factory that will employ 2,000 people.
Why Is China Buying Land In Oklahoma?
Investment Diversification
Investment Diversification is a key reason why China is buying land in Oklahoma. Chinese investors are often looking for opportunities beyond their own borders with the goal of creating global portfolios that can withstand significant economic disruption in any one market or region. There have been numerous examples of this phenomenon in recent years. Chinese investors have snapped up prime properties in the U.K., France, and other Western countries, in addition to the U.S. The Chinese government also recently announced a plan to invest $600 billion in Latin America over the next decade. A key reason for this broad international investment strategy is that China’s own economy has been slowing down. The country’s growth rate has declined steadily since 2010 and has turned negative in recent years. As a result, the Chinese government is seeking new sources of economic growth.
Food Security
Food security is a key reason why China is buying land in Oklahoma. Chinese investors see the Great Plains and American Midwest as prime farmland that could produce major agricultural yields for the country. Indeed, Oklahoma and other areas of the Great Plains are home to some of the richest soil on Earth. The region’s “black gold” has been cultivated for centuries and has been the source of major food production for the U.S. and other countries for decades. China’s growing population has put immense strain on the country’s food supply. The Chinese government has responded by prioritizing food security and investing heavily in major food production facilities. Oklahoma farmland has the potential to produce major yields that could help feed Chinese citizens in the years ahead.
Real Estate Investment
Real Estate Investment is another key reason why China is buying land in Oklahoma. China’s economy has grown dramatically since the 1980s. But the country’s real estate market has grown even faster. Concerns about a potential real estate bubble have spooked the Chinese government and citizens alike. As a result, Chinese investors have been looking for new real estate markets outside the country. Over the past few years, many Chinese investors have poured billions of dollars into the U.S. real estate market, particularly commercial properties like office buildings, hotels, and shopping malls. Now, some Chinese investors are turning their attention to other U.S. markets, including Oklahoma. The lower cost of agricultural real estate in the Great Plains has attracted many Chinese investors. Moreover, many Chinese companies are looking to diversify their investments outside of the real estate to create more balanced portfolios.
Produce Organics for China
Another key reason why China is buying land in Oklahoma is to produce organics for China. Chinese consumers have been increasingly demanding organic produce, which is grown without the use of pesticides or chemicals. To meet this rising demand, some Chinese companies are investing in large-scale organic production facilities in the U.S. – particularly in the American Midwest. Chinese companies have been purchasing major farms in the Midwest and converting them to organic production. They have also been buying smaller farms and using them to grow organic produce for distribution to major cities in China. All of this has helped create major employment opportunities in smaller Midwestern towns. Chinese investors are hiring many locals to manage and operate their farms. This has created a significant influx of jobs and economic activity in these towns and surrounding areas.
Rural Labor Shortage
A key reason why China is buying land in Oklahoma is a rural labor shortage. Chinese companies have been investing heavily in American agriculture in recent years. But they have run into a major problem: There are not enough local workers to handle all of the production. Indeed, a major challenge to agricultural production in the U.S. is a rural labor shortage. Many younger people have left rural areas to find work in big cities. As a result, there are not enough workers to produce large quantities of food in the Great Plains. This has created a major opportunity for Chinese companies that are looking to invest in agricultural production in the U.S. In order to grow major food crops, such as corn and soybeans, Chinese investors need significant numbers of workers to plant and harvest the crops. Many Chinese companies have turned to the H-2A visa program to bring workers from other countries to the U.S. to help with agricultural production. But the program has had long wait times and high costs for employers. As a result, some Chinese investors are looking at purchasing or renting land in Oklahoma and other Midwestern states as an alternative.
Foot in the Door for Chinese Corporations
A Chinese foot in the door is another key reason why China is buying land in Oklahoma. Many Chinese investors are looking to purchase or rent large swaths of land in the U.S. to secure a major foothold in the country. The Chinese government has encouraged many of its companies to invest more in the U.S. and other Western countries. But these companies have often been reluctant to buy large pieces of real estate or significant shares in publicly traded companies. Now, however, some Chinese companies are putting down roots in the U.S. by purchasing large parcels of agricultural land in the Midwest. These companies are often looking to grow crops such as soybeans and corn on a massive scale. For that, they need sizable pieces of land. Thus far, most Chinese companies have focused on major Midwestern states like Iowa and Illinois. But smaller towns in these states also have plenty of farmland that is ripe for acquisition.
Which Countries Is China Buying Land In?
Australia
China has been buying up vast amounts of land in Australia. The biggest purchase was made in 2014 when they bought 1 million acres (400 thousand hectares) which is more than 5% of the total area of Australia.
Canada
In 2015, China bought $15 billion worth of Canadian oil and gas assets and by 2018 they will own 19 percent of all Canadian oil sands.
Argentina
There have been many reports that China is attempting to buy up vast amounts of Argentinean land as well to use for farming purposes or construction projects on their new rail lines connecting Argentina with Brazil, Peru, and other South American countries which will pass through their land. The Argentinian government has denied this claim.
Bolivia
In 2014, China bought $16 billion worth of Bolivian land. In 2015 a Chinese company bought 23 percent of the country’s oil and gas fields and in 2016 they will own another 15 percent. It is predicted that China will own over 50% of all Bolivian oil and gas fields by 2018.
Brazil
China has been buying up vast amounts of land in Brazil in order to build rail lines from their main port city to their new trade partner, Argentina. They are also building a huge new airport for the area which will be used for both international and domestic flights to and from China as well as other countries including Venezuela, Cuba, Ecuador, and others which will pass through Brazil on their way to South America or Asia. The Brazilian government has denied this claim but it is believed that they are allowing this to happen without any objection due to their desire for better trade relations with China as well as the fact that they will benefit from the new trade routes to be established.
Bottom Line
In the near future, the impact of Chinese investment in U.S. real estate will depend on whether we see a trade war between the two countries. If we do, Chinese investment could be used to pressure the U.S. government to work out a deal in China’s favor. Whatever the outcome, it is important to remember that Chinese investment in U.S. real estate is not a new phenomenon. While it is interesting to watch how it has changed over the years, it’s important not to overreact.
