By Elias Glenn
May 22, 2017
BEIJING — As a controversial U.S. investment visa scheme comes under fresh criticism, Sam Walls of Little Rock, Arkansas, faces a different problem as he courts wealthy Chinese.
Walls and his team at Pine State Regional Center are looking to raise $200 million (153.85 million pounds) through the EB-5 investor visa programme for a steel mill in the southern state of Arkansas – just the kind of project the scheme was set up to help.
But persuading a class of investors more accustomed to being pitched luxury high-rises in cities such as Los Angeles or Miami to buy into a heavy industry project in one of America’s poorest states is proving a hard sell.
“It’s a grind,” Walls said in an interview outside the EB-5 and Investment Immigration Expo in Beijing, a gathering of U.S. representatives of EB-5 projects and local agencies that promote them to Chinese investors and was closed to the media.
Walls, who is 47 and does not speak Mandarin, spent three months in China last year promoting the project, often travelling by high-speed rail between Beijing and Shanghai. He was once woken by an attendant and, thinking he had arrived in Shanghai, got off the train – four hours short of his destination.
Walls’ challenge is compounded by the fact that he is trying to sell a new steel plant in a country with about 400 million tonnes of excess steel production capacity, with plans to shut down 50 million tonnes of capacity this year.
“About the time we came to market you couldn’t open the paper in China and not read an article about the demise of the Chinese steel industry,” said Walls, 47, who is raising funds to refinance the $1.67 billion Big River Steel plant, which opened in February in Osceola, Arkansas.
The EB-5 programme grants foreigners a U.S. green card – making them legal permanent residents – in exchange for investing $500,000 or more in a qualified project. The vast majority of such investment comes from China.
But the EB-5 programme, which is up for U.S. congressional review in September, has come under fire from politicians who point to fraud and abuse, and to the fact that a scheme originally intended to bring jobs to high-unemployment areas has often been used to fund projects in wealthy neighbourhoods.
The industry drew negative publicity earlier this month when the sister of Jared Kushner, a senior White House advisor and the son-in-law of President Donald Trump, held a marketing road show in China for a New Jersey luxury apartment complex developed by her family’s company.
While Jared Kushner sold his stake in Kushner Companies to a family trust early this year, the episode raised questions of potential conflict of interest. After a flurry of news stories following her appearance at marketing events in Beijing in Shanghai, Nicole Kushner Meyer, Jared’s sister, cancelled appearances at two investor meetings planned in southern China.
“I’m sure they’re sitting around in hindsight thinking, yeah, we probably could have thought that one through better,” said Walls.
In a sector where investors are wary of failing projects and policy changes that would jeopardise their visas, some Chinese migration agencies look to reassure potential investors their EB-5 projects will be successful, industry executives say.
U.S. securities law prohibits making false claims or failing to ensure clients are aware their funds are at risk.
“The one word that scares you – and I heard it here today – is the word ‘guarantee’,” said Walls. “Unfortunately that word gets thrown around a lot.”
Individual tickets for the one-day conference were available for $3,000 at the door, while a booth cost $30,000, one developer said.
Agents and developers expect changes to the EB-5 programme, such as an increase in minimum investment levels or a tightening of oversight over the projects that qualify, although most who spoke with Reuters outside the event in Beijing last week said it was unlikely the programme would be cancelled. None besides Walls agreed to speak on the record.
“It’s supposed to encourage investment in the rural and highly distressed urban areas. But due to some broad definitions, everyone (meets these criteria),” said Walls, declining to say how much EB-5 funding Big River Steel had raised since it started investor outreach.
In March, Walls testified before Congress about “pervasive manipulation” in the investor visa programme, and has been a proponent of reform as he says most EB-5 investments have gone to a handful of major cities.
“The vast preponderance of EB-5 investments have gone to arguably a handful of major gateway cities … If you’re the other 45-47 states you have not enjoyed much or any of the benefits of the programme. You don’t necessarily build high-rise skyscrapers in Arkansas or Kansas.”
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