Economic boon or security threat? American city torn over Chinese milling project

It is just a few hundred acres on the outskirts of a small, sleepy town in the middle of the vast American Great Plains. But a property deal in Grand Forks, North Dakota - hundreds of miles from any major US city - finds itself on the geopolitical stage, the focus of growing concern locally, in Washington, even Beijing.

On one side of a brewing battle are "patriotic" residents fearful that a proposed Chinese milling plant, which the city council approved only to hit local resistance, will foster espionage and a nest of spies in their community.

On the other are city officials who dismiss any concerns over foreign intrigue and point to the economic promise of what they call the town's "biggest investment deal ever". This comes as federal agencies and lawmakers express growing interest and seek further scrutiny of the project.

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The target of suspicion is Fufeng USA, a subsidiary of China-based Fufeng Group, which plans a US$700 million agribusiness facility on the edge of the city of 58,000 people, expected to create some 700 direct and indirect jobs and bring in up to US$1 million in added annual property tax revenue.

But protesting residents note that the plant would be a mere 19km (12 miles) from a US air force base critical to national defence. Grand Forks Air Force Base houses top intelligence, surveillance and reconnaissance capabilities. The base is also home to a global communications system.

The issue reached a crescendo on March 7 - four months after Fufeng USA bought 370 acres at a reported price of US$26,000 an acre (US$11,000 per hectare) and a month after the council approved the deal - when residents gathered at a tense city council meeting marked by yelling, applause and heated exchanges.

"You're crazy," one resident yelled at the seven-member council and Mayor Brandon Bochenski, video of the session shows. "You're lying!" another accused the council.

Since then, residents from in and around the city have been attending the council's weekly meetings in a united display of rage over being "kept in the dark".

"You smug asses stand up there and you do this to the citizens here. How rude," said Jerol Gohrick, president of a conservative political group North Dakota Sons of Liberty. He donned a cowboy hat that covered his eyes.

"Laugh at me one more time, I'll come across this table at you," he threatened the mayor.

The crowd erupted in applause.

Elizabeth Barber, a medical researcher, voiced fears that the council was bringing "Communist China to Grand Forks", exposing local residents to shoddy construction and "poisoning". Reflecting the crowd's hostility to the project, she added that China's reputation was "of generally having nefarious motives to anything they have to do with America".

In an email to the South China Morning Post, Eric Chutorash, the chief operating officer at Fufeng USA, insisted that the plant - which would process corn into starch, oil, and syrup - would be a model local citizen "purchasing US corn, manufacturing in the US, to sell in the US".

"No one employed by Fufeng USA will be asked to collect intelligence on the air force base," he added. "I can confidently say that no one working in the plant will conduct any type of espionage."

Based in Qingdao in China's eastern Shandong province, Fufang Group is a bio-fermentation company that makes industrial ingredients used in the food, pharmaceutical, health and animal feed sectors.

Founded in 1999 as a small factory producing the food additive MSG, Fufeng is now listed on the Hong Kong stock exchange.

Fufeng USA began operating in the US in 2020. While Fufeng has another US subsidiary called First Biotech, this would be the company's first manufacturing unit in the US.

The project started attracting attention in January after a supply chain industry consultant named Ross Kennedy wrote a blog post about its Chinese connection.

Labelling Fufeng a "vector of CCP policy", Kennedy noted the party membership of its chairman, Li Xuechun, who has been a member of the Shandong Provincial People's Congress since 2007.

Kennedy also contended that a Fufeng subsidiary in Xinjiang is near an alleged Uygur detention centre - a claim that could not be verified - and noted the proposed plant's proximity to the air force base, citing both as major red flags.

In an interview, Kennedy argued that it did not make much sense why Fufeng would construct a plant in Grand Forks, given the city's lack of basic water and natural gas infrastructure and the far greater corn harvests elsewhere in North Dakota and neighbouring states.

"It is certainly more convenient, potentially, for geopolitical purposes and for military and espionage purposes to have a very large corn mill and infrastructure located within proximity to Grand Forks Air Force Base," Kennedy said.

Fufeng insists that it decided on Grand Forks after an extensive search that took into account the availability of corn, natural gas, water, land, access to transportation and quality of workforce.

Frayne Olson, a crops economist at North Dakota State University took issue with Kennedy's critique. While the location does not produce as much corn as other areas, he said, it does have some advantages including fewer rivals and good logistics.

"Sometimes there could be a lot of competition for those corn bushels among processing facilities located in high-producing areas," Olsen said, adding that Grand Forks is well located along Interstate Highway 29.

North Dakota produces 400 million bushels of corn every year. Fufeng is expected to purchase 25 million bushels of corn annually, an attractive prospect for local farmers who say they would rather avoid the politics.

"Our job is to utilise our corn and to provide opportunities for farmers to sell their corn, pure and simple," said Jean Henning, executive director of the North Dakota Corn Utilization Council.

Under its deal with the city, Fufeng will receive 90 per cent tax forgiveness in the first decade and 70 per cent over the following 10 years. The project is expected to be built within three years.

But as word spread of Fufeng's plans, more than 2,000 residents joined a Facebook group called "Concerned Citizens of Fufeng Project in Grand Forks", and collected more than 5,300 signatures seeking a citywide referendum on the issue.

City leaders contended that residents had no right to challenge the decision through a referendum since voters had already invested their trust in the council by electing them. The petitioners responded by taking the council to state court; several judges assigned to the case recused themselves, local media reported, and judges from a neighbouring district have been called in. A hearing date is pending.

The public outcry soon reached Washington. In May, the US-China Economic and Security Review Commission - the leading US advisory agency on China policy - included the project in its report on Chinese investments in the US agriculture industry, raising similar concerns about the Fufeng chief executive's CCP background and the proposed plant's proximity to Grand Forks AFB.

Ji Li, a University of California at Irvine law professor specialising in US-China business, noted that Chinese business executives often have ties to the party. "It's pretty common, you know - more than 90 million Chinese people are members of the party."

The Grand Forks project is only the latest Chinese-owned property to provoke apprehension. Last year, Texas blocked a US$110 million wind farm project near the Laughlin Air Force Base in Del Rio.

In 2019, HNA, the Chinese insurance conglomerate, had to sell its mid-Manhattan office at a US$41 million loss because it was a few blocks from Trump Tower, the New York home to then-president Donald Trump, and considered a security risk.

Local supporters of the project say the swirling accusations amount to "speculations" lacking substantial evidence.

"We all know between the US and China there's tension - political, economic, national security," said Todd Feland, Grand Forks' city administrator. "I think we all need to be as situationally aware and objective about things and, again, not cast a broad brush."

Feland said that he, along with the mayor, city council leaders and the city attorney, met with regional FBI officials in April and received an "unclassified briefing", adding that there was "no information provided to stop the project at this point in time".

He added that Grand Forks officials would follow up with the FBI and Air Force for any updates concerning national security concerns and keep residents apprised.

The climate in Washington remains guarded. A recent report by a federal intelligence agency advised caution, citing general concern over China's influence on government and business entities in the US.

China "may use market access, investments, or economic dependency as leverage, and overtly press US business leaders, particularly those with commercial interests in China, to lobby Washington for policies Beijing favours," the National Counterintelligence and Security Centre warned this month.

North Dakota's US senators, Kevin Cramer and John Hoeven, both Republicans, as well as Marco Rubio, the Florida Republican who is ranking member of the Senate Intelligence Committee, sent a joint letter on Thursday to US Treasury Secretary Janet Yellen, requesting an investigation into the national security implications of the Fufeng project.

The Treasury Department oversees the Committee on Foreign Investments in the United States (CFIUS), the federal inter-agency group that assesses the national security risk of foreign investments in the US.

Fufeng USA has volunteered to undergo a minimum 30-day vetting by CFIUS. A Treasury spokesperson said the department does not comment on individual deals.

However, "CFIUS is committed to reviewing covered transactions and taking all necessary actions within its authority to safeguard US national security".

Asked for comment, Grand Forks Air Force Base referred inquiries to the Treasury Department.

The Chinese embassy in Washington criticised the US for what it called protectionist practices under the guise of national security.

"We hope that the US will act in accordance with the law and provide a fair, just and non-discriminatory environment for foreign companies, including Chinese companies, to invest and operate in the US," the embassy spokesman, Liu Pengyu, said.

Chinese investments in the US have declined steadily in recent years, a function of Chinese capital restrictions, Covid-19 and a less welcoming US environment. A Chinese General Chamber of Commerce survey this month of 111 Chinese companies operating in the US found "optimism is in decline due to sustained trade disruptions and an increasingly uncertain regulatory environment".

According to the Rhodium Group consultancy, average inbound Chinese investment was US$5.7 billion in 2021, down from US$7.2 billion in 2020 and far below the peak of US$48.5 billion in 2016.

Li, the UC Irvine professor, attributed the decline in part to US regulators' lack of understanding about China. Many, he said, assume that every Chinese investor is controlled by the Chinese government. While some are state-owned, others may only have a passive investment link or be linked to local Chinese governments.

"Those subtle differences are normally beyond the comprehension of American regulators," he said.

The future of the Fufeng plant is unclear but there's little doubt that Chinese companies face growing suspicion as US-China relations deteriorate, analysts said.

"Does the origin of the company make a difference? For some people it will. For other people, that won't," Olson of North Dakota State University noted. "If you're an Indian company, would that make a difference?"

This article originally appeared on the South China Morning Post (SCMP).

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