How Chinese Hustlers Snookered the McAuliffe Administration for $1.4 Million

lindenburg

Photo credit: Roanoke Times

by James A. Bacon

On Nov. 5, 2104, the McAuliffe administration announced that Lindenburg Industry, LLC, a Chinese corporation, would invest $113 million to rehab an old furniture factory in Appomattox County into an industrial-honeycomb manufacturing operation — the first new corporate announcement for the economically depressed Southside county in 15 years. The deal, crowed the press release, “is a direct result of the Governor’s meeting with company officials in Beijing, China during his Asia Marketing Mission last month.”

Governor Terry McAuliffe and local economic development officials posed with Anyuan Zhu and Yunshan “Stella” Li to present a$1.4 million check from the Governor’s Opportunity Fund to seal the deal.

Just one problem. While Lindenburg did purchase the old factory property, it never upgraded the facility, it never hired an employee, it fell behind in taxes and water service fees, and it accumulated unpaid bills of $450,00, reports the Roanoke Times. The state is demanding repayment of the $1.4 million, but Lindenburg officials, having returned to China, are stalling.

Virginia’s economic development apparatus has a strong reputation for professionalism, and its track record with the Governor’s Opportunity Fund has been overwhelmingly positive, but in this particular case, it stumbled badly. In a devastating article, reporter Jeff Sturgeon details how state and local officials failed to conduct the most elementary due diligence.

Among Sturgeon’s astonishing findings:

  • State analysts relied on a company website produced in China featuring misleading information, including the listing of a North Carolina address where the company never was located and production photographs and text lifted from an unaffiliated American company.
  • Text similar to material on the website appeared in a pre-approval request to the state commerce secretary and a briefing for the governor before his meeting in Beijing with a project principal.
  • Officials also relied on a site consultant who vouched for the company but hadn’t asked basic background questions, such as the company’s address in China, until shortly before the deal was closed.
  • Approached by the same players in 2013, North Carolina officials made checks and asked questions that Virginia officials did not.
  • Only after the project appeared to stall did Virginia officials ask for company financial statements

The article backs up these conclusions with excellent reporting. Read it and weep.

As for the administration’s claim that the deal was “a direct result of the Governor’s meeting with company officials in Beijing, China,” Sturgeon provides a fascinating back story. As the deal was nearing completion, McAuliffe went on a trade mission to China, and his operatives tried to set up a meeting with Li at a Virginia-sponsored tourism event in Beijing.

When Li walked into the Beijing reception, the seller of the Appomattox plant still did not have his money, email traffic showed. A short time later, partnership officials who were closely monitoring their phones received an email from China saying that, according to a representative of Development Advisors also attending the event, a deposit of $1 million was “ready” and the rest would be “cleared” in a few days.

To credit McAuliffe back in 2014 with sealing the deal was ludicrous. Ultimately, Lindenburg did cough up $2 million in cash to take possession of the Appomattox furniture plant, and an unidentified Chinese bank did issue a $1 million letter of credit on Lindenburg’s behalf to guarantee an incentives payment expected from the Virginia Tobacco Commission. Those developments gave the Virginia Economic Development Partnership (VEDP) “comfort to move forward.”

Secretary of Commerce Maurice Jones told the Roanoke Times that the administration has learned from the fiasco. He has ordered the VEDP to conduct more thorough background checks, relying less upon website content and more upon audited financial statements.

Bacon’s bottom line: In terms of monumental screw-ups, the Appomattox industrial-honeycomb deal is small potatoes compared to the McDonnell administration’s $250 million U.S. 460 fiasco. But the incompetence is mind-boggling. Indeed, the incident raises questions of how sloppy the work has been on other economic-development deals, and makes one wonder if Lindenburg is a fluke or just one of many projects that were hastily pushed through.

McAuliffe routinely touts his success in economic development. He’s the deal-meister. He gets things done. And others are buying the narrative. Even John Sherman Jr., Republican-leaning former CEO of Scott & Stringfellow, noted in column lauding McAuliffe’s economic-development performance in the Richmond Times-Dispatch Sunday: “The economic numbers speak for themselves: 88,000 new jobs created, $9 billion in new investment in the commonwealth and unemployment at a record low 4.2 percent.”

Does the governor’s office pressure economic development officials to generate positive numbers by pushing through deals of dubious value? When North Carolina officials started asking basic questions, Zhu and Li lost interest in the Tarheel state. They moved on to Virginia. Virginia officials failed to exercise the same elementary due diligence. Has such lassitude long been standard practice — or have standards buckled under pressure to do deals?

(The line in the governor’s press release that “Virginia successfully competed against North Carolina for the project” is laughable. Judging by Sturgeon’s story, North Carolina never seriously competed for the deal.)

At the very least, reporters, bloggers and other observers need to apply a more skeptical eye to the fluffery contained in economic-development press releases, which for years have been geared to glorifying the role of whichever governor happened to be in power. Meanwhile, cross your fingers and hope there aren’t any more cases like this waiting to explode.

There are currently no comments highlighted.

24 responses to “How Chinese Hustlers Snookered the McAuliffe Administration for $1.4 Million

  1. We’re not surprised, are we, not only that the government screwed it up, but screwed it up in such monumental fashion. These people are idiots. That’s why they work for the government. Mistakes are not punished. Just take a look at City Hall here in Richmond. And folks like Les and Larry wonder why folks like me favor the private sector over the public sector for just about anything. Not that the private sector is perfect, but again paraphrasing Churchill, it’s just generally better than the public sector at getting things done. It’s a mystery to me why folks like Larry and Les don’t seem to get this and continually support government efforts on things better left to the private sector. Hell, even Donald Trump would have done better on this deal.

    • re: ” And folks like Les and Larry wonder why folks like me favor the private sector over the public sector for just about anything.”

      you mean like Kodak, Blockbuster Video, the sub-prime Mortgage companies… etc?

      private sector does not magically produce only success…

      but Crazy – do tell me how you’d have the private sector economically develop Virginia?

      how does that work – without education and transportation to name two?

      should we turn over transportation and education to companies like Transurban and Comcast and Verizon?

      😉

    • Crazy, as you well know, I share your view that the private sector tends to be more accountable than the public sector and is less likely to do stupid stuff like that described in the article. But that doesn’t mean that government is always incompetent. Indeed, competency in government is a hallmark of government in a number of countries — most particularly northern Europe, but also in places like Singapore. Once upon a time, the Virginia Economic Development Partnership had a reputation for real professionalism — it was considered one of the best such organizations in the country. That’s why I’m shocked this incident occurred.

      To my mind, the big question is whether this was a one-off incident or the tip of the iceberg. The fact is, we don’t know. As members of the public, we should demand accountability. Reading between the lines of the Roanoke Times article, no one was fired. That should worry people. If the McAuliffe administration is shoving crap through the economic development pipeline, we could see more of this. Admittedly, that’s a big if. I don’t mean to suggest that is necessarily the case. But given McAuliffe’s penchant for self promotion, the public should be alert to the possibility that it could be.

      • re: govt vs private sector –

        the most cost-effective health care – on the planet is done by govt – in about 40 other countries.

        The highest literacy rates in the world – is provided by govt, not the private sector.

        The rights of ways for the most advanced rail and road systems on the planet are done by govt – not the private sector.

        The countries with the most advanced pipeline and electricity grids – are done by govt..

        When a plane crashes -you don’t call the private sector to investigate -you call the NTSB.

        When a bank fails -the FDIC protects the depositors

        when you buy food or drugs – if you left the safety and efficacy up to the private sector – you’d get 3rd world conditions.

        When you buy insurance – you rely on the govt not allowing fly-by-night companies to sell it to you… when you have a claim – you EXPECT the company to pay… or what? you’ll go to the state, right?

        200+ countries on the planet – name the ones that do education, health care and transportation “better” with the private sector?

  2. What drives these efforts – by all parties, including the Gov is the realization of just how awful Virginia elected have been in positioning Virginia to be a place where businesses want to locate.

    we take pride in NOT taxing to NOT provide the things that attract quality 21st century business investment – and instead use bribes to try to attract 20th century on-the-edge industry.. for the 20th century educated in rural Va.

    The RoVa-dominated GA prioritizes things like concealed carry, tolls on roads, and the Medicaid expansion… god forbid – we deal with substantiative economic development needs… of a state going down the economic tubes.

    If you look at McAuliffe’s current budget – to transform high schools and Community Colleges in places that explicitly train employable workforces – you realize just how different his proposals are – compared to past Governors and the typical oppositional role of a General Assembly who has never taken ownership of the issue other than to grab their “share” of education and road money for their localities

    this Editorial from the Roanoke Times pretty much exposes the failure of the General Assembly and past Governors to deal with the realities as well as their current “stop Gov McAuliffe” mindset…

    “Our view: Why Virginia cities are dropping in the ratings ”

    “… “Best-Performing Cities,” an annual report published by The Milken Institute, a California-based economic think tank that ranks metro areas “by how well they are creating and sustaining jobs and economic growth.”
    ….

    Three cities in the Carolinas – essentially, our competitors – rank in the Top 20. Raleigh was 6th, Charlotte was 13th, Charleston was 17th.
    – No Virginia metro area even made the Top 100 for big metros [ INCLUDING NoVa and Hampton Roads ]” !!!

    http://www.roanoke.com/opinion/editorials/our-view-why-virginia-cities-are-dropping-in-the-ratings/article_819e65e9-e30d-5dac-a50d-b104469aa056.html

    so yes… some folks including the Gov dropped the ball – in their DESPERATION to TRY to get companies to locate in Va – in a place that does not have a well-educated workforce… WHAT WERE WE THINKING?

    good intentions – who the H E double LL thinks ANY company is going to make furniture in Va in the 21st century – to start with?

    To me, this is more proof of the clear incompetence of those who think economic development is not fundamentally rooted in a well-educated workforce and actually opposes efforts like Common Core and free Community College without supporting any alternatives – either.

    It’s like we purposely choose to be willfully ignorant and just plain stupid.

    Instead we blather on endless excuses about how we cannot educate kids because of “culture” and “genes” … and complain about tuition costs for Va kids who are so poorly prepared for college they need remediation and even then the degrees they pursue are not ones the 21st century wants.

    We keep thinking Economic Development is more about giving incentives and bribes to companies to locate in a state that has yet to commit to producing a competitive 21st century workforce.

    Until we understand what states like Massachusetts and New Jersey understand – and make the commitment to educate to 21st century standards – we’ll continue to wither and decline and stake our homes on govt spending in NoVa/Hampton and bribing sketchy companies to locate in RoVa.

    • Virginia takes pride in NOT taxing? Really? I have 40 years of state tax returns that say differently! Not to mention real estate taxes, sales taxes, BPOL taxes, etc, etc.

      No, Virginia takes pride in political corruption at the state government level. The kind of corruption that allows the asshats in The Imperial Clown Show in Richmond to hand out party favors known as company-specific and industry-specific tax breaks that go on forever. These party favors are given out to gift-givers, political donors and those who offer jobs to washed up state legislators,

      Eliminate (or at least sunset) that blatant graft and there’s plenty of money to make Virginia an attractive place for employers.

      Virginia – America’s Most Corrupt State.

  3. In the future please don’t use my name to imply that I support a government policy when I have not commented upon the specific policy on this blog or any other place.

  4. Another question this story raises: The McAuliffe administration doled out $1.4 million in “incentives,” and the Tobacco Commission was prepared to dish out another $1.7 million. Incentives for what? Having checked the company out, North Carolina was never seriously interested in Lindenburg. There was no competing offer to outbid. Is this routine? Do Virginia governors just blindly hand out money with no clear idea of what it takes to snag a prospect?

  5. I’m sure the Govs are dealing with things that are recommended to them rather them cooking up the idea themselves but basically the Govs will tout just about ANY job-producing project.

  6. Dear LarryG, amidst (and despite) the fulmination and fuming that “we purposely choose to be willfully ignorant and just plain stupid,” I think you have a solid point. The Governor is focused on education and is addressing the educational deficiencies that are hindering Virginia’s economic growth; and there is a “stop McAuliffe” mindset in some quarters that doesn’t want to grant him that. The editorial from the Roanoke paper that you cite says one author of the Milken study had this to say about Roanoke’s dismal standing among U.S. large urban areas:

    “She can even look at the data and tell us why the Roanoke Valley isn’t attracting enough technology-related jobs – we don’t have enough workers qualified for them. . . . This, by the way, is exactly what economic development officials here have been saying — companies go where the workers are. If we want to attract high-wage jobs, we first need to have those workers in place.”

    The editorial also notes, “The governor is also proposing a significant expansion in worker training programs at the state’s community colleges – for things such as welders and machinists and mechanics. Those are all areas where a recent study found Virginia coming up short, and where other studies have found the Roanoke Valley, in particular, having a deficit. Whether it’s high-tech or medium-tech, you can’t attract employers if you don’t have the workers for those companies to hire.”

    Welders or machinists or mechanics? Furniture workers, maybe? Take a trip sometime down to the Appomattox area, to Farmville, and the biggest local business is devoted to selling furniture, not software. Selling furniture, not making it. Wages are cheap in China but less so relative to ours than they used to be, and transportation is not free, and even non-tech U.S. workers are as well educated as Chinese. Maybe it’s not so foolish of the Governor to back “medium-tech” education and foreign investment in an Appomattox furniture plant. Maybe it was worth paying a “bribe” (your word) to get them to pursue that investment.

    But that wasn’t what the BR posting was about, this time anyway. Jim didn’t criticize the idea of supporting a furniture plant in Appomattox (you did), but the way the Governor’s economic development folks carried out their due-diligence investigation of this particular foreign investment (you saw that as more ‘stop-‘McAuliffe’ — but he is their boss, after all!). And I too was disturbed to see the Tobacco Commission rearing its ugly head again.

    There’s one more point made in that Roanoke editorial. All those tech-savvy workers drive the economic growth of all those successful metro areas around the country, “Yet those workers also tend to be very mobile, so that means focusing on quality-of-life issues so that those workers will want to live here in the first place. “It’s about the talented workforce,” Ratnatunga says. And that means creating “the sorts of places where people want to live and have an economic future.”

    That’s right: a lot of those tech-savvy workers weren’t educated anywhere near the tech-focused areas of the Country where they end up working. And Virginia ranks high on the quality-of-life scale, something that BR talks about all the time.

    I live in NoVa, where we have the Dulles tech corridor, and Thomas Jefferson Tech H.S., and all those data centers in Herndon sucking up DVP’s coal fired electricity. We’re not doing so bad on that employment score, even if the federal/defense sector is retrenching. But, bottom line, I agree with you, Larry, that education is the key to improving employment opportunities across ALL of Virginia. Your Roanoke editorial explained, “Says Maurice Jones . . . “It’s exactly the reason we are spending the overwhelming bulk of our time on trying to catalyze the non-public dependent parts of our economy.” That’s why, for instance, McAuliffe is proposing a $2.43 billion bond issue – heavy on science-related projects intended to build what the governor calls “the new economy.” ” Larry, I support the Governor on this, as you do.

    But I agree entirely with Jim, the Appomattox furniture-factory fiasco is an embarrassment to the McAuliffe administration, and its mismanagement should not be overlooked simply because it was well-intended. Those two opinions are not inconsistent.

    • I recently read of a celebration of Volvo in Dublin and now they have announced they are laying off 700 workers. And Virginia was 48th in the nation in economic growth last year. And Maryland was 49th.
      Looks like buying jobs is not a long term effective economic development strategy. Virginia’s economy is highly dependent on federal spending and not just in Tidewater and Northern Virginia.
      If SWV did not have the hospitals funded by medicare and medicaid then thousands of jobs would have been lost. Then there is SS and state retirements along with colleges and universities dependent on federal student loans to function.
      And the list is longer but with no strategy there is no plan and no hope.

    • Acbar – good words – balanced.

      I tend to think though that more often than not here in BR – we have the em -phas – is on the wrong sy lab able…..

      The furniture factor fiasco is more a one off than any kind of pattern of incompetence in economic development – although Jim did try to not use this to target just this gov.

      all kinds of less than wonderful things in the name of economic development take place in Va in way more agencies than just the Gov – from the tobacco commission to VDOT to local skulduggery.

      what’s different – is that McAuliffe is demonstrating some courage and leadership in pointing out our failed and flawed education policies – and how those policies hurt and harm our efforts at economic development – and … how the GA – sees such efforts progressive tax and spend waste and fraud.

  7. There should be a big RED flag raised anytime China is involved with anything. China builds cities no one lives in. China stores explosive toxics in residential areas. The put up buildings that fall down or the owners skip with the construction money. Americans are used to honest dealings. You will find little of that in China. You watch, next up will be this VB arena deal. Chinese banks are hoarding dollars, not lending them out, because their economy just fell off a cliff and the government is banning foreign transactions.

  8. Considering the other boondoggles, this doesn’t surprise me.

  9. I recently read of a celebration of Volvo in Dublin and now they have announced they are laying off 700 workers. And Virginia was 48th in the nation in economic growth last year. And Maryland was 49th.
    Looks like buying jobs is not a long term effective economic development strategy. Virginia’s economy is highly dependent on federal spending and not just in Tidewater and Northern Virginia.
    If SWV did not have the hospitals funded by medicare and medicaid then thousands of jobs would have been lost. Then there is SS and state retirements along with colleges and universities dependent on federal student loans to function.
    And the list is longer but with no strategy there is no plan and no hope.

    • Hmmm hey Jim,

      I sent off a letter today asking who was in charge of this boondoggle. Why didn’t they pick this one up and how much are the taxpayers on the hook for. I’ll see what responses, I get if any.

      Sheesh …

      Vic

  10. McDonnell had some real winners. The state almost gave away money for a Lynchburg/Campbell County “silica production company” in 2013. Danville had several busts that were arranged during his tenure. I really believe that everyone loves to pay lip service to RoVa, but they don’t seem to deliver the way our NC counterparts have over the last decade. The Volvo plant was no small failure, either.

    Sept 25, 2015 headline: Volvo to invest $38 million, create 32 additional jobs at its Dublin facility (Volvo got 2 million dollars of state money for that)
    Dec 1, 2015: Volvo to lay off 730 employees from Dublin plant

    I think that is worse than the Chinese flop.

  11. Well, well, well….why am I not surprised.

    I keep telling you guys…this is the underreported public policy issue in Virginia. But the buffoons in the General Assembly will do nothing…this state has got to get its head on straight about rural Virginia public policy. How many times does this have to happen before the rest of the state says, “NO MORE GRANTS TO RURAL VIRGINIA ECONOMIC DEVELOPMENT!” Over and over and over…

    Mr. Bacon is correct that at one time VEDP was probably the sharpest economic development organization in the nation. And here’s a little tip….go look at their projects in the Urban Crescent. Most of them actually have produced what they said they would produce. It’s not as if they’re dumb. There are some major success stories out there from VEDP and the Urban Crescent.

    The reason that so many of these projects have gone bad is because every Governor believes that he can somehow pull off an economic miracle and “revive” SWVA and Southside. The truth is: they can’t. The rankings that Larry linked are the most comprehensive annual rankings of metro economic activity. Ask anyone involved in economic development, and they’ll tell you that those rankings are the gold standard. If you notice, this nation’s economic growth is largely centered in large metros and college towns. This has been the case for a decade. And yet Governor after Governor wants to force VEDP to somehow “make rural Virginia grow”…..that’s not going to happen.

    So Urban Crescent folks continue to bend over and take it until there are sensible people in Richmond who stop these grants!

  12. re: what is and are prospects for economic development in RoVa??

    re: realities – how folks vote in RoVa -and what percent of the General Assembly (and Congress) is “owned” by Rova?

    what industries can RoVa reasonably support ?

    farming, cattle, poultry, hogs, tourism, prisons, solar/wind sites, healthcare , globally-competitive education k-12/community college … 21st century rural electrification program for internet.

    take the Federal Medicaid money for Gawd sake and train the kids to be healthcare providers at the Community colleges. Set up managed care clinics that need modern IT jobs for electronic medical records .

    these are jobs – if the Feds cut the money – the skilled and educated folks can go where jobs are – and Va will have less welfare to pay for unemployed.

    build internet and MOOC for the kids to be able to leave RoVa and go to the urban areas to successfully compete for 21st century jobs.

    Good Luck on getting the Va GOP to do any of the above rather than just continue suck on the Urban areas teat to fund composite index money, VDOT roads, and phony “foreign” economic development.

    the current GA uses of the tobacco money is a scandal of epic proportions – crony capitalism at it’s very worst.

  13. Apologies, BR, for this rant, but I must. Re: Larry’s “Take the Federal Medicaid money . . . and train the kids to be healthcare providers at the Community colleges. Set up managed care clinics that need modern IT jobs for electronic medical records. These are jobs – if the Feds cut the money – the skilled and educated folks can go where jobs are – and Va will have less welfare to pay for unemployed.” He’s right. The prevailing view on this blog is, don’t do it because it’s wrong to run up the federal deficit on account of inefficient, unsustainable health care. The countervailing views are, (1) it’s right to do, and (2) it’s wrong but going to happen anyway so get your piece of it. I’m firmly in camp (2), after a recent drive as a tourist through West Virginia and our own Shenandoah Valley; and it’s not greed that gets me there. In town after town, and sometimes out in the country between towns, the ONLY things being built or renovated, the ONLY new jobs to be had, at buildings with parking lots crowded with cars, are health-care-related. And these are the areas of the State where employment and varied work experience and technology training on-the-job are most lacking. And the health care does have an impact on those it touches, and it grates all the more on those good people left out of the health care system because they can’t afford it without Medicaid.

    The Medicaid fight is so intractable because it’s always portrayed as compassion versus a tax burden we can’t afford. But Larry is right, it is about community health, and also it is about community development, and jobs experience, and technology training, and attracting employers because you already have a trained workforce. Those are a tax burden regardless; why not kill both birds with the one stone (even if the health-care delivery aspect of it is not ideal)? Medicaid expansion would be a kind of economic development activity.

    I just wish Congress would get going on what Speaker Ryan promised the other day and go public with the majority’s own reform offering so we could focus on alternative ways to do this so much more efficiently and sustainably than the ACA’s “Medical Industry Pork Package.”

    • The only thing I would add (friendly amendment) here, is just how dishonest the “we’ll run up the deficit” argument really is.

      The money that funds the Medicaid Expansion does NOT come from general revenues!

      it cannot “run up” the deficit.

      We blather ad infinitum here about transparency.

      How about some good old transparency on how the Medicaid Expansion REALLY IS funded?

      it’s not like it’s a secret and not available…

    • “Medical Industry Pork Package.”

      I have GOT to use that one.

  14. The photograph that headlines this article says it all. He’s Virginia’s Governor. How crass. How humiliating.

Leave a Reply