Exploring China's investment frontier
Updated: 2012-07-20 07:58
By Trevor Williams (China Daily)
The US can enhance cooperation with China by setting up offices and joining investment forums. Provided to China Daily
US states are quickly setting up offices and making deals in the Middle Kingdom
When Yuncheng Plate Making Co, based in North China's Shanxi province, decided to build a plant in the United States to complement its operations in Mexico, it didn't have to look far for help.
Fortunately, just when the global manufacturer of steel engraving cylinders began eyeing the American market, the company met John Ling, head of the Shanghai office for the South Carolina Department of Commerce.
South Carolina quickly won the company's loyalty with its services and attention to detail, says Henry Yao, vice-president of American Yuncheng Gravure Cylinder Inc.
Not only did the southern state provide property tax credits and workforce training, Ling and his colleagues also did the little things, like hiring a translator so Yuncheng could use its Chinese employees to train new employees.
The $10 million plant, with 16 employees making steel cylinders used mostly for printing labels on food and cigarette packaging, proves that having an office in China sometimes makes a big difference.
"They were involved in our investment from the very beginning. If they were not there, I don't know where we would be now," Yao says.
The need for outreach is driving American states to revamp their strategies for building brand recognition in China, which is becoming a promising source for investment dollars and a key buyer of US products, from cars and computers to chicken feet and scrap paper.
US embassy spokesman Nolan Barkhouse says that US state and local governments have opened more than 30 offices in China, playing an important role that helps identify investment and partnership opportunities of mutual benefit to people from the US and China. They help develop trade, education, tourism and investment ties at the critical local level and are a sign of the increasingly broad and deep ties between the two countries.
South Carolina opened its China office in 2005, when many states were reconsidering their outposts in the country. Ling had been working for the state for five years before that. An exporter of prefabricated buildings to China during the 1990s, Ling was asked to join the state's commerce department in 2000 after helping persuade Haier Group to put a $30 million refrigerator plant in the city of Camden.
Since that deal put South Carolina on the Chinese investment map, Haier has invested $30 million more, and the state has recruited 16 Chinese firms with announced plans to hire more than 2,000 people. That's not counting other large deals that are still in the works, Ling says.
He attributes some of this success to the timely confluence of macroeconomic trends. Labor costs were rising in China while soaring unemployment in the US made states more eager to roll out the red carpet for foreign investors.
In 2007, two years after South Carolina went to Shanghai, Chinese investments in the US more than doubled to $501 million. That trend repeated annually until things leveled off at $5.2 billion in 2010, according to the China Investment Monitor compiled by New York consulting firm Rhodium Group.
But the power of having face-to-face contact with Chinese prospects can't be overestimated, Ling says.
"For right or wrong, Chinese companies or businessmen have been taught that in order to be successful you have to have a good relationship with the local government where you are operating," he says.
The strategy worked with Uniscite Inc, which has committed to investing $70 million in a plant making plastic film near the city of Greenville.
"They invested a lot of time and effort into our industry to better understand our requests," says Fang Wang, Uniscite general manager.
Georgia opened an investment office in Beijing in 2008, later shifting its focus to trade assistance.
The state will soon hire a staffer for a new office in Qingdao that was announced last fall during Governor Nathan Deal's four-city trade mission to China.
The second office will give Georgia, home to the fastest growing port in the US, official ties with a major Chinese port city that has yet to be courted by competing states, according to Georgia's economic development leaders.
California also plans to open two offices in China, gradually rebuilding its presence there after budget cuts shut down the state's commerce department in 2003, forcing the closure of its overseas offices.
The state, which has the largest economy and population of any US state, lacked a similar department until this year, when newly elected Governor Jerry Brown created the Governor's Office for Business and Economic Development, or GoBiz.
In 2011, California's exports to China grew by 20 percent to $12.7 billion. Agriculture accounts for much of that. California produces about 17 percent of all US farm output, and ships thousands of tons of crops across the Pacific Ocean each year, says Brook Taylor, deputy director of communications and policy at GoBiz.
California received $1.5 billion in Chinese investments last year, Taylor says.
The state plans to open an office in Shanghai by the end of this year and one in Beijing sometime next year.
Though California is home to Fortune 500 firms like Google and Apple, the China offices will focus on helping smaller firms, Taylor adds.
Similarly, Virginia's office in China will have a split focus on trade and investment when it opens in the next few months, said Paul Grossman, director of international trade for the Virginia Economic Development Partnership.
Virginia Governor Robert McDonnell, who recently returned from a trade mission to China, has been active in recruiting Chinese investment and promoting the state's exports.
Grossman notes that after Virginia opened its Japan office in 1981, it was five years before the first significant investment materialized from camera maker Canon, which still employs thousands of Virginians.
"We recognize that it's going to take a while to see results. We're prepared for that," Grossman says.
That kind of patience is key as states deepen their engagement with China, says Paul Swenson, a consultant who has represented multiple states over the eight years through The China Hand, his consultancy in Shanghai.
He says many states make the mistake of approaching China like they do Germany, with flashy materials but little time crafting personal connections.
"China's not a parachute-in type of a market; it's a relationship market and those relationships take years to develop," says Swenson, who currently represents the southern state of Mississippi and the northwestern state of Oregon.
He recommends that states establish standalone offices for recruiting Chinese investors but says they should band together when focusing on trade.
All in all, he underscores that having a presence on the ground is vital to reaching Chinese executives at the point of decision and responding quickly to their requests for information.
"We've won some contracts simply because we've been the fastest to reply to their enquiries," says Swenson, who is also the president of the Council of American States in China, a membership organization that promotes the interests of state offices in China.
CASIC counts 34 state offices, including ports authorities, trade agencies, investment centers and others, Swenson says.
Todd Balazovic contributed to this story.
(China Daily 07/20/2012 page16)