US trade with China a big deal

It’s all about get­ting a piece of the roar­ing ac­tion from the world’s most pop­u­lous coun­try and largest mar­ket. In 2014, US states and ci­ties had China on their minds, WIL­LIAM HEN­NELLY re­ports from New York.

China Daily (Canada) - - IN DEPTH -

Some­thing about do­ing business with China that makes Amer­i­can states and even ci­ties act like their own coun­tries. Some states, such as Cal­i­for­nia and Texas, which have gross state prod­ucts larger than most na­tions’ GDPs, reg­u­larly send their top of­fi­cials to all cor­ners of the Chi­nese main­land in search of com­merce.

The states’ ef­forts are nat­u­rally sup­ported by the US gov­ern­ment, as the Com­merce Depart­ment re­cently con­cluded the 25th US-China Joint Com­mis­sion on Com­merce and Trade (JCCT) talks in Chicago.

Gover­nors Rick Perry of Texas and Rick Sny­der of Michi­gan have made sev­eral trips to China. Sny­der has been there four times, and last month was in Guangzhou and Shenyang urg­ing Chi­nese com­pa­nies to set up shop in Michi­gan. Perry toured Beijing and Tian­jin in Septem­ber and had vis­ited Shang­hai four years prior.

May­ors get in on the act, too. Los An­ge­les’s Eric Garcetti vis­ited Beijing in Novem­ber; Chicago’s Rahm Emanuel was in China in 2013. Next month, Min­neapo­lis’ Betsy Hodges will travel to “City of Ice” Harbin for ad­vice on in­creas­ing cold-weather tourism in her city. China’s kind of town, Chicago is

Chicago’s land­ing the JCCT was a coup for an event that usu­ally oc­curs in Wash­ing­ton. US Com­merce Sec­re­tary Penny Pritzker, a Chicago na­tive, and US Trade Rep­re­sen­ta­tive Michael Fro­man hosted the Chi­nese gov­ern­ment del­e­ga­tion, and for the first time, the JCCT sched­ule in­cluded events to fa­cil­i­tate pri­vate sec­tor en­gage­ment.

“We had the op­por­tu­nity to hear from our re­spec­tive pri­vate sec­tors,” Pritzker said Dec 18 on a press con­fer­ence call. Pritzker said the two na­tions made progress on med­i­cal and phar­ma­ceu­ti­cal is­sues, and agreed to work to­gether to com­bat il­le­gal fish­ing and on the fair en­force­ment of China’s anti-mo­nop­oly laws.

Thirty years ago, said Pritzker, US-China trade amounted to less than $5 bil­lion. To­day, it to­tals $617 bil­lion. She said that 7.3 mil­lion Chi­nese are ex­pected to travel to the US by 2021 un­der a new ex­tended-visa pol­icy, amount­ing to $8.5 bil­lion per year for the econ­omy and up to 440,000 jobs.

Pritzker and US Sec­re­tary of En­ergy Ernest Moniz will lead a mis­sion to China next April to fo­cus on in­dus­tries sup­port­ing smart ci­ties and smart growth, a visit Pritzker de­scribed as a “su­per trade mis­sion to China”.

Chicago is us­ing some of its in­dus­trial mus­cle to com­pete with the great port ci­ties in Cal­i­for­nia, Texas and Wash­ing­ton state. China is Chicago’s sec­ond-largest trad­ing part­ner after Canada.

In De­cem­ber, Chi­nese real es­tate gi­ant Dalian Wanda Group an­nounced it would invest $900 mil­lion in a river­front res­i­den­tial and ho­tel tower in Chicago.

When Emanuel vis­ited China, he signed a gate­way ci­ties agree­ment with China’s Min­istry of Com­merce that es­tab­lished sis­ter-city re­la­tion­ships with Beijing, Shang­hai, Tian­jin, Qing­dao, Shenyang, Hangzhou, Wuhan and Chengdu; those ci­ties sent rep­re­sen­ta­tives to JCCT.

“In­creas­ing op­por­tu­ni­ties for trade be­tween Chicago busi­nesses and their Chi­nese coun­ter­parts is crit­i­cal to the con­tin­ued growth of our city’s econ­omy,” Emanuel told the Chicago Tri­bune.

“China is now our state’s largest trad­ing part­ner and the des­ti­na­tion for more than one-fifth of Wash­ing­ton state ex­ports,” Kristi Heim, ex­ec­u­tive di­rec­tor of the Wash­ing­ton State China Re­la­tions Coun­cil, wrote in an e-mail to China Daily. “The value of Wash­ing­ton ex­ports to China was $16.7 bil­lion last year, nearly dou­ble the value of ex­ports to the next largest mar­ket, Canada.

“One rea­son why ex­ports con­tinue to climb is that Wash­ing­ton has a great di­ver­sity of prod­ucts that ap­peal to China’s grow­ing mid­dle class, from air­planes to med­i­cal de­vices to seafood and fruit,” said Heim. “E-com­merce is now help­ing smaller com­pa­nies find mar­kets in China. Wash­ing­ton farm­ers sold tons of cher­ries to Chi­nese con­sumers ear­lier this year through on­line com­merce sites in China and char­ter flights from Seat­tle to Shang­hai.”

Wash­ing­ton state in sweet spot Heim said the “cherry char­ters” helped farm­ers find new mar­kets for per­ish­able fruit.

“We have seen great in­ter­est from Alibaba in ex­pand­ing here,” she said. “The company re­cently opened an of­fice in down­town Seat­tle and plans to ex­pand its en­gi­neer­ing staff. Man­agers from Alibaba’s Tmall have vis­ited Seat­tle a num­ber of times, and we’ve helped in­tro­duce them to lo­cal com­pa­nies. They held a spe­cial pro­mo­tion for Wash­ing­ton state fea­tur­ing our gov­er­nor, Jay Inslee, and brands such as Star­bucks and Costco, Al­mond Roca and Wash­ing­ton wines and pears.”

Costco has been sell­ing its prod­ucts in China on Tmall Global since Oc­to­ber.

“In­vest­ment deals from China have mostly in­volved real es­tate, trans­porta­tion and con­struc­tion, but tech­nol­ogy is an area where we ex­pect to see grow­ing in­ter­est and more deals in the next year,” Heim said. “Ed­u­ca­tion is also very popular, with new schools and ed­u­ca­tion com­pa­nies start­ing up here.”

One project that has at­tracted Chi­nese in­vestors is a water­front de­vel­op­ment and 350-room ho­tel on Lake Wash­ing­ton, next to the Boe­ing fac­tory in Ren­ton. Another large project in­volves an in­vest­ment by Shang­hai Bi Ke Clean En­ergy Tech­nol­ogy Co and Dalian Xizhong Is­land Petro­chem­i­cal Park.

The state is the largest ex­porter of all com­modi­ties to China of any US state. The top ex­port prod­ucts in­clude civil­ian air­craft (Boe­ing’s Com­mer­cial Air­planes di­vi­sion in Ren­ton, Wash­ing­ton) and fruits, vegetables and grains, such as soy­beans, wheat, ap­ples, corn and pota­toes. Texas means business “You may see that the fu­ture of the United States is the Cal­i­for­nia model or the Texas model,” James Chen, Asia-Pa­cific re­gional di­rec­tor for the Texas gov­er­nor’s of­fice of Eco­nomic De­vel­op­ment and Tourism, told China Daily, in ref­er­ence to how states are ap­proach­ing com­merce. “Our ma­jor com­peti­tor is Cal­i­for­nia. We are even do­ing bet­ter than New York now.”

“Oil, gas, def­i­nitely here,” Chen said of what the state of­fers Chi­nese com­pa­nies. “High tech, maybe Sil­i­con­Va­l­ley, and def­i­nitely Austin.”

“We try to help with a site search,” Chen said. “Most small to mid-sized com­pa­nies ben­e­fit more from our help. They don’t have a struc­tured BD (business de­vel­op­ment) di­vi­sion.”

“I re­ceive an e-mail some­times from the Guangzhou con­sulate re­fer­ring com­pa­nies that are in­ter­ested in Texas,” Chen said. “If a US company would like to go there, we share with them the con­tact to the Con­sulate Gen­eral of­fice in Hous­ton.”

En­ergy com­pa­nies CNOOC, CNPC, PetroChina and Sinopec USA all do business in Texas.Telecom­mu­ni­ca­tions gi­ant Huawei Tech­nolo­gies has its US head­quar­ters in Plano.

Rep­re­sen­ta­tives of the China In­ter­na­tional Con­trac­tors As­so­ci­a­tion, as­so­ci­ated with China’s Min­istry of Com­merce, vis­ited Hous­ton in Novem­ber, for a meet­ing with the Greater Hous­ton Part­ner­ship. The group rep­re­sents 20 China State-owned en­ter­prises, and Chen said they will re­turn next year.

In 2013, with $10.8 bil­lion in ex­ports, China was Texas’ fourth-largest ex­port des­ti­na­tion. The state’s ma­jor ex­ports are in­dus­trial and elec­tric ma­chin­ery, chem­i­cals, plas­tics and min­eral fuel.

Texas im­ported $42.8 bil­lion worth of Chi­nese goods, mak­ing China sec­ond among the state’s trad­ing part­ners. The top im­ports in­clude elec­tric and in­dus­trial ma­chin­ery, fur­ni­ture, toys and iron or steel prod­ucts. Chi­nese com­pa­nies have spent $22.2 bil­lion to ac­quire Texas com­pa­nies in the last decade. Mo­tor City moves Michi­gan’s gov­er­nor has vis­ited China each year since tak­ing of­fice in 2011.

“We are al­ready see­ing sig­nif­i­cant Chi­nese in­vest­ment in Michi­gan, but this is just the be­gin­ning of what we have to of­fer the China mar­ket,” Sny­der said in Novem­ber.

Chi­nese money is help­ing Detroit to re­gain its past in­dus­trial glory. Chi­nese in­vest­ment in Michi­gan has nearly dou­bled from $890 mil­lion in 2010 to $1.6 bil­lion, mostly in the au­to­mo­tive in­dus­try, ac­cord­ing to data com­piled by Rhodium Group, a New York re­search firm.

“Ma­jor in­vest­ments from China will lever­age Michi­gan’s in­dus­trial power,” said Brian Con­nors of the Michi­gan Eco­nomic De­vel­op­ment Corp. Con­nors told China Daily that about 10,000 jobs have been cre­ated from Chi­nese in­vest­ments.

China Au­to­mo­tive Sys­tems, based in Hubei prov­ince, is an auto-parts sup­plier. Its shares were listed on Nas­daq in 2004, and it now sup­plies power steer­ing sys­tems to Ford, Gen­eral Mo­tors and Fiat Chrysler.

“The head­quar­ters of all the Big Three are around here, so def­i­nitely you have a lot of tal­ent,” said Haimian Cai, head of North Amer­i­can op­er­a­tions for China Au­to­mo­tive.

Michi­gan is home to 87,000 en­gi­neers, 70,000 R&D pro­fes­sion­als and 75,000 skilled trades peo­ple — the largest avail­able skilled la­bor force and the fourth-largest high-tech­nol­ogy work­force in the US.

Chi­nese au­tomak­ers are strug­gling with com­pe­ti­tion from for­eign mak­ers. Only around 40 per­cent of cars sold in China are na­tional brands, and China’s au­tomak­ers must cope with con­sumers’ pref­er­ence for larger, more re­li­able and more lux­u­ri­ous cars.

China wasn’t a fac­tor in au­tomak­ing un­til the late 1970s, while Detroit has been a car town for more than a cen­tury. That her­itage has in­ter­ested China, as more than 100 auto-re­lated com­pa­nies have set up in Michi­gan. Chang’an Au­to­mo­bile Group, which has a joint ven­ture with Ford in China, is re­ly­ing on its Detroit re­search cen­ter to de­velop the chas­sis for its higher-end ve­hi­cles.

“Au­tomak­ers are now op­er­at­ing on a global scale, and we need to find where the power of pur­chase and decision is,” said Cai, re­fer­ring to Detroit. Golden State strength Los An­ge­les Mayor Garcetti re­cently vis­ited Beijing to pro­mote Hol­ly­wood, Dis­ney­land and other Golden State trea­sures.

“Los An­ge­les is a global city and the Amer­i­can cap­i­tal of en­ter­tain­ment, man­u­fac­tur­ing and in­ter­na­tional trade,” Garcetti said on his visit in Novem­ber. “I look for­ward to a new level of ex­change and part­ner­ship that will bring pros­per­ity for ev­ery­one on both sides of the Pa­cific.”

China is Cal­i­for­nia’s third-largest ex­port des­ti­na­tion, with ap­prox­i­mately $16.4 bil­lion in goods and ser­vices, ac­cord­ing to the Cal­i­for­nia Cham­ber of Com­merce. Com­puter and elec­tronic prod­ucts make up about 31 per­cent of ex­ports.

XLD Group, a US sub­sidiary of China-based Sichuan Xingl­ida Group, pur­chased the 1,004room Los An­ge­les Air­port Mar­riott for $160 mil­lion on Dec 16. In late 2013, XLD bought a 17-story Mar­riott ho­tel in Tor­rance, Cal­i­for­nia, for $74 mil­lion.

The Chi­nese real es­tate de­vel­oper Hazens In­vest­ment com­pleted the ac­qui­si­tion of the Sher­a­ton Gate­way Ho­tel in Los An­ge­les for $96 mil­lion.

A Bay Area Eco­nomic In­sti­tute re­port said that China be­came Cal­i­for­nia’s top source of in­ter­na­tional vis­i­tors in 2012, with some 677,000 Chi­nese tourists spend­ing almost $2 bil­lion. Some of that business is re­cip­ro­cal: the re­port noted that China is the No 2 coun­try for Bay Area busi­nesses abroad, with 795 af­fil­i­ates.

San Francisco is now the third US des­ti­na­tion for Guangzhou-based China South­ern Air­lines.

“China South­ern Air­lines will fur­ther ac­cel­er­ate friendly com­mu­ni­ca­tions be­tween China and the US, bet­ter meet the needs of trade de­vel­op­ment in Guangzhou, Wuhan and San Francisco, and speed up bi­lat­eral po­lit­i­cal, cul­tural and peo­ple-to-peo­ple ex­changes,” said Yang Li­huang, ex­ec­u­tive vice-pres­i­dent of China South­ern Air Hold­ing Co.

One Chi­nese of­fi­cial said Hangzhou, in Zhe­jiang prov­ince, is go­ing to be­come the most at­trac­tive Chi­nese city for Americans, par­tic­u­larly Cal­i­for­ni­ans, to visit.

“First, Amer­i­can peo­ple love Chi­nese silk and green tea, and now they are wel­come to visit Hangzhou, the cra­dle of silk and tea,” said Zhao Hongzhong, the vice-chair­man of the Hangzhou Tourism Com­mis­sion.

“Hangzhou is the city that has the Chi­nese style with its West Lake and Grand Canal,” Zhao said.

“Sec­ond, Hangzhou is a city full of business op­por­tu­nity. Alibaba, now the world’s sec­ond-largest In­ter­net company, was born in Hangzhou city.”

Some news broke dur­ing JCCT, as the US con­firmed heavy im­port du­ties on so­lar prod­ucts from China. Anti-dump­ing du­ties for Chi­nese goods were set as high as 165 per­cent as the US unit of Ger­man so­lar man­u­fac­turer So­larWorld sought to close a loop­hole that al­lowed Chi­nese pro­duc­ers to avoid du­ties from 2012.

While on the trade front there have al­ways been sus­pi­cion and wari­ness be­tween the coun­tries about the dump­ing of prod­ucts, cur­rency val­u­a­tions and sen­si­tive tech­nol­ogy, Chi­nese for­eign di­rect in­vest­ment (FDI) in the US is con­tin­u­ing apace.

China Min­istry of Com­merce of­fi­cials pre­dict an out­bound FDI record of $120 bil­lion glob­ally for 2014, on track to soon sur­pass in­bound flows.

Through Septem­ber, China has in­vested $7 bil­lion in 93 deals in the US, ac­cord­ing to Rhodium Group.

Cal­i­for­nia has 32 deals worth $1.9 bil­lion; fol­lowed by New York, with 13 worth $813 mil­lion; and Texas with six deals val­ued at $218 mil­lion.

In 2014, the most deals have been in en­ter­tain­ment and real es­tate, $2.22 bil­lion. In­for­ma­tion tech­nol­ogy has seen 16 deals with a value of $2.83 bil­lion. Four­teen deals in health and biotech to­taled $913 mil­lion, and 11 deals in au­to­mo­tive and avi­a­tion for $548 mil­lion.

Chi­nese FDI has to­taled $82 bil­lion from Jan­uary to Oc­to­ber world­wide, up 18 per­cent year on year. Growth was re­ported to be par­tic­u­larly strong in the third quar­ter.

Re­cent re­forms in China have re­duced ap­proval re­quire­ments and red tape for Chi­nese firms in­vest­ing over­seas.

In De­cem­ber 2013, the State Coun­cil abol­ished many re­stric­tions and ap­proval re­quire­ments for out­bound FDI, which re­sulted in more le­nient poli­cies by the two main reg­u­la­tors, the Na­tional De­vel­op­ment and Re­form Com­mis­sion and the Min­istry of Com­merce, Rhodium’s Thilo Hane­mann wrote in a Dec 1 re­port. Ef­fec­tively, Chi­nese firms now need to reg­is­ter only with the two reg­u­la­tors if they invest less than $1 bil­lion in low-risk economies.

China’s global out­bound FDI ac­cel­er­ated in the third quar­ter; Chi­nese firms spent $3.1 bil­lion on FDI trans­ac­tions from July to Septem­ber, ac­cord­ing to Rhodium. That in­cludes Len­ovo’s ac­qui­si­tion of IBM’s x86 server business.

A Min­istry of Com­merce re­port on Dec 16 said that out­bound di­rect in­vest­ment by Chi­nese en­ter­prises could ex­ceed in­bound for­eign di­rect in­vest­ment for the first time this year. China’s non­fi­nan­cial over­seas di­rect in­vest­ment (ODI) rose 11.9 per­cent to $89.8 bil­lion dur­ing the first 11 months, while non­fi­nan­cial FDI was up just 0.7 per­cent to $106.2 bil­lion.

Chi­nese in­vestors have spent more than $3 bil­lion on com­mer­cial prop­erty in the US over the past four quarters, mak­ing it the year’s top sec­tor.

No­table real es­tate deals were the An­bang In­surance Co’s ac­qui­si­tion of the Wal­dorf As­to­ria Ho­tel in New York in Oc­to­ber for $1.95 bil­lion, and ear­lier this month, Bank of China’s pur­chase of 7 Bryant Park, a Man­hat­tan sky­scraper, for a re­ported $600 mil­lion.

In Wash­ing­ton, though, law­mak­ers have pushed leg­isla­tive mea­sures that would sig­nif­i­cantly tighten reviews for for­eign in­vest­ment, in re­sponse to grow­ing Chi­nese FDI. While there is good­will with many deals, there also is some sus­pi­cion in Wash­ing­ton about the ex­tent and type of Chi­nese in­vest­ment.

Out­side of FDI, tra­di­tional trade for goods and ser­vices be­tween the US and China surged in Oc­to­ber, ac­cord­ing to the US Cen­sus Bureau. The US im­ported $45.2 bil­lion in goods and ser­vices in the month, while ex­ports reached $12.7 bil­lion.

The fig­ures for both coun­tries were the monthly highs so far for 2014. The US saw ex­ports jump by more than $3 bil­lion in Oc­to­ber, re­duc­ing its cur­rent ac­count deficit with China by $3 bil­lion to $32.6 bil­lion. Chal­lenges re­main The trade re­la­tion­ship be­tween the two coun­tries still runs into road bumps, as the so­lar tar­iffs show.

The US House of Rep­re­sen­ta­tives passed a fis­cal year 2015 ap­pro­pri­a­tions bill on Dec 11 that, ac­cord­ing to Sun Ji­wen, spokesman for China’s Min­istry of Com­merce, “vi­o­lates the rule of fair trade and sends wrong sig­nals. China ex­presses dis­sat­is­fac­tion and strong op­po­si­tion to this.”

In the bill, ap­pro­pri­a­tions can­not be used to im­port pro­cessed poul­try prod­ucts made in China for Chi­nese meal pro­grams in US schools.

Also, some US gov­ern­ment de­part­ments are pro­hib­ited from pur­chas­ing in­for­ma­tion tech­nol­ogy sys­tems made by Chi­nese com­pa­nies, and the is­suance of com­mer­cial satel­lite li­censes to China is not al­lowed.

“Th­ese clauses would not only af­fect nor­mal business co­op­er­a­tion be­tween com­pa­nies of the two coun­tries, but also dam­age the US’ own in­ter­ests,” Sun said. “China urges the US to take sub­stan­tial mea­sures and cor­rect its wrong prac­tices, thus cre­at­ing a good en­vi­ron­ment for the healthy de­vel­op­ment of China-US eco­nomic and trade re­la­tions. Con­tact the writer at williamhen­nelly@chi­nadai­ Lu Hui­quan in New York, Chen Weihua in Wash­ing­ton, May Zhou in Hous­ton, Lian Zi in San Francisco, Pu Zhendong in Beijing and Reuters con­trib­uted to this story.

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