The Challenge of China

China is a hot potato. In March I addressed the anxiety, complexity and--ultimately--benefits surrounding economic ties with China, specifically investment by Chinese companies in the United States.

Since then, the 2012 US Presidential campaign has officially launched, and public rhetoric surrounding relations with China has heated up. The dialogue was punctuated last week by comments from candidate Mitt Romney in New Hampshire, hinting at the need to reconsider terms on which the US conducts trade with China--partly in response to the very real, ongoing intellectual property issues that factor into trade and exchange with Chinese companies.

The challenges associated with doing business with China are real. However, the opportunities are also. And off the national campaign trail a different tact--relationship building--is being pursued across party lines, at the state and regional levels. At the state level: next weekend, July 15-17, the 103rd meeting of the Nation's Governors takes place in Salt Lake City. The weekend will also play host to the first US-China Governors Forum, in which Chinese provincial leaders will join their US counterparts for a series of in-person exchanges on trade, investment, energy and environment. The Forum is a by-product of the ongoing US-China Strategic Economic Dialogue.

The regional-level outreach that is bubbling up is driven by the recognition that China is vast, Chinese investors tend to have greater familiarity with the US coasts than they do the heartland and cohesive regional voices serve as powerful means of introduction--more powerful than individual states are able to deliver solo. Two terrific examples are the Midwest US-China Association (MWCA), led by former Missouri Governor Bob Holden--a Democrat, and the Southern Governors Association's program to build strong economic ties with China, championed originally by former Alabama Governor Bob Riley--a Republican--when he was at the helm of the SGA.

The collaboration represented by these two initiatives is unprecedented--and innovative--and has resulted, in the case of the MWCA, in real dollars and jobs coming into the US, in the form of a $46 million investment in a new 600 employee sucralose plant in Moberly, MO. As a Missouri native and a regional cheerleader, Holden is quick to point out that the Chinese investors were presented with multiple sites in multiple states as potential investment alternatives--that the investment was ultimately in Missouri is pure coincidence.

This influx of dollars makes it tangible: relations with China are in no way a zero-sum game. Last week, on the same day that candidate Romney made his comments in New Hampshire, the acquisition of Cirrus Aircraft closed. Based in Duluth, Minnesota, Cirrus was acquired by China Aviation Industry General Aircraft. There were hints that the company would have declared bankruptcy, forcing it to close plants, shed jobs in Minnesota and North Dakota, had it not been for the Chinese investment. Yesterday and today in St. Louis, MO, Governor Holden and the MWCA are hosting a delegation from Nanchang, China.

In May, sponsored by the Asia Society and the Woodrow Wilson Center, Rhodium Group published an excellent in-depth report entitled An American Open Door? Maximizing the Benefits of Chinese Foreign Direct Investment. You can download the report here. It's accompanied by a user-friendly interactive map detailing levels of Chinese direct investment since 2003 on a state-by-state and industry-by-industry basis, by ownership of Chinese company--state or private--and by type of investment--greenfield or acquisition.

Also in May, Steve Orlins, President of the New York-based National Committee on US-China Relations, spoke on C-Span about the history of US-China trade relations, exchange rates and intellectual property issues. His comments, colored by his time spent in China and Southeast Asia as an attorney, investment banker and private equity investor, provide valuable context to current relations. The video segment is here.