Economic Development

California Governor Heads to China Seeking Big Investments

In his first official trip abroad since taking office in 2011, Gov. Jerry Brown is going to China to promote California exports, tourism and greenhouse gas reduction policies, and to open a foreign trade office in Shanghai.
by | April 8, 2013

By David Siders

In 1977, during a visit to Japan when he was governor before, Gov. Jerry Brown suggested a side trip to China and hastily made arrangements before abandoning the idea.

"I think it's too jet-setty," Brown told Orville Schell, who was traveling with the governor and included the exchange in the 1978 book "Brown." "I think such a fast trip to China would be too flaky, and I've got to watch that."

Thirty-six years later, Brown has found more time, and China is eager to accommodate him.

In his first official trip abroad since taking office in 2011, Brown leaves for China on Monday to promote California exports, tourism and greenhouse gas reduction policies, and to open a foreign trade office in Shanghai.

"I think we're going to get billions of dollars in investment coming from China," Brown said last week. "We're also going to facilitate billions of dollars in additional exports, not overnight, but over time."

Brown has been planning the trip for more than a year.

In late 2011, he consulted privately on the matter with Schell, business strategist Peter Schwartz and e-commerce tycoon Jack Ma, one of China's richest men.

Over dinner at Schwartz's home, Brown expressed his interest in raising Chinese capital for a range of projects in California, including public infrastructure.

Brown's dinner companions were encouraging. Schwartz and Schell, director of the Center on U.S.-China Relations at the Asia Society in New York, suggested Brown invite China's then-president-in-waiting, Xi Jinping, to California.

The politicians met in Los Angeles in February 2012, and Brown announced his trade mission the following week.

He will be joined by a handful of advisers and about 75 business delegates. His schedule includes seven days of lunches, forums and signings of government-to-government agreements in Beijing, Nanjing, Shanghai, Guangzhou and Shenzhen.

Brown's predecessor, Gov. Arnold Schwarzenegger, visited China in 2010, but the state has not had an official presence there since California closed its 12 foreign trade offices amid controversy in 2003.

At the time, the Legislative Analyst's Office and other critics questioned the effectiveness and cost of California's trade offices. The one outpost that remained open for several years on private donations, in tiny Armenia, was widely mocked as less than significant.

The China office Brown will open in Shanghai will be financed by private donations, the Brown administration said. It will be operated by the Bay Area Council, a business group, but it will carry the state's imprimatur, representing a return for California to the state-managed promotion of foreign trade.

"There are, you know, more formal protocol expectations in foreign countries than there are in the United States," said Allan Zaremberg, president of the California Chamber of Commerce. "Having the ability to respect their economy and government by putting an office there is part of the protocol that leads to better relationships."

'Big-ticket deals' sought

China is California's third-largest trading partner, behind Mexico and Canada. California's merchandise export trade with China amounted to about $14 billion last year, and China is an emerging -- if relatively small -- source of foreign direct investment in the United States.

For Brown, said Schell, "The real thing is to clinch some big-ticket deals."

According to an October report for the Asia Society by the research firm Rhodium Group, California attracted about $1.3 billion in investment deals from China from 2000 to 2011, with the largest investments in the software and information technology, leisure and entertainment and communications industries.

The analysts said the state has the potential to attract $10 billion to $60 billion in direct investment from China by 2020.

Brown has spoken only generally about the type of investment he is seeking from the world's second-largest economy. When he announced the trade mission last year, he said only that potential investments could involve "agriculture, technology, infrastructure and any other area that makes sense for both California and Chinese investors."

James McGregor, a longtime China observer and a senior counselor at the public affairs firm APCO Worldwide in Beijing, said "there are a lot of Chinese private investors who are going around buying wineries, buying golf courses."

The country is "chock-full of cash," McGregor said, and investors are yearning "to get some of it out."

In a report last month, Brown's Office of Business and Economic Development, or GO-Biz, called China-related opportunities "enormous."

Yet the direct effect of any one trade mission or trade office is difficult to measure -- even for an administration promoting the effort.

The GO-Biz report said Brown's trade mission, trade office and related activities "are intended to assist at least 60 California enterprises and investment projects with business development with Chinese partners," but it acknowledged "it is not possible to forecast a specific dollar goal."

Jock O'Connell, international trade adviser for the economics consulting firm Beacon Economics, said excitement about a trade office often suggests a "really superficial understanding of the complexity of doing business internationally."

However, O'Connell said, "Unlike the past, where the focus has been on export promotion ... they're actually more interested in using the office to try to attract investment to California, which makes an awful lot of sense."

O'Connell said Brown's statements "indicate he is aware that there's a much bigger payoff to be had in trying to get the Chinese to invest here."

Initial skepticism on trip

The foreign trade office has a budget of about $1 million annually. State and Bay Area Council officials expect to use the office to help California companies gain access to Chinese officials and business leaders and promote opportunities in California to business interests in China.

Though the office will be funded by private donations, the state is not without a financial stake. The administration plans to dedicate the equivalent of three full-time employees to international affairs and business development, at a cost of about $344,000 a year. About one-third of those employees' time will be dedicated to China-related initiatives, according to the state.

The business leaders accompanying Brown to China paid a participation fee of $10,000 each, which is to cover expenses while in China. They were promised meetings with "high-ranking officials" and a series of promotional events.

Delegate fees are covering the cost of Brown's travel, organizers said.

China is a common destination for U.S. governors, and at least three other governors are expected to be in China while Brown is in the country.

Last year, at the meeting in Berkeley, Schwartz said Brown was initially "somewhat skeptical" about the trip, "not because he didn't think it could be important, but was this really going to lead anywhere."

When the governor became convinced that it could, Schwartz said, "we went ahead and pursued the meeting (with Xi), and the meeting went well."

"From an economic point of view," Schwartz said, "there's no more interesting game in the world today than China."

(c)2013 The Sacramento Bee

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