A Californian’s views on business with China

150 150 Pete Weber

Led by Governor Brown, an American delegation of about 100 business and government leaders arrived in Beijing on April 8th for a ten-day visit to China. These are impressions shared by Pete Weber of California Forward after the Beijing portion of the trip.

As just about everyone knows, China has experienced an amazing transformation, but to see it is to believe it. China adopted the California of the mid 1920s: invest in infrastructure and build great universities. The result is truly impressive. 

One’s first impression on arriving at the Beijing airport is of a massively modern, engineering marvel of a metropolis that is both efficient facility and beautiful city. And that impression remains as you travel into the city, admiring the roadways and one spectacular high rise after another. On Thursday, the delegation traveled from Beijing to Shanghai via high-speed train, part of the largest and most advanced high-speed rail system in the world. 

The capitalistic, entrepreneurial spirit has seized the country. A strong, viable middle class is emerging, now estimated around same size of that in the U.S. (but still a small slice of China). One marvels at the conspicuous consumption: Lamborghini and Maserati dealerships; Rolex, Gucci and Tiffany stores; magnificent 5-star hotels throughout.  Similarly evident are the Chinese work ethic and commitment to customer service, which make travel in China a very pleasant experience. 

Business opportunities abound. China is California’s third largest export market (after Mexico and Canada). Exports reached $14.2 billion in 2011, a four-fold increase in four years. Still, the potential dwarfs those numbers. The Chinese Government’s pivot towards increased domestic consumption makes for huge market opportunities. Every thing California offers, China needs; from high-tech to bio-tech, from clean energy to Ag and food products. 

Almost one quarter of the $6.2 billion invested by China in the U.S. in 2012 was in California. Chinese Deputy Minister of Commerce Wang Chao told us he expects China to invest a minimum of $10 billion in California in the next five years, and possibly as much as $60 billion. Meanwhile, the U.S. is making big investments in China as well, with Disney recently making the largest single investment ever.  

Doing business with China is not for the timid. It’s a bureaucratically and culturally complex process, often influenced by political considerations.  The Chinese like ambiguity in their laws and regulations. It allows them flexibility in the politics of business, but it frustrates their American counterparts.  

And then there is the risk. Investment in China isn’t without peril. They have high internal debt, low returns on invested capital, rising labor costs, serious income inequality, high unemployment among their best educated people (30 percent of college grads are jobless), environmental/health issues, and a population that is demanding better quality of life and, along with the information revolution, more freedoms.

How effectively the Chinese will be able to navigate this difficult terrain is yet to be determined.  If they succeed, infrastructure investment will pay off, much as they did for the investment made by Californians in the Earl Warren/Pat Brown days.

“Investing” in doing business with China is a risk/reward decision that every individual California business must evaluate. But there’s a collective decision for California about which there should be no question: we must re-invest in our infrastructure, or risk being left in the dust. 


Pete Weber

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