On his 2006 visit to the US, Chinese President Hu Jintao took an interesting detour. Before landing in Washington DC, he stopped in Washington state, where he dined at Bill Gates’s house in Medina, a suburb of Seattle, and met with other state political and business leaders.
According to reports, Hu told Washington Governor Christine Gregoire that he did not choose the Seattle entry point simply because of its proximity to China, but because "[the] state enjoys very good cooperative relations with my country."
Better, apparently, than relations with the federal government at the time. When Hu arrived at the White House, he was snubbed for dinner and offered mere lunch instead.
Ties between Washington state and China go back a long way. In 1906, Prince Dai Ze of the Qing dynasty also stopped in Seattle before proceeding on to the east coast. In 1979, the first Chinese cargo vessel to arrive in the US after China re-opened its doors to foreign trade also docked in Seattle, where it took on 370,000 metric tons of US corn.
"That was the first time that a Chinese cargo ship had entered a US port in 30 years," said Charlie Sheldon, managing director of the seaport division at the Port of Seattle.
Cultural linkages are also stronger than many other US states. Washington has the fourth largest Asian population in the country, which includes a significant proportion of ethnic Chinese residents. The state elected the first Chinese-American state governor, Gary Locke, who spent much of his term facilitating economic relations with China.
Beijing remains appreciative. According to a diplomatic source, when Locke visits China, he is received like a head of state. This no doubt played a role in the Obama Administration’s decision to appoint Locke US Secretary of Commerce.
Washington, which has the most trade-dependent economy in the US, is highly motivated to maintain the warm feelings. One in three jobs in the state derives from trade, in particular from trade with China. This is not just because of "cooperative relations," but also simple geography. It takes only 10 days for container ships leaving Shanghai to reach Washington’s ports in the Puget Sound, the shortest shipping time between China and the US. From there, on-dock intermodal rail delivers the freight to the rest of the North American market.
The economic relationship is not limited to imports, however. Led by Washington-based firms like Boeing (which is now headquartered in Chicago, but still assembles aircraft in Washington), Microsoft, Starbucks and the various secondary subcontracting firms surrounding them, Washington is second only to California in exports to China. This is despite the fact that it has less than a fifth of California’s population – or, from another perspective, one-third of Shanghai’s.
In 2008, those exports totaled US$9.93 billion, making China Washington’s single largest trading partner. According to the Washington Council on Trade, the state actually enjoys a net trade surplus with China.
"I think you’ve got a solid dynamic for this state to pay very special attention to China," said Joseph Borich, President of the Washington State China Relations Council (WSCRC).
Impressive as these trade figures may be, Spencer Cohen, research manager at the Washington State Department of Community, Trade and Economic Development (CTED), advises some caution. Many of the goods imported from China into Washington may come through different entry points, making their provenance difficult to track, he said. The export statistics may be similarly exaggerated, as they include everything passing through Washington, including goods that are neither produced locally nor undergo any significant transformative process in the state prior to export.
"Before people would give out numbers and say that our number three export was oil seeds, 90% of which were soy." said Cohen, "We don’t even produce soy beans in Washington state."
At the same time, some locally produced exports are not accounted for, notably services. The WSCRC’s Borich cites leading US architectural firms Callison, MulvannyG2 and NBBJ as examples. All are Seattle-based and he estimates they do 15-20% of their global business in China. Nor do trade figures reflect the millions of dollars in logistics and related fees Washington service providers earn from trade.
While trade remains important, it appears that both sides are in the process of changing their priorities, looking less at facilitating the simple movement of goods and more toward encouraging deeper investment relationships. To that end, the state government signed a memorandum of understanding with China’s Ministry of Commerce in 2007 concerning the promotion of bilateral investment.
In May, Washington state’s International Trade and Development China office held a symposium in Shanghai on attracting Chinese outbound investment. It was a chance for the state to show off its technical expertise, particularly in life sciences and cleantech, areas in which there are plenty of gifted players without the profile of a Boeing or a Microsoft.
"We had a lot of pharma and cleantech companies come [to the symposium]," said James Ku, China office representative for Washington’s State’s International Trade and Economic Development Division in Shanghai. "High-tech is where we’re focusing now because that’s where our strengths lie. Companies want to go to Washington because they want the access to skilled labor."
The state ranks in the top 10 in the US for residents holding a university degree or higher, and more than 20% of the population have advanced degrees. Washington is also home to a number of leading research facilities.
Attending investment fairs is the easy part, though. Committing capital is another thing, and there has as yet been no explosive growth in Chinese direct investment in Washington. For example, while the state is keen to promote its green technology cluster as an investment target, Lucy Dai, chief representative for the Trade and Development Division in Shanghai, notes that many Chinese municipalities, despite their green ambitions, often don’t know which technologies could help them.
At the same time, some Chinese investors may be dissuaded by Washington’s fiscal environment. At first glance, the tax structure appears business-friendly – there is no levy on personal income, corporate income, business inventory, interest, or dividends arising from capital gains. However, this means the state’s pockets are shallow when it comes to offering upfront incentives to newcomers. Additionally, the state’s business operating tax is based on revenue, which means loss-making companies must still pay state tax, a disincentive for new ventures.
Nevertheless, it does appear that Chinese firms are beginning to take the first steps into Washington. Chinese outsourcing provider iSoftStone Technology, acquired Seattle-based Akona Consulting in February for an unspecified sum and opened a representative office in March. Meanwhile, Mindray, a medical device manufacturer, has set up its US headquarters and an R&D center in Redmond.
According to CTED, other Chinese firms that have invested in the state include Longtop, Loci, QianFan Technology and eTalkup.
In the long run, it appears that Washington state is in a good position to consolidate its advantage when it comes to doing business with the mainland – provided differences between Beijing and the other Washington remain on track.