September 3, 2012

Malloy, Smith go fishing for China trade ties

Photo / CNN
Photo / CNN
Hong Kong, the thriving commercial center that is separate yet still part of China, is among the stops on the ambitious five-stop trade tour being undertaken by Gov. Dannel P. Malloy and his economic development czar, Catherine Smith.

As Gov. Dannel P. Malloy begins his trek halfway across the world next week to China, Connecticut business and government officials see that nation as a key future ally in economic development.

Growing exports and attracting foreign direct investment from China is the ultimate goal, officials said, but the first step will to establish stronger relationships in a country whose remarkably different business environment poses challenges.

In many ways, however, Connecticut firms have already benefitted from China's fast economic growth in recent years. The Asian country is Connecticut's fifth largest export destination with nearly $1 billion in goods being shipped there annually.

That is up over 1,000 percent from nearly a decade ago.

But the potential for more growth is immense, with Chinese investors sitting on nearly $3 trillion in reserves and an appetite to flex their economic muscles internationally.

“China's economy is growing three or four times faster than ours, so the opportunities for building our businesses there and helping them expand here seems ripe for the picking,” said Catherine Smith, commissioner of the Department of Economic Community and Development.

Smith, who will accompany Malloy on the eight-day trip, said the focus on China is part of a broader international economic development strategy now being formulated by her office. The $20,000 trip to China is being funded by taxpayers.

The new strategy includes reshaping efforts to attract foreign direct investment and beefing up staffing levels at DECD. The state's economic development agency recently hired Beatriz N. Gutierrez, a former global marketing and business development official at General Electric and Gerber Scientific, to head Connecticut's international development planning. Her office will focus on emerging countries whose economies have withstood the economic doldrums of the last few years. That includes China as well as Brazil and Latin American countries.

Smith said diversifying into new, emerging markets is especially important now as Europe, which has traditionally been Connecticut's top trade partner, is experiencing severe financial stress that is likely to linger for the foreseeable future.

In 2011, France and Germany were Connecticut's top export destinations with $2 billion and $1.4 billion in goods shipped there last year.

“We are transitioning from our sole dependence in more mature markets to much more rapidly growing countries along the Pacific Rim and South America,” Smith said.

Malloy's trip to China represents the first time a Connecticut governor will travel to the Asian country since Gov. Bill O'Neill did it in 1987. Smith said the No. 1 goal is to establish relationships and ties with Chinese government officials and businesses because building trust is a key part of how the Chinese do business.

Getting a better understanding of the cultural differences as well as the political and regulatory environment will also help shape the state's strategy in building future business opportunities there, Smith said.

In terms of the itinerary, Smith said she and Malloy will make stops in Beijing, Hong Kong, and the Shandong and Guangdong provinces. They will also appear at the World Economic Forum in Tianjin.

Malloy's trip will focus on building ties with China's bioscience sector, an industry Connecticut is trying to aggressively build up through billions of dollars in recent investment.

There are also opportunities for partnerships in aerospace, clean or green technology, advanced manufacturing and possibly insurance and financial services, Smith said.

“They are interested in the intellectual capital we have in Connecticut,” Smith said. “We have more scientists and engineers here than most other states. The Chinese are really interested in tapping into and getting closer to the innovation side of our economy.”

Of course China is not a totally unfamiliar place to Connecticut. There has been relationship building between both regions for some time, and China is emerging as a major export destination for Connecticut businesses.

In 2000, only $77 million in goods were exported from Connecticut to China, but over the last decade that number has skyrocketed to as high as $1.1 billion in exports in 2011, according to the U.S. Department of Commerce.

Transportation equipment was the state's largest export to China in 2011, followed by crop production, machinery, computers and electronics, and fabricated metal products.

Smith said Yale University has a campus in China and does a lot of work with Chinese researchers. Connecticut multinational companies like United Technologies Corp. and Cigna have been growing their presence in China.

Under former Governor O'Neill, Connecticut established a sister relationship with the Shandong province in China. Delegations from both regions have traveled for meet-and-greets over the years, but a robust economic relationship has not yet been forged.

Matthew Nemerson, president of the Connecticut Technology Council, was part of a Connecticut delegation that visited China earlier this year. He said the focus of that trip was to develop relationships with the burgeoning angel and venture capital community in China.

He said their delegation presented about 35 Connecticut tech companies to two different Chinese investment groups with the hopes of landing direct foreign investment.

No deals have since materialized, Nemerson said, but several Connecticut companies are still in talks with the Chinese investors.

Just as important, Nemerson said Connecticut needs to focus on attracting large, developing companies in China that are increasingly becoming globally focused and will soon likely look for a North American headquarters.

“Hopefully the next stage will be some unknown, but huge Chinese companies beginning to look at Connecticut for a potential home,” Nemerson said.

Nemerson said it is smart for the state to reconsider its international business strategy, which has been lacking in recent years.

At one time, Connecticut was a more aggressive state in trying to woo international business and even had trade offices in Germany and Japan. Those were closed in the early 1990s, however, and Connecticut has not opened any foreign office since that time.

Efforts to attract foreign direct investment is becoming extremely competitive in the U.S. and requires serious resources, including sophisticated research analysis, relationship building and even hiring people to represent a region or state in a particular country, experts say.

About half of U.S. states focus on international trade, but even fewer have sophisticated foreign direct investment initiatives, according to the International Economic Development Council.

And while competition is fierce, the resources that are being put toward recruitment efforts are getting scarcer because of budget deficits hitting many local and state governments.

Smith said investing in an overseas trade office is not likely in the plans, especially with Connecticut's recent budget issues. Staffing levels for international development at home are even sparse with only about three fulltime staffers within DECD focused on non-U.S. business development.

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