Despite tensions, U.S. governors flock to China

Beijing, China (CNN) -- In the midst of tense U.S. Congressional hearings on China's currency last week, four U.S. state governors -- including California Governor Arnold Schwarzenegger and Minnesota Governor Tim Pawlenty -- were in China hoping to cement business relations.

More U.S. governors are looking to China for an international solution to local economic problems and unemployment, despite heightened trade and currency tensions between Beijing and Washington.

"[China] represents massive economic opportunity and massive economic benefit...in a way that's going to translate in job growth for our citizens," Minnesota Governor Pawlenty said in Beijing last week. "It is absolutely amplified by the downturn in the recession and this heightened thirst to do anything and everything we can to create jobs."

Even California, considered the 8th largest economy in the world, is looking across the Pacific for a long-term economic boost.

"California jobs, business vitality, and our cultural identity all are deeply tied to the Asia-Pacific region," said Schwarzenegger in a statement during his trip to China last week.

Besides Pawlenty and Schwarzenegger, Governor Chris Gregoire of Washington was in Beijing last week meeting with high-level officials. Governor Sonny Perdue of Georgia was also visiting China, its second-largest trading partner.

The steady stream of U.S. state leaders to China shows that despite tense trade issues on the national level, many governors are bullish on the Middle Kingdom's economic potential, hoping to tap into its massive consumer population.

"People can now see you [can] come to China and still grow your business in America," said Paul Swenson, director of The China Hand Consulting Company, which advises states on trade and investment in China. "They are not mutually exclusive."

In August, the Southern Governors' Association featured former Chinese Ambassador to the U.S. Zhou Wenzhong, seven U.S. governors, and CEOs of major Chinese companies in a seminar focused on strengthening trade and business relations between China and U.S. southern states.

"[This] is where a big part of the global economic growth is going to be in terms of consumer demand," said Pawlenty. "Anybody who thinks about it for very long is going to quickly conclude that you have to be in China."

In their first trip to China, the Minnesota Corn Growers Association joined Pawlenty's trade delegation hoping to dovetail the growing demand of corn in China -- 1.3 million tons of U.S. corn were exported to China last year, the most in 14 years. Analysts say China's increased demand for corn could represent a longer term structural shift as agribusinesses consolidate in China and rely more on raising livestock.

"You're seeing all of this increasing activity and all of this increasing attention because [small- and medium-sized business owners], well, everyone understands the incredible potential for exports and economic opportunity that comes with being able to sell to China," Pawlenty said.

In addition, U.S. businesses are trying to insert themselves into critical but less developed parts of Chinese industry. The cycle that feeds the U.S. trade deficit isexports of American-made machinery and raw materials to China and higher-value finished products in return. U.S. exporters hope to reverse that trend by establishing new markets in China, such as logistics and food safety know-how.

"These [states and companies] might be selling some supplements that improve the health of the Chinese dairy cows, or disinfectant that cows walk through so that they don't bring infections into the dairy barns," said Swenson of The China Hand Consulting Company.

"We're participating in the food chain but not producing the food itself. We are manufacturing what supplies the safety," Swenson said. "That's becoming a big market here and it has created a lot of unforeseen benefits...and jobs."

Moreover, the Chinese central government appears to be softening its stand on imports. Earlier this month, the Ministry of Commerce convened the China Import Forum, focused on "an opening market and global trade." Hundreds of major business leaders attended what some called a "crash course" in China import policy and commercial engagement.

Attendees, including Swenson, noted a genuine tone in the Ministry of Commerce's approach.

"There was a brainstorm on how China can grow their imports," Swenson said. "And it seemed to be very real...that balancing trade was something important to them."

China's Ministry of Commerce is also sending several major trade delegations to the United States this fall, in attempt to increase U.S. exports to China.

Ministry Spokesman Yao Jian announced one delegation comprising almost 50 business leaders departed Beijing for the U.S. on Tuesday, to "seek trade and investment opportunities in such areas as energy and technology."

Two more delegations will fly to the U.S. by the end of this year, the spokesman told state-run media.

The delegations will be visiting during a tense time in US-China trade and currency relations, but they can expect a warm welcome from U.S. governors attempting to lure Chinese business into their home states with hopes that foreign direct investment will energize and invigorate local economies.

In Shanghai last week, Schwarzenegger signed a memorandum with the Chinese Ministry of Railways and the Bay Area Council for investing in California's future rail network.

Unable to specify the exact negotiations, Minnesota Gov. Pawlenty also indicated that major negotiations were underway to bring a major Chinese company into the land of 10,000 lakes.

"The capital investment that would bring, the jobs that would bring, the other indirect economic activity...well, I think that would be a terrific success," Pawlenty said.

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