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Pawlenty in Shanghai: What’s at stake for Minnesota?

SHANGHAI, China — Gov. Tim Pawlenty arrives today in Shanghai for a weeklong trade mission designed to help Minnesota businesses. The trip highlights Minnesota’s stake in China’s economy.

Dave Anderson and Harry Xiao
MinnPost photo by Adam Minter
Jed Edge’s international marketing director, Dave Anderson, left, and Harry Xiao, general manger for the Association for Manufacturing Technology.

SHANGHAI, China — Wednesday morning, a bit after 9, Dave Anderson of Plymouth gazed out the passenger side window of a car driving through a forest of new high-rise condominiums in the more distant reaches of Shanghai’s Pudong district. Ten years ago, on the occasion of his last visit to Shanghai, this land was covered by productive farm fields; today, it’s a middle class neighborhood, more densely populated than anywhere in Minnesota.

“The growth isn’t in the U.S.,” said Anderson, international marketing director for Jet Edge, a mid-sized manufacturer of highly specialized, high-pressure water pumps, based in St. Michael. “Not any longer.”

Friday evening, Tim Pawlenty arrives in Shanghai for a weeklong trade mission designed to help Minnesota businesses like Jet Edge gain a foothold in the breakneck economy outside of Dave Anderson’s window. It’s Pawlenty’s third visit to China in eight years as governor, and his second visit as the leader of a trade delegation. The first visit, in 2005, was accompanied by the largest-ever U.S. state trade delegation to visit China, with over 200 delegates. This year, the governor leads a comparatively small 42 delegates.

But what they lack in numbers, they certainly make up for in focus. Everyone, every last delegate, seems to know that, in 2005 (the year of that last trade mission) China surpassed Japan and Ireland to become Minnesota’s second largest export market. And that’s not going to change any time soon.

“With the business climate what it is in Minnesota and the U.S.,” said Kent Kedl, a Minnesota native, two decade China expatriate, and General Manager of Technomic Asia, a Shanghai-based business consultancy that counts small, mid-sized, and large Minnesota companies among its clients. “It’s no longer a matter of wanting to come to China. It’s a matter of need.”

Kent Kedl
Courtesy of Kent Kedl
Kent Kedl

Indeed, while the developed world continues to struggle through the lingering effects of the global economic crisis, China has not only weathered it, but thrived. No doubt, Minnesota and the U.S. are growing — slowly — again (State Economist Tom Stinson predicts that employment numbers won’t reach pre-recession levels again until 2013), but while Minnesota recovers, China thrives, providing growth for Minnesota companies with an established presence in the market, and urgency for those who don’t.

“Back home I think people believe that everything is going to go back to normal one day,” Kedl added, while seated a window table in a Western restaurant overlooking Shanghai’s tony French Concession neighborhood. “What I don’t think they get is that this — China — is the new normal. Minnesota’s not going back to being the same old economy. China’s not going to stop being the second largest economy in the world. Everything has changed. I tell my kids, whether you live here or not, China is going to be a part of your life.”

Looking to expand
Jet Edge’s Dave Anderson understands that fact very well. For 25 years, the primary market for Jet Edge’s water pumps have been domestic (customers include NASA and other organizations that require high-end precision). But compared to Asia, at least, the United States has become a slow-growth economy. And so, if you’re a manufacturer looking to expand (and expand employment) you’ll need to look outside to do that.

“Our research now shows that more than half of the potential market [for Jet Edge’s products] is outside of the U.S.,” Anderson tells me. According to Anderson, 25 to 30 percent of Jet Edge’s roughly $25 million in annual sales are exports, including recent sales to Singapore, Thailand and Taiwan. There have also been sales to China — but those have largely been re-exports to U.S. companies manufacturing on the Mainland, and not Chinese companies. The latter is the tougher target, by far.

Anderson is a delegate on the governor’s trade mission, and he’s decided to arrive a few days early to lay some additional groundwork for Jet Edge’s new China focus. “My goal is to establish a presence here, get our name out, and find the customers we’re best suited for,” he tells me. First stop is the Association for Manufacturing Technology (AMT), a non-profit incubator for American manufacturers looking to enter the often difficult-to-navigate Chinese market.

When Anderson arrives, he’s greeted by Harry Xiao, AMT’s general manager, and “Sean” Feng Jiang, the China business development manager, the latter of whom informs Anderson: “You’re late! I don’t mean for the meeting, but for the China market. Your competitors are already here.”

Anderson is led into a meeting room decorated with posters from member companies. Xiao speaks knowledgeably about Minnesota manufacturing, and the belt of small to mid-sized companies now located north of the Twin Cities. “We have several Minnesota members,” he tells Anderson. “And a few — I think three — on the governor’s trade mission.”

In 2009, the value of Minnesota-to-China trade was $1.26 billion, or 8.9 percent of total state exports, and actually increased by 1 percent while Minnesota exports to second-place Canada declined by 21 percent, or nearly $1 billion. Gene Hugoson, Minnesota’s commissioner of ggriculture under Gov. Pawlenty, oversees an industry that accounts for more than half of that trade with China.

Hormel brats on display at a high-end supermarket in Shanghai.
MinnPost photo by Adam Minter
Hormel brats on display at a high-end supermarket in Shanghai.

“[China is] just barely behind Canada and [Canada is] next door with the cheapest transport costs,” he told me by phone from St. Paul, in advance of his departure for Shanghai. “The thing we see for China, it won’t be that long, and it’ll be our number one trade partner.”

Hugoson has had more direct contact with China, its officials, and consumers than perhaps any other Minnesota official outside of the Minnesota Trade Office. He’s traveled to the Mainland on several occasions, and during the last decade’s biofuel boom, he was regularly — “every six to eight weeks” — meeting with Chinese delegates interested in the Minnesota biofuels industry.

Like most people associated with agriculture, Hugoson has a keen appreciation for the relationship between economic growth and improved quality-of-life — especially diet. “Look at the Chinese people, when they have money, they’re not buying a second car or even a first car,” he tells me. “But they’re certainly expanding their food diet. They’re adding meat to their diet.”

Indeed, unlike Minnesota’s manufacturers, many of whom feel threatened by stagnating domestic markets, and the daunting prospect of trying to export into mysterious new ones, Minnesota’s farmers are positively buoyant. “This isn’t the China of Mao,” says Hugoson. “It’s the China of the 21st century that’s likely going to surpass our economy not so long from now.

Market opportunity
That may scare some people, but it’s also a market opportunity. Without a market like China, we’d be sunk in [agricultural] surpluses that would sink our [farm] price situation.”

According to Gene Stoel, chairman of the Minnesota Soybean Research and Promotion Council, roughly 1 in 4 Minnesota soybeans is exported to China, and the reason is abundantly clear: “Their middle class has really grown and so when you’re a middle class person your diet grows,” he told me in a call from Mankato a few days before he left for Shanghai. “They need protein and oil.”

In Shanghai, per capita incomes are leaping, on average, in excess of 10 percent per year, whereas in Minnesota they’re stunted. There’s still a long way for China’s per capita GDP to catch up with that enjoyed by Minnesota, but with a middle class population that already rivals the total population of the United States, even niche Chinese markets, especially affluent ones, are populated by millions of Chinese, and be worth billions to exporters.

Thus, at the high-end Parkson Supermarket in Shanghai, shoppers precede their food shopping with Green Tea Blizzards bought at a Dairy Queen just outside of a meat and dairy section that sells Chinese-manufactured Hormel bratwurst, and imported Land O’Lakes butter and cheese slices. Hormel has operated a joint-venture in Shanghai for 16 years, focused on the Chinese market; Land O’Lakes (which didn’t respond to two requests to comment on this article), hasn’t been exporting for nearly so long, but there’s little question that its expensive (for Chinese consumers) Minnesota-produced products, are gaining traction in an increasing number of Chinese supermarkets, and with an increasing number of Chinese consumers with rapidly increasing incomes.

Chinese Dairy Queen
MinnPost photo by Adam Minter
A Dairy Queen in Shanghai.

Minnesota’s Trade Office began focusing on Asia in the early 1980s, under Gov. Rudy Perpich, who led Minnesota’s first trade mission to China in 1983. Back then, China’s economic opening was only five years old, but Minnesota businesses were already making some inroads: most notably, in 1984 3M became the first foreign company to operate a wholly-owned subsidiary on the Mainland. By the late 1990s, there was enough Minnesota business happening in China — and enough potential for more — that in 1998 Gov. Arne Carlson led the state’s first trade mission in 15 years (where he was given an audience with President Jiang Zemin). Gov. Jesse Ventura followed in 2002, and Pawlenty came next in 2005.

Have these missions made a difference? Even the organizers of the trips are reluctant to draw a line that leads from a governor’s visit to specific deals and financial results.

“Short-term, it’s about familiarizing Minnesota companies with China,” explained Ed Dieter, the acting executive director of the Minnesota Trade Office, in a phone call from Beijing, where he was advancing the governor’s closed-to-media visit with U.S. Ambassador Jon Huntsman and members of the Chinese leadership. “Longer-term, we hope that it results in business. But it takes time.”

Still, there’s little doubt on the part of past and current delegates that the thousands of dollars they spend to participate in a governor-led trade mission, is well worth the cost. “China can be slightly formalistic,” explained Trevor Gunn, VP for Medtronic, in a call from Washington, D.C. “It’s always easier for us to meet people at a reception we wouldn’t have met. You learn a tremendous amount from receptions rather than a meeting in an office.”

It’s not all receptions, either. Delegates will be briefed by U.S. Consular executives; some will have so-called “Gold Key” meetings arranged with potential business partners; and an entire contingent of agriculture producers, including Commissioner Hugoson, will travel to nearby Suzhou for an international biofuels conference. The net bill of the trade mission, including several days in Japan, to the state? $60,000, including the governor’s security detail.

“That’s it?” Exclaims Kedl with a laugh when I tell him the number. “The state gets that back many times over.”

Cautious assessment
Ed Dieter is a bit more cautious in his assessment, but no less convinced of the value. “The fact that the governor is coming on the mission opens doors more than if it’s just five companies and a trade rep.”

Jet Edge’s Dave Anderson is led out of AMT’s conference room and into the showroom where several U.S. companies, including one of his competitors, have their equipment on display for visiting customers. He’s shown a multimedia display of AMT’s Shanghai-area members; he’s given a peak into one of the small offices available for businesses like his; and he’s shown the library of trade show journals that AMT keeps for its members.

“Does your company have a Chinese name?” Asks Executive Director Harry Zhou.

Anderson shakes his head. “I don’t think so.”

“You’ll need one that sounds right to Chinese ears. We can help with that, give you six or so names and let you choose one. Then we’ll forward it to the right authorities to make sure it’s not taken.”

Anderson nods his head. “Lot to do, that’s for sure.”

Later, while Anderson provided AMT with a briefing on Jet Edge and its goals, Xiao walked me to the newly built subway line that would take me home. “For so long companies like Jet Edge didn’t even have to think about China,” he teld me. “They could sit home and just worry about the home market. But now it’s changed and the US is going to have to catch up with Japan and the others that learned to export to the world. Everything has changed.”

At that, he points me in the direction of the train, and offers a handshake and an invitation to return and learn about some of his other members.

“The Chinese have a saying,” Kent Kedl told me later that day. “‘If you have a relationship, then you have a road.'”

Future governors, whoever they might be, are going to be traveling that road, trade delegates in tow, for decades to come.

Adam Minter is an American writer in Shanghai, China, where he covers a range of topics, including religion in contemporary China, the Chinese environment, and cross-cultural issues between the West and Asia. He can be reached through his blog, Shanghai Scrap.