Arkansas Inc. Podcast - China Investment Impact and Opportunities for Business Development

AEDC Executive Director Mike Preston recently sat down with Mark Raines to discuss China's impact on the U.S. economy and opportunities for business development in the state. Arkansas has a good presence in China with continued business growth in consumer packaged goods as well as foreign direct investment in manufacturing.

TRANSCRIPT

Announcer:    
Welcome to the weekly podcast from the Executive Director of the Arkansas Economic Development Commission, Mike Preston. Each week, Mike discusses economic development issues important to Arkansas and the entire country.

Host:    
Welcome to the Arkansas Economic Development Commission podcast, featuring Executive Director, Mike Preston. This week, we're going to talk about China. And Mike, you just returned from China ... and much of the world's economy, it's no secret, depends a great deal on China and what happens there. And of late, the United States has benefited from some new foreign investment strategy adopted by the Chinese government-owned corporations. Address, if you will, how this is impacting the U.S. economy.

Mike Preston:    
Sure, a great question. We had a great trip to China. It's good to be back in the U.S., but each time we go there we learn that there's just so many opportunities for the U.S. and China to continue to do business together. And really, it's on the investment side from China. Obviously, Arkansas in general, has a good presence in China with Walmart having nearly 500 stores in the county; Tyson with facilities over there. So we have U.S. investment, and specifically Arkansas investment, in China, and I see both of those companies doing very well and continuing to grow, and we hope to get more Arkansas companies in China doing business.

On the other side of that, there's potential for lots of growth in more foreign direct investment from Chinese companies coming into the U.S. Last year, we did a big deal with Sun Paper of Shandong Province, and they're going to building a biomass products facility in south Arkansas. This year we were able to do an investment with a company called Tianyuan, which is a garment manufacturer who's now coming back to the U.S. It will represent one of the first garment manufacturers coming back to the U.S. and actually producing garments in the U.S. 

So, it's a good opportunity because they're looking at the U.S. right now as a market in which it's stable for them to invest. The Chinese government, President Xi, has encouraged additional investment. Their growth was at 7 percent last year, which in China's terms in the last 20 years, is very low. I think 7 percent growth would be welcomed right now in the U.S., but in China's perspective of where they've been, that's currently slowing down so they need to look at other markets and other opportunities for their investments. So that's why President Xi has made the initiative for Chinese companies to start looking outside of their borders and looking for other countries to invest in.

Host:    
You just spoke to the fact that the Chinese economy has started to slow just a little bit, or showing some signs of it. How do concerns such as that affect business development opportunities in the United States, or anywhere else in the world?

Mike Preston:    
Well, if anything, I think it's more of an opportunity for us in the fact that now we can try to capitalize on the slowing of their economy because so much of it was done right there within their own borders. With 1.3 billion people, they have just the means and the wherewithal to drive such growth. Now that they've kind of run up against ... forgive the pun, a wall ... but they are looking outside of their borders now and the U.S. is that market that they want to come to.

They want to tap into the North American market because they see it as a growth market. We are a market, just in the U.S., of 300 million people. We are still the largest economy in the world, so it makes sense for them to want to be here. They want to be centrally located in the United States so they can reach all the North American market. So we can have that potential to go in and continue to use our manufacturing base, our logistics hub, as leverage for us to bring in these Chinese companies and they can look for a home in the U.S.

But overall, the U.S. continues to be the world's superpower, its leading economic driver. But right behind us is China. China is coming on very strong as the second strongest economy in the world. And as China goes, so goes a lot of the markets. So it's important that we pay attention to what's going on in China, and we continue to build those relationships and try to bring in more investment.

Host:    
ou may be repetitive when I ask you this question but, when you visit with those officials in China, what is it that they're looking for from the United States that they can't get in their own country or any other country for that matter?

Mike Preston:    
Well, some of it comes down to resources. If you look back to, as I mentioned before, Sun Paper, the reason they were looking at North America and specifically in the southeast United States is because we have that great timber basket. We have the resources that they've run out of  ... the resources, the raw materials that they need in their country. They have enough to sustain where they're at, but just sustaining a business isn't getting ahead. You need to continue to grow your business. So they're looking at tapping into European markets as well as others, and if they want to be able to do that, they need the resources to do it. So that's why the U.S. was attractive to them. 
So the resources, obviously being close to the market ... shipping back from China, the shipping cost and some of the trade restrictions make it much more difficult to get product from China back into the U.S. so they're looking at it. And as their wage rates continue to rise, the cost becomes that much more competitive. When you can take shipping out of the equation, then all of a sudden you are very competitive in overall terms of cost production. So if you can be close to that market and distribute your product, that's what's making the U.S. very attractive.

Host:
I know one of the issues that you were planning to discuss when you were in China had to do with the difficulty it takes to get some American agricultural products into China. Speak a little bit about that, and where you see that going in the future.

Mike Preston:    
We were fortunate enough to be able to meet with some very high level government officials to talk about trading in our agricultural exports, particularly in the rice industry. Arkansas continues to lead the nation in rice production, and we want to open more opportunities and markets for our farmers here in Arkansas that they can continue to grow their business.

One of the issues right now is the Phytosanitary Agreement between the U.S. and China on rice. All the terms have been agreed to. It has been signed by the U.S. government, and we're just waiting now on the Chinese government to sign it. So we were able to make that case, put some leverage onto the Chinese government officials that we met with how important it is, and that we'd certainly love the opportunity to come into their market. They grow their own rice there, but when you have a population of 1.3 billion, their tourism industry continues to grow, and we have very good quality rice in Arkansas. And there's a standard, especially when people travel and they want to have good quality rice, they see Arkansas rice as a good means to do that.

So, it was good conversations, and then obviously the other big issue in agriculture for us is in the poultry industry. There's restrictions both ways on Chinese poultry coming in the U.S., but U.S. poultry going into China. So I think that one's going to be a little bit bigger of a lift, but we were certainly able to open some dialogue, begin those conversations, assure them that the Avian flu outbreak from about a year and a half ago, I think, in Missouri and Indiana is completely contained. It's no longer an issue; it's not a threat.

We talked about how we handle issues like Avian flu and how it's quarantined, and how they shouldn't stop trading with an entire country because there's an isolated incident in one region of the United States; that it doesn't affect the entire population as a whole. But I think we were able to get that message across. It's still a lot of work to be done. We'll be doing some follow-up as well with our federal government, our U.S. Department of Agriculture, to make sure that we can get our message across and really help our farmers here in Arkansas.

Host:
And Mike, if you can crack that nut for Arkansas, the rest of the United States will benefit from that as well.

Mike Preston:    
Sure. The whole U.S. will benefit from that. I'd just like to see Arkansas leading the way in doing it.

Host:    
Okay. That concludes our second podcast on China. We're going to talk again about China next week. We're going to focus more on relationship building and how that's been important to economic development. And that'll be next week on this AEDC podcast.

Announcer:
This has been the weekly podcast from the Arkansas Economic Development Commission and executive director, Mike Preston. We'll return with another important economic development discussion next week.