Minnesota's China ties grow deeper

SHANGHAI – Nestled on the fourth floor of a gleaming office tower here is the home base of Ning Shao, Minnesota's man in China. There is an American-style Starbucks in the lobby and American-style competition from a half-dozen of the representatives of 40 other states all looking to grab a piece of China's massive market.

China's economy may be slowing, but its rate of growth is still far faster than that of the United States, making it a powerful draw for companies.

Shao, who opened Minnesota's Shanghai office last year after Gov. Mark Dayton led a trade mission here, estimates that at least 100 substantial Minnesota firms are jockeying for business in what is now the world's second-largest economy. That includes everything from food giants Cargill and General Mills to Lake Region Medical, which sells medical guide wires in China.

The Communist Party still controls China, but the nation's increasingly wealthy middle class is developing an appetite for Western-style food, consumer products and ideas. Its earlier views of free markets notwithstanding, the country's leaders say China is open for business — albeit with distinct Chinese characteristics.

"They're the best capitalists in the world, within a certain framework," says Twin Cities native John Evans, managing director of Tractus Asia in Shanghai, which helps clients find business opportunities throughout China and the rest of Asia.

Shanghai's Manhattan-scale skyline, much of it built up in the last 20 years, belies this nation's Communist roots. It is a city of posh spas, cutting-edge restaurants, five-star hotels and traffic-clogged streets. It also is a city on the precipice, embracing capitalism, but still leery of Western-style democracy.

The party, which controls the government, is invisibly present beneath layers of bureaucracy. It's the Wild West of Wall Street with censorship. Facebook and Twitter are not allowed. Their Chinese equivalents are closely monitored.

What that leaves in the wake of the rigid ideology that once permeated this country remains unclear. Absent any real political guide star, the money chase is on. And so is the pressure on party leaders, who now see national pride, stability and prosperity as the main pillars of their legitimacy. Especially prosperity.

Enter the foreign investors, the Wal-Marts, the GM plants and even the farmers from Minnesota, like Tom Haag.

Haag can always use a few more customers, and China has about 1.3 billion of them.

So it was little wonder that the Eden Valley farmer accompanied Dayton last year to the world's most populous nation — and Minnesota's second-biggest trading partner — for a closer look.

"Fruits and vegetables are still popular," Haag observed, "but they've got a taste for westernized pork."

Downtown Beijing combines modest shopkeepers and monuments to the heroes of the socialist revolution alongside showrooms for the cream of capitalist vendors: Rolex, Chanel and Ferrari.

State-owned enterprises command four-fifths of China's bank loans, while 70 percent of new jobs are derived from private enterprise.

Amid an otherwise stagnant global economy, the allure of China is driving a frenzy of new interest and fresh competition among U.S. regions and business entities for a piece of an economy that produces frowns because the growth of its gross domestic product has slowed to a still-breathtaking 7.5 percent.

"It's very market-oriented," said U.S. Rep. Erik Paulsen, a Minnesota Republican who has made the trek to China, "but there are still a lot of central controls from the government."

Near the front of that pack — ranked 17th in China exports — is Minnesota, whose ties trace back to James J. Hill, the 19th-century railroad magnate who completed a rail link to the West Coast as a way to spark trade opportunities with China.

Minnesota governors going back to Rudy Perpich in the early 1980s have tried to be part of that story. Last year, Minnesota exported $2.5 billion worth of goods and services to China, a 7 percent increase over the year before.

Building on China's rapid development and rising standard of living, foreign companies and investors no longer see China as just a source of cheap labor, but as a strong consumer market — increasingly even for luxury goods.

China now boasts 1 million millionaires and an economy that has more than doubled since 2008.

Average wages have quadrupled in the past 15 years to a still-modest $4.50 an hour.

At the same time entrepreneurship has soared, with both pioneering Western-educated venture capitalists like Eric Li, an outspoken defender of one-party rule, and a cadre of homegrown crony capitalists exploiting their privileged positions in government or its state-owned enterprises.

"People can see who are the richest people in China," said Zhu Yinghuang, editor-in-chief emeritus of the semi-independent China Daily. "They are the sons and daughters of high government officials."

Having repudiated the excesses of Mao's Cultural Revolution, the modern Communist Party is looking for a gradual equilibrium between a one-party state and a freewheeling market economy that engages an outside world the Chinese still often distrust — for good historical reasons.

It is left to academics, intellectuals and history to determine whether that contradiction is sustainable.

"China's market economy is very young," said Zhan Jianping of the National Development and Reform Commission, the agency charged with guiding China's transition from a planned economy to what some still call a socialist market economy. "It's not easy to operate and manage this economy."

Foreign investment is more important than ever, though it fell slightly last year from a record $116 billion in 2011, a sign that some manufacturers are decamping for even cheaper manufacturing hubs like Vietnam, Cambodia and Bangladesh.

The Chinese, who need to create millions of new jobs every year, are eager for more. "We think this is a good thing for China's economic development, and a natural result of the global economy," said Zhang Ping, of the Chinese People's Institute of Foreign Affairs.

Food giants like Minnesota-based General Mills and Cargill, with 7,000 employees in China, have been part of the mix since the early 1970s, when President Richard Nixon made his historic opening to China.

But the hunger has only grown throughout the global economic crisis, particularly for Minnesota corn and soybean farmers like Haag, president of the Minnesota Corn Growers Association.

"Back when I grew up as a kid, we were a small farm, we milked 25 cows, we had some pigs," Haag said. "We weren't worried about what the outside markets were doing. Now we are."

Despite its rapid urbanization and the economic miracle of the past two decades, China remains a traditional culture that values relationships. Minnesota's long history there gives the state an edge.

The last five Minnesota governors have led trade missions to China, starting with Perpich, who pitched the idea of building a chopstick factory in northern Minnesota. While the chopsticks went for naught, the China market took off.

Shao said many of the Minnesota connections to China began as student exchanges.

The University of Minnesota has an estimated 8,000 Chinese alumni, dating to 1914. That's when its first Chinese students, brothers Pan Wen Huen and Pan Wen Ping, enrolled and starred on the U's championship soccer team.

University of Minnesota President Eric Kaler toured China last month to mark the coming centennial of that enrollment milestone.

The future looks even brighter. Today the university hosts some 2,500 students and 500 professors and researchers from China. They not only bring tuition revenue, but they make up one of the largest concentrations of Chinese academics in the United States.

"The university has always been strong in the fields that Chinese people wish to pursue to strengthen their own careers and build their country," said Joan Brzezinski, who heads the university's Confucius Institute. Over the century, that progression has run from agriculture and engineering to life sciences and business.

If China worries about an economic slowdown — partly the result of its unwinding government stimulus program — foreign sellers are taking it in stride.

"It's such a massive market, even if a company gets one contract, it can mean significant sales," said Katie Clark Sieben, commissioner of the Minnesota Department of Employment and Economic Development.

Haag, for his part, sees nothing but upside in China.

"It's a country that's becoming involved in Western ideas," he said.

Not only that, but he believes pork is gaining ground on tofu.

Follow Kevin Diaz on Twitter @StribDiaz

Editor's note: Star Tribune reporter Kevin Diaz spent 10 days in China on a trip sponsored by the China-United States Exchange Foundation, a Hong Kong-based nonprofit that promotes better understanding between the two nations. This is his report.