A rising China is changing the way Americans live overseas and at home - washingtonpost.com

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Rising global power is reshaping the way Americans do business and live their lives

By John Pomfret
Washington Post Staff Writer
Saturday, November 14, 2009

WAUSAU, WIS. -- In a cavernous warehouse amid rolling hills and dairy farms, a group of farmers recently gathered around a buyer in a conversation heralding a sea change in the United States.

"I don't think you Americans get it," said the buyer, dressed casually in designer brands and sporting a watch worth as much as the mud-splattered GM trucks in the parking lot outside. "We need quality. We demand quality. Top quality. If you work with me, we can win together. But if you don't, there's nothing I can do."

Being harangued by a pharmaceutical company executive from China was new for these burly farmers, but no one complained. These tough men from the American Midwest treated their Chinese guest as a savior of sorts, in an important economic and cultural reality that will confront President Obama on his first visit to China, starting Sunday.

On visits to Shanghai and Beijing, Obama will encounter not simply a rising global power but a nation that is transforming and challenging the way Americans live overseas and at home, from college classrooms to real estate offices to the ginseng farms of central Wisconsin.

Americans have been selling Panax quinquefolius to China since 1784 when the first China-bound trading ship sailed from New York to Canton, today's Guangzhou, weighed down with 30 tons of the root, prized in Asia for medicinal properties. But today the U.S. ginseng industry, centered here in Wisconsin, is on its back, kicked down by bogus imitations from Chinese competitors and state-subsidized crops from Canada.

Twenty years ago, 1,500 farmers grew ginseng in Wisconsin for the China market; now the number is down to 150. Prices have dropped from $60 a pound to $24. The farmers around the ginseng barrels on this rainy fall night looked for an answer from Chun Yu, a Chinese businessman dangling his company's chain of 1,000 retail stores throughout China as the ultimate prize.

"Years ago, it didn't matter what we grew. They bought everything we had," said Randy Ross, a 54-year-old former dairy farmer who has been growing ginseng since 1978. "Now we've got to learn how to satisfy them. They are changing us."

Catching China fever

While it's not exactly the People's Republic of Wisconsin, this state has been seized with a China fever of sorts. Throughout the United States, old notions of China have been replaced with a deeper understanding that China is a force that must be reckoned with. Hate it or love it, China is a major player in American life.

China is now Wisconsin's (and the country's) third-biggest export market, buying more American soybeans, oil seeds, hides and animal skins, raw cotton, copper, nonferrous metals, wood pulp, semiconductors and miscellaneous chicken parts (a.k.a. chicken feet) than anyone else.

At the University of Wisconsin, as at college campuses across the United States, mainland Chinese dominate the study of science and technology and form the backbone of the engineering, chemistry and pharmacy departments. They receive twice as many doctorates in this country as students from India, the next-closest foreign competitor. And among foreigners, they register by far the most patents in the United States.

Chinese investors have snapped up pieces of distressed real estate in Milwaukee, as they have in other crumbling Midwestern industrial cities, not to mention in Florida, California and Arizona. Last year, a group from Germantown, Md., and China bought an empty mall on Milwaukee's depressed northwest side for $6 million, down from its $8 million list price. In July, a Chinese steelmaker bought 54 acres in an industrial park off Interstate 94 between Milwaukee and Chicago.

A team of Midwestern businessmen, including the former CIA station chief in Beijing, has recently established, in cooperation with the Department of Homeland Security, a special zone in Wisconsin that would grant U.S. citizenship in exchange for a $1 million investment.

Meanwhile, in a state that has lost more than 160,000 (or one-third) of its manufacturing jobs in a decade, local newspapers have been running editorials praising the People's Republic and blasting those who oppose closer trade ties or Chinese investment. "China is a friend to Wisconsin and its businesses, not an enemy in a trade war," the Wisconsin State Journal said in an editorial.

Seeking out business

Wisconsin's governor, Jim Doyle (D), has been to China to promote Wisconsin three times since he took office in 2003. When he first went, he said, fellow governors in other states worried about the appearance of an American governor going to China seeking business. Now, it's commonplace. More than 14 of his counterparts have visited China in the past two years.

"China is incredibly important to us," he said in an interview. "Even in these difficult times, some of the industries getting by are the ones selling to China. If we didn't have the Chinese, we would have been in much, much tougher shape."

One of those firms is Bucyrus International, based in South Milwaukee, which has exported coal-mining equipment to China since trade relations were opened in the 1970s. In the past three years, it has doubled its workforce, in part because of the China trade.

"We were still skeptical seven or eight years ago that these guys were for real," said Bucyrus chief executive Tim Sullivan. "Now we know."

The boosterism about China sometimes reaches a fever pitch. One of the businessmen who helped set up the special investment zone, Robert Kraft, said China in the future will do what the Germans did for Milwaukee in the past. "The Chinese are coming," Kraft said in a telephone interview from China, where he was scouting for Chinese investors. "We're just trying to get a piece of it for Wisconsin."

"The Chinese Are Coming" was the title of a session in late September in Baltimore at the annual meeting of the National Association for College Admission Counseling. There educators spoke about skyrocketing numbers of Chinese high school graduates applying for admission at U.S. colleges. That's new. For the last 20 years, Chinese have been at or near the top of the number of foreign students in the United States -- but most were in grad school. In all, about 89,000 are currently in the United States, according the Chinese Embassy.

China has also helped establish 61 Confucius Institutes across the United States, including one in Wisconsin, to teach Chinese and undertake "cultural dialogues," the embassy said.

At the University of Wisconsin in Madison, Chinese undergraduates now account for more than half of the 1,109 Chinese students there. That increase is another sign that China is coming because Wisconsin, like many state schools, doesn't provide scholarships for international undergrads. Last year, Chinese students paid out $2 billion in tuition nationwide. "That money is keeping some American colleges alive," said Laurie Cox, who runs the international student center at the Madison campus.

"Every time I turn around, another campus has signed a memorandum of understanding with another Chinese university," said Kevin Reilly, the president of the university's 26 campuses. Reilly recently joined Doyle on a trip to China. "I came away thinking, if the 20th century was the American century . . . you have to believe that the 21st century will be the Chinese century."

Difficulties and disputes

Wisconsin is not immune to troubles with China. For years, until they were stopped in 2004, two Chinese nationals used Milwaukee as a base from which they exported restricted electronics and computer chips to Chinese institutes that make missiles.

Quality problems with China's imports have also bedeviled Wisconsin firms -- as they have American consumers who purchased deadly pet food, lead-laden toys, and defective drywall that is believed to have rendered thousands of homes in the South almost uninhabitable.

One Wisconsin company, Scientific Protein Laboratories, was in the center of a supply chain making the blood-thinner heparin.

Hundreds of allergic reactions to the drug, including 81 reported deaths, led to a nationwide recall that was linked to tainted raw materials from China in 2007 and 2008.

These days Wisconsin is at the center of a new trade dispute with China. Appleton Coated of Kimberly was one of three paper companies to join with the United Steelworkers to file a petition with the government alleging that China was dumping certain types of paper products in the U.S. market. On Nov. 6, the U.S. International Trade Commission decided to investigate allegations of unfair subsidies.

Jon Geenan, international vice president for the United Steelworkers, grew up near the Kimberly plant. He estimates that Chinese and Indonesian imports have cost the state more than 5,000 jobs in its paper mills. That means dozens of foreclosed homes and hundreds of people who are behind on their property taxes. "Even the churches say that donations are down," he said. "They are definitely challenging the way we live."

In Marathon County, where the glaciated soil makes for a bitter ginseng, the way many Chinese like it, Yu, the ginseng buyer, appears content with his new role as big shot. He recently met Gov. Doyle and signed a deal to become China's exclusive importer of Wisconsin's prized root. "But only if the quality is good," he said. "The student has become the teacher!

China Warms to New Credo - Business First

By MICHAEL WINES

BEIJING — So far this week, the World Trade Organization has rebuffed China in an important case involving Chinese restrictions on imported books and movies. The Chinese government dropped explosive espionage charges against executives of a foreign mining giant, the Anglo-Australian Rio Tinto, after a global corporate outcry. And on Thursday, the government said it had backed off another contentious plan to install censorship software on all new computers sold here.

Throughout its long economic boom, China has usually managed to separate its aggressive push into the global business arena from domestic politics, which remained tightly controlled by the Communist Party. But events this week raise the question of just how long it will be before the two meet.

In each of those matters, politics and business collided, and business won. Business does not always win, and when it does, as in these cases, the reasons are as often as not a matter of guesswork. But in at least some high-profile matters, China appears to be facing the reality that the outside business world can be freewheeling and defiant when its profits are threatened. And so China’s authoritarian system may also have to evolve in ways its top leaders may not readily endorse.

Beijing has a global footprint now, a consequence of its booming domestic growth and breakneck international expansion. And decisions that once were made on purely parochial grounds — like censoring Web sites, protecting the interests of its state-owned companies and restricting the flow of foreign news and entertainment into China — now have international ramifications.

“This is a country in the middle of a big transition in its global role,” said Kenneth Lieberthal, a veteran China analyst now at the Brookings Institution. “They’ve always looked in the past to what’s good for China, and they still do. But for the first time, added to that is the consideration that they’re in the position of being rule-makers, not just rule-takers.”

China’s leaders, he said, “are just beginning to learn how to handle that.”

Consider the following: Since late May, Beijing’s Industry and Information Technology Ministry had more or less insisted that so-called anti-pornography software, called Green Dam-Youth Escort, would eventually be packaged with every newly purchased computer.

On Thursday, the ministry backed down, calling the requirement a “misunderstanding” spawned by badly written rules. Officials offered no other explanation, but the retreat followed weeks of protests by outsiders — from foreign computer makers to foreign governments to foreign corporate branch offices — that said the software stifled free speech, compromised corporate security and threatened computers’ stability.

Computers are not the only example.

This week, the World Trade Organization told Beijing that it could no longer force providers of American books, music and films to distribute their goods through a local partner. Foreign companies saw that rule as an impediment to reaching a broad Chinese audience with their products. The Chinese market is flooded with pirated CDs and DVDs whose contents’ creators receive no money.

The Chinese legally may appeal the decision, but the foreign minister, Yang Jiechi, indicated in a Geneva speech that simply ignoring it was not an option. China worked for years to join the global trading system and is bound, as much as other nations are, by its rules.

“China will never seek to advance its interests at the expense of others,” Mr. Yang said, according to Reuters.

Similarly, Chinese prosecutors appeared this week to retreat from earlier statements that they would prosecute employees of Rio Tinto as spies for stealing state secrets.

While the espionage allegations were not spelled out, they were apparently related to delicate commercial negotiations over the price of China’s imports of iron ore for its steel mills.

Rio Tinto executives have strongly denied the accusations, and both the United States and Australia said China’s actions could have both business and diplomatic repercussions.

While the Rio Tinto employees still face lesser charges of bribery and theft of trade secrets, the espionage threats stirred broad unease among foreign companies operating in China, which feared that they could face persecution and closed-door trials for engaging in what much of the world would regard as bare-knuckle business tactics.

Yet whether such instances represent trends or exceptions — or neither — remains a matter of some debate.

Increasingly, many experts say, Chinese officials appear to be aware that their actions have far broader ramifications than they might have had even a few years ago.

“Fifteen years ago, the mantra in China was, ‘We’re the victims of a system that’s stacked against us,’ ” said James V. Feinerman, an expert on Chinese law and policy at Georgetown University in Washington.

China’s entry into the world trading system, he said, is slowly helping to change the nation’s view of itself from that of an outsider to an insider with a stake in the global system’s success.

Other experts note, however, that what outsiders see as carefully calculated policy changes may in fact be nothing of the sort.

The government’s decision to install censorship software on computers — and its subsequent reversal — is but one example, they say; the original proposal was probably pushed by a government clique that found itself outflanked once Internet users and foreign corporations began objecting to the plan.

“Is China susceptible to international pressure? Of course it is,” said Charles Freeman, a leading China scholar at the Center for Strategic and International Studies in Washington.

“China does have international interests, and they are impacted by what it does domestically,” he said. “There’s a constant battle between agencies over how much political capital to expend on international issues against domestic interests.”

In any case, few experts are willing to stake their reputations on a prediction that Beijing’s recent softening of some positions signifies a strong trend.

To the contrary, Mr. Feinerman said, China had undergone “a real pushback” in the last five years on some fronts, reasserting political dogma in some areas where commercial norms and the rule of law had begun to have more sway.

And Jonathan Hecht, an expert on Chinese law at Yale University’s China Law Center, said that developments in China should be viewed against a history of great leaps forward on such matters, followed by equally great retreats.

“I’ve given up predicting long-term trends,” he said.