As I cruised down the Huangpu River past glimmering Shanghai high-rises with California Governor Jerry Brown and Chinese former NBA player Yao Ming, I could not help thinking that they may have at first blush appeared an odd couple. But their meeting marked not only another chapter in sports diplomacy, but also the culmination of one of the largest U.S.-China trade and investment delegations in history. What this delegation forged in China foretells of not only critical opportunities for the Golden State and U.S. economies, but also the possible future face of diplomacy and economic engagement.
Why California's Governor would be leading a diplomatic trade mission to a foreign country may not be immediately intuitive. But on further inspection, it's worth understanding what the world's second-largest economy and its most innovative economy have to discuss. To start with, they are already close trading partners. China is California's third largest export market (after Canada and Mexico), and this trade is growing precipitously. Likewise, an annual $1.3 billion in Chinese foreign direct investment in California five years ago is anticipated to grow to an aggregate $60 billion over the coming decade. Additionally, the more than a million annual Chinese tourists that already visit California is expected to double in the next two years alone.
As California seeks to reinvigorate its economy by entering growing markets with its diverse portfolio of export products, ranging from high-end services and technology to agriculture and wine, it looks to its neighbor across the Pacific. China boasts the largest growing middle class in history and a rising tide of disposable income to match. And California's expertise in technology and sustainability is well-suited to help China achieve economic shifts outlined in its most recent five year plan: moving production higher up the value chain, driving greater local consumption of higher-end services, and improving its sustainable environmental impact.
To this backdrop, the California trade delegation landed in Beijing this month to a whirlwind tour of investment forums, academic symposia and government meetings. Shortly thereafter, a variety of deals were penned to boost California's bottom-line. For instance, one deal is the $1.5 billion development of an industrial waterfront in Oakland by a China-based investor. And there will be a $100 million Chinese private equity investment to develop green energy, biochemistry, media, high-technology and real estate construction projects in California.
But commerce rarely flows shorn of politics and it has become a familiar story that Chinese investment in the U.S. is met with skepticism and sometimes hostility by Washington on a variety of grounds, ranging from intellectual property protection, to rule of law transgressions, to national security concerns. Few can forget CNOOCs 2005 ill-fated bid for Unocal that was effectively shut down by Congressional grandstanding.
But California is not Washington. Governor Brown clearly announced to his Chinese hosts that "We're not interested in politics. We're interested in business." This declaration resonated clearly with the delegation zipping along more than 200 mph along high speed rail from Beijing to Shanghai as Governor Brown sought investors to bring a similar rail project to the Golden State from Los Angeles to San Francisco.
Admittedly, there are aspects of diplomacy that only the federal government is well-equipped to handle. Issues of national security flowing from military considerations or treaty alliances will always be the proper purview of the federal government. But perhaps there is an emerging division of labor such that economic diplomacy should not solely be a function of the federal government, particularly in times of partisan polarization in Washington (that can easily spill over into xenophobia).
States like California have the clout, the incentive, and the ability to move the ball forward on issues aligning with their own interests. This was clearly underscored by the memorandum of understanding signed by the Chinese Ministry of Commerce which set up a working group and agreement to cooperate with California to promote trade and cooperation across infrastructure, biotechnology, information technology, agriculture, energy, manufacturing, tourism and environmental protection. Likewise, an agreement between California and China outlined terms to cooperate on reducing air pollution--starting with California helping China set up institutions to regulate air quality. These deals were the first of their kind between China and a sub-national entity.
But, if our trip was any indicator of what lies ahead, it might be seen in our visit with Yao Ming. Just as sports have played a historical role in diplomacy, so too may state-level officials like Governor Brown. They are closer to the economic concerns and drivers of their constituents, without being held hostage to Washington politics or national populism.
California sent a clear message to China: we are open for business. And as we work with China, through commerce and areas of common benefit, perhaps we, as a nation, will be better positioned to solve the more intractable issues that divide us.
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