Venturing capital

Former White House Chief of Staff Bill Daley discusses leading a delegation to lure Chinese investment to Chicago

Venturing capital

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Reading headlines in the West, one might assume that the Chinese are snapping up most of the world’s assets, from prime real estate in London to North American shale gas plots. But the truth is that, while Chinese overseas direct investment (ODI) is growing rapidly, many Chinese companies are just on the cusp of investing in other parts of the world. Chinese (ODI) surpassed US$65 billion a year in 2011, but that was only a fraction of the world’s total ODI outflows of US$1.7 trillion.

To combat flagging growth, many US cities and states are hawking themselves in China in hopes of capturing this growing direct investment as more Chinese companies consider venturing abroad. One delegation from Chicago came through Shanghai, Beijing, Hong Kong and Guangdong in late January and met with dozens of business leaders and several senior government officials, including the minister of commerce, the foreign minister and the newly inaugurated mayor of Beijing.

CHINA ECONOMIC REVIEW spoke with William M. Daley, former White House Chief of Staff to President Obama, about the delegation’s efforts to develop closer trade and investment ties between Chicago and China. Daley was joined by Michael J. Sacks, the vice chairman of World Business Chicago, the city’s economic development organization, and Don Welsh of ChooseChicago, the city’s tourism agency.

“Hopefully, they will first look to the US, then look to Chicago,” said Daley, who is also the former US secretary of commerce and the son and brother of former Chicago mayors. Chicago is already home to the regional headquarters and offices of Chinese companies such as auto parts maker Wanxiang, renewable energy firm Xinjiang Goldwind’s subsidiary Goldwind USA, China Telecom, communications equipment maker Huawei, auto maker BYD and the Xinhua News Agency. The delegation hopes that these prominent Chinese companies will bring more in their wake.

What trends are you seeing in Chicago in terms of Chinese immigration and investment?

William M. Daley: We met with a major developer yesterday who said he’s already been looking at property in or around Chicago. Wanxiang, they have their headquarters right outside of Chicago. Once you get a company as first class as that, it begins to attract [other companies]. The visit of President Hu Jintao to Chicago, the only other city other than Washington, two years ago, was a big plus for us. And then of course the Boeings, the Motorolas, the McDonalds, all of those Chicago-based companies that do a lot of business and have been in China for a long time, help with that connection. To some degree, Chicago still suffers from the “coastal syndrome,” as many places do in America with foreigners. [They visit the] West Coast, East Coast, and lots of people fly over the middle. But I think we’re changing that dramatically.

Don Welsh: On the tourism element, Mayor Emmanuel has given us a tourism target of 50 million visitors. And he specifically has targeted rapid growth within China. There’s a lot of effort there. Probably the biggest roadblock, not only in Chicago, but also in the US, has been the visa issue, and [US] Ambassador [to China Gary] Locke has been very focused on that for the past year. So what was probably the biggest impediment for Chinese visitors has been eliminated. So it’s come from literally extensive months [to obtain a visa], and now the wait time is literally a matter of days. We have in excess of about 93-94% approval.

How is the city and World Business Chicago pitching itself to Chinese businesspeople?

Michael J. Sacks: From a business perspective, direct investment from China into the US is growing at a pretty significant rate and is expected to grow at a significant rate over the next half decade. The largest part of our economy in Chicago is headquarters and business services. And so we think for any company coming from anywhere in the world, but in particular from China, that we are a very competitive location for centralized management. Chicago has an unparalleled transportation network – road, rail and runway – with more direct flights from O’Hare to everywhere in the world on a daily basis than anywhere else in the United States. So we have great access to markets. We are the only inland city in America to project a global footprint. We have a diverse population, a welcoming population. More students study Mandarin in Chicago than any other school system in the nation. With regard to human capital, our educated work force, our combination of quality of life and cost of living, Chicago is a very competitive place for a management function to locate. Twenty-nine Fortune 500 companies call Chicago home. So as Chinese businesses are looking to deploy capital and make investments in the US, Chicago is a great place for them to invest directly but also a great place for them to manage their operations.

Daley: Mayor Emmanuel with his World Business Chicago has really charged Michael Sacks and the team, and ChoseChicago, for the tourism side of it, to ramp up their game. He hopefully will come out [to China] by the end of the year. [We’re] soliciting those Chicago-based companies that do a lot of business in China to promote us and promote the opportunities. It’s a pretty concerted effort. Obviously there are a lot of financial constraints for big advertising campaigns and that sort of stuff. As you know for state and local governments in the US, it’s been pretty tough in the last few years. They don’t have a lot of extra money to be spending. So it has to be done through tour guides and some other organizations. 

I’m curious to hear more about your interactions with businesses and companies. What roles do Chinese provincial or city governments play in the work you’re doing?
Daley: The truth is, that’s one of the shortcomings of American cities. Other than sister city programs, business to business at the city and provincial level, there hasn’t been a lot of that. And they’re trying to figure out how to do that, because the growth in some of these provinces. But it’s finding those companies that have gotten sophisticated enough, not just big enough, but sophisticated enough to go in other parts of the world and do business. Not an easy thing to do. And there will be lots of stumbles and a lot of problems. That’s a real challenge.

What are some of the biggest obstacles for Chinese investors?

Daley: I think there’s a misconception. Even in this trip, and I’ve heard it since I was commerce secretary under Bill Clinton. People are paranoid about this whole CFIUS [Committee on Foreign Investment in the United States] thing. Obviously there have been some big issues – Huawei, and even back to the CNOOC/Unocal deal. They get a lot of publicity. But the majority of investment that comes into the US and will come into the US, private to private, will have nothing to do with CFIUS. So that’s number one. Number two is the coastal syndrome that people have. West coast, east coast. But Chicago has done a lot to focus here. We have more young people in our school system learning Mandarin than any school system in America, and that will pay dividends over time. And obviously a big draw is the number of graduates from the University of Chicago and [Northwestern University business school] Kellogg and University of Illinois that are over here succeeding in business. We’ve got to find a way to connect with them.

Sacks: We were with Ambassador Locke this morning, and we actually went through the CFIUS numbers.  And while there have been a couple of transactions that have gotten bogged down and they get a lot of attention, when you look through the numbers it’s not really something to be concerned about – particularly private industry in some sectors of the economy. We really don’t see a lot of obstacles. I think there’s a lot of opportunity. We’re very encouraged, very positive. The direct investment is coming. There seems to be a consensus in all of our meetings that the growth in direct investment will be robust in the next five years. We’re excited to tell our story and compete with the other cities in America for that investment. Mayor Daley, prior to Mayor Emanuel, worked very hard to build a relationship with China. He wanted it very clear that the Chicago community, our citizens and business community, viewed investment as a positive, productive thing, and that we were an open, forward-facing city with regard to China. And so he worked hard on that, from the Mandarin program in the schools to numerous visits and delegations here, and was really rewarded for all that effort with President Hu visiting Chicago on the back of his last Washington trip. Mayor Emmanuel has taken all that great work that Mayor Daley did and has said that’s a priority for him to continue that and further that. Our trip this week, him sending us over this week, is one example of that, we hope that he’s going to come visit in the fall of this year.

Mr. Daley, you recently visited the White House. Can you tell me about the view of China there? What does the government most want to improve upon in its relationship with China?

Daley: I haven’t been there for a year, so this is my opinion outside of the government. The president and Secretary of State Hillary Clinton have spent four years in a very concerted way and a very positive way to move this engagement with China forward. We have a lot of issues, and as China has grown and our relationship is broader, challenges occur more often. But there’s no question in my mind that the president sees this relationship as vital for the world. Economically, we’re important to China, and China is important to us. And with the problems in the world right now, the two largest economies have got to be engaged. And I think the president’s done that. Look at how few if any real problems there have been, real crises. Even President Bush, very early on he had the incident with the aircraft. And so far, the first four years, and I think the second four years might be the same, the tension is just not there. It’s getting institutionalized. It’s not one-offs, it’s not a crisis-driven relationship. Again, there are a lot of issues and challenges and differences between us. But there’s a mutual respect, a mutual understanding that everybody needs everybody. We may have some different ways to approach it.

Will there be a shift with the new government in China, and the changes with the Obama Administration?

Daley: I don’t see a policy change. The president didn’t change, the policy comes from the president. So I think you can look at the first four years as far as the engagement goes and pretty much predict that that will be the continuing relationship. And here, obviously they’re in the process of a smooth transition here so far. They have a lot of new ministers that need to be put in, so that will be interesting to watch. But my sense is, it will be a very smooth transition.