Iowa businesses have edge in China

CEDAR RAPIDS - In the aftermath of Chinese President Xi Jinping's visit to Iowa in February 2012, there were expectations that his 30-year relationship with the state would lead to more business opportunities.

Xi visited Muscatine for two weeks in April 1985 as a provincial official with a Chinese delegation looking into farming technology. He stayed in the home of a Muscatine couple, and took away fond memories as he rose to become China's leader.

Iowa soybean producers benefited in February 2012 when China signed agreements to purchase 8.62 million metric tons of the oilseed from U.S. suppliers in a deal valued at $4.3 billion. That business relationship has continued with Chinese buyers signing nine contracts on Dec. 16 of this year for a total of more than 1 million metric tons of soybeans.

'Fortunately for soybean producers, we provide something that they don't have enough of and that's soybeans,” said Grant Kimberley, director of market development for the Iowa Soybean Association.

'Soybeans are needed not only for cooking oil and human food-grade consumption, but also as feed for livestock. They need a lot of soybean meal to feed a growing livestock industry.”

Dave Miller, director of research and commodity services with the Iowa Farm Bureau Federation, said Chinese imports of U.S. soybeans are projected to be up 3 percent to 4 percent this year compared with 2013 - a record year.

'There has not been any slowdown in soybeans,” Miller said. 'Corn has been a different matter.

'China was a big importer of U.S. corn in 2012. They were a pretty good importer in 2013, and all that stopped at the beginning of 2014 with Syngenta's Mir 162 genetically modified corn, which had not been approved for importing.”

China was Iowa's second-largest export market in 2013, according to U.S.-China Business Council. While $2.3 billion of the $2.9 billion total was farm commodities, other industries such as aerospace, processed foods and machinery have developed a significant market presence in the world's most populous nation.

‘You can't parachute in'

'Success in China does not happen overnight,” said Colin Mahoney, senior vice president, International and Service Solutions for Rockwell Collins in Cedar Rapids, which has been active in China for more than 30 years. 'You can't parachute in a team to win a particular piece of business and hope that you're going to be better placed than companies that strategically invest in the country.

'We have tenure, and that has given us competitive differentiation.”

Mahoney said Rockwell Collins initially invested in bricks and mortar, establishing offices staffed by employees transferred from the United States. Those positions eventually transitioned to local Chinese staff.

'From that, you really get to understand the strategic intent of the country, and that's very important in the context of China,” Mahoney said. 'China has a strategic plan for the country that they periodically refresh, and aerospace is a big component of that.

'Living and breathing China with them allows us to understand the content of their strategic plan and their most important requirements. That allows us to position our product lines, people and relationships to support that strategy.”

Approximately 80 employees work for Rockwell Collins in China. Rockwell Collins China has achieved significant growth in all its activities, generating annual revenue of $200 million - primarily from airline and original equipment manufacturer orders.

Mahoney said maintaining a close working relationship with the Chinese aviation industry has been an integral part of Rockwell's overall strategy. The company is involved with a number of joint ventures with Chinese entities that involve research and development, product assembly and testing, installation and ongoing maintenance of avionics and communications equipment.

While Rockwell continues to expect sales growth in China, other businesses with significant Iowa operations are feeling the effects of a slowing China economy.

Scaling back

The U.S.-China Business Council this past Monday said companies are scaling back their expectations and business plans in the face of slowing growth, heightened competition and increased regulatory scrutiny from Beijing.

'Clearly, there's moderating optimism,” said John Frisbie, president of the business council. 'There's also a lot of policy uncertainty in the business community.”

China's top-line gross domestic product growth is expected to slow to 7.4 percent this year.

U.S. foreign direct investment for the first nine months of this year declined 24.7 percent, China's Commerce Ministry said, while the American Chamber of Commerce in China noted in its annual survey that U.S. companies are 'increasingly cautious.”

Moline, Ill-based Deere & Co. told investors last month that economic growth in China has been slower than expected. Company officials said Asian sales are projected to be down slightly in 2015, with most of the decline centered in China.

'We have seen a tremendous number of Chinese competitors enter the market in the past 24 months. This has created a situation of over capacity,” Ken Golden, Deere director of global public relations, told The Gazette.

'Products manufactured in China are for the Chinese market or the Asia region. Importing agricultural equipment into China from the U.S. or other countries on a large scale is not cost-competitive.”

Golden said Deere, with four manufacturing plants in China, has a Chinese national leading its efforts in that country.

'Deere has made a point of developing leadership talent that knows the market and customers and has empowered the leadership team there to make decisions that are best for that specific market,” Golden said.

Reuters News Service contributed to this story.