Emerging China offers market potential for high-tech, agriculture, energy interests

THE SAN FRANCISCO CHRONICLE

Beijing, CHINA — Governor Arnold Schwarzenegger — as a politician, an actor and a businessman — has carefully cultivated a larger-than-life profile.

Little wonder that this week, coming off a spectacular political defeat, the former movie star — who as governor happens to lead one of the world’s largest economies — is traveling 6,000 miles and eight time zones to a behemoth of a foreign country to make the case that he is back on top.

California’s Republican governor will sweep into the luxurious Grand Hyatt Hotel here Monday to begin a six-day trip through China — the world’s biggest marketplace, the home to 1 in 5 human beings on the planet, and what Ted Fishman, author of “China Inc.,” a study of the rise of a new business superpower, calls “the center of the largest rural-urban migration in human history… and a focal point of international venture capital.”

With 75 high-profile state business leaders, more than a dozen reporters, and Maria Shriver, the state’s first lady, traveling with him, Schwarzenegger has left nothing to chance. The trip, planned for months, now is intended to minimize the bitter defeat of his special election initiatives and restore the governor’s image as a star-powered pitchman and ambassador for his state.

The trip is a savvy political move, said Bill Whalen, a research fellow with the Hoover Institution at Stanford University, because it will help Schwarzenegger change the channel from the divisive, bitter special election debate and negative ads that have swept California in the past few months.

The message of the trip is: “This is what governors do. They travel, they lead trade delegations and they represent the state,” Whalen said. “And that he’s going back to the business at hand, which is leading California.”

Because of he is known to millions of Chinese as a Hollywood celebrity, the governor’s visit will rise to “the level of a presidential trip,” said former San Francisco Mayor Willie Brown, who has been to China on official trips five times. “They’re going to treat him like the head of a nation. It will be a real eye-opener.”

President Bush will follow the governor into China with a visit later in the week.

Indeed, the governor’s trip has already involved diplomatic calls to Chinese officials by former secretaries of state Henry Kissinger and George Shultz, sources said, as well as business outreach by titans of technology and moviemaking.

The governor will sit in on events on energy and sustainable development, attend talks on business with the American Chamber of Commerce, speak at a university, tour industries, meet with officials including Shanghai Mayor Han Zheng, and conduct VIP diplomacy at a banquet at the Great Hall of the People.

The California governor also plans to grab the spotlight with some signature Hollywood glitz including a red carpet premiere of the new Harry Potter film, a Special Olympics event expected to draw thousands, and a trade show in Hong Kong’s Victoria Park to showcase “California Grown” produce.

Schwarzenegger will arrive Monday in the bustling city of Beijing, the heart and soul of the nation, which in parts has a Las Vegas-like feel of booming growth and glitz. Stunningly designed skyscrapers dominate the skyline, five-star hotels bustle with foreigners and Chinese cutting deals, and traffic jams are fast replacing the bicycles that once ruled the streets here.

Business people at work in Beijing say the governor has chosen a good time to push California’s economic interests.

“There’s a certain energy about it — an excitement about how it’s going to work here,” said Hal Josephson, president of San Francisco-based MediaSense, a strategic marketing and consulting firm. Josephson noted that so many American firms — like his — are now trying to establish business here that there are nearly seven dozen law firms ready to help them.

But there were also sobering reminders that China, even in its stature as a growing entrepreneurial market, remains a closed, government-run nation. Journalists covering Schwarzeneger hold official J-2 visas. They were warned by locals that they could expect official monitoring of their e-mails and phone calls, and that they should guard their computers and files and expect them to be opened and searched.

Schwarzenegger is not the only state politician heading to China this month to stake a claim to a market that could boost California’s economy: San Francisco Mayor Gavin Newsom and U.S. Sen. Dianne Feinstein will help commemorate San Francisco’s sister city relationship with Beijing a week later.

“All of America is in China right now… because there are real practical reasons for being there,” said Fishman, the author. “The China agenda, for a long time, was an agenda of big corporate America, and now politicians are finding that the rest of American business needs to connect to China, too.”

“It’s percolating down … because we’ve moved past the denial stage, where people tried to find ways to compete with China,” he said. Instead, Fishman said, leaders like Schwarzenegger are looking to harness China’s huge markets as a revenue producer for California’s interests in high tech, energy, agriculture and entertainment.

But the governor’s trip has raised concerns at home about whether business leaders who donated hefty checks to underwrite the visit will now be afforded access and beneficial policy decisions in Sacramento.

The trade mission is being paid for with the help of two nonprofit committees founded by Schwarzenegger that have raised money for his political campaigns and his policy efforts: the California Protocol Foundation, headed by Charlotte Mailliard Shultz, and the California Commission for Jobs and Economic Growth, headed by Mark Mosher. The state’s Business, Transportation and Housing Agency, headed by secretary Sunne Wright McPeak, also solicited funds for the trip.

Also donating to the governor’s causes, and pushing the China mission: the California Chamber of Commerce, whose chief financial officer, Larry Dicke, also serves as CFO of the nonprofit protocol group.

The Chronicle reported in September that a Silicon Valley high-tech advocacy group, Tech Net, had encouraged business leaders to avoid paying directly for the trip and instead to make a $50,000 donation to Schwarzenegger’s California Protocol Committee because the contributions “are not required to be reported.”

Dicke said then that the delegation is determined by Schwarzenegger’s office, and the protocol group provides “funds to lessen the burden on government.”

Reporters seeking to go on the China trip, including from The Chronicle, have been billed $2,000 by the California Protocol Foundation to pay for two air trips and bus transportation within China. So far, the committee has not provided news organizations with requested detailed accounting of what the fee covers.

Schwarzenegger, in a recent interview with The Chronicle, said he would not ask donors to the host committee to be made public as his predecessor Democrat Gray Davis did.

“It’s not my committee,” Schwarzenegger said. “There are people that are working very hard to raise this money for us so we can go to China. … Then the taxpayer doesn’t have to foot the bill.” And, he said, “I have not the foggiest idea who is putting money anywhere.”

But Bruce Cain, who heads UC Berkeley‘s Institute of Governmental Studies, said that notion is simply not credible given that business leaders on the trip will be prominent at all Schwarzenegger’s events.

“This raises all kinds of problems about using public office to promote the commercial benefit of your friends,” Cain said. “In spirit, it skirts what we’ve been trying to do for the last 50 years, which is keep people’s motives in office zeroed in on what’s good for the public.”

Among the companies that will be represented on the trip are Chevron, Kikkoman Foods, Abbott Labs, Disney, Pfizer, Qualcomm, United and Target.

Doug Heller of the Foundation for Taxpayer and Consumer Rights, the watchdog group that runs the ArnoldWatch Web site, said, “The larger public policy issue is: Arnold Schwarzenegger has six days of travel around China — not just with people funding his trip, but with people who have funded his entire political career.”

“This is payback time,” Heller said, “because when you’re at a party in China with the governor, you have more influence than when you’re talking to a deputy assistant.”

Labor leaders, who say they have concerns about outsourcing California jobs to China, also raised questions about the mission.

“Labor is not represented; it’s all big business,” says Art Pulaski, who heads the California Labor Federation AFL-CIO. “We’re in a huge competitive battle with China for jobs… but we have no confidence that he is even considering protecting (them). His attitude is ‘survival of the fittest. You’re on your own.’ ”

But California Chamber of Commerce head Allan Zaremberg said labor will be
winners, too, if business and government leaders can make agreements and tap the
possibilities of a new and apparently limitless market in China.

“There’s such an opportunity here,” he said. “There’s an enormous impact on jobs in California, and the ability to have a global economy. … It’s a two-way street, obviously: We generate jobs there, and we export so much, whether it be technology or entertainment.”
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Governor’s agenda

Here are some of the business issues Gov. Arnold Schwarzenegger hopes to highlight during his visit to China beginning Monday:

– Intellectual property rights: The International Intellectual Property Alliance, a trade coalition, estimates that 95 percent of motion pictures, 85 percent of all music, 90 percent of business and entertainment software, and half of all books sold in China were pirated copies — a loss estimated at $2.5 billion in 2004. With high tech and entertainment leaders along for the trip, “Schwarzenegger has to make the case that… a lot of people are waiting in the wings to make their technology plays if China will work cooperatively with our best companies,” said author Ted Fishman, who wrote “China Inc.,” a study of the rise of a new business superpower.

– Environment and energy: World environmental groups say that of the world’s 20 most polluted cities, 16 are in China. China knows the stakes, writes New York Times columnist and author Thomas Friedman: It must either clean up its act or cease to thrive. And California companies producing green technology could be the winners if they can tap a huge new market here.

– Tourism: The industry, which is California’s fourth-largest employer with 900,000 jobs, generates $82.5 billion in direct travel spending as well as $5.2 billion in direct state and local revenues. State tourism officials say they want to attract more visitors from China, which could become the world’s largest source of outbound travelers by the end of the decade. Already, the state is a gateway for Asian travel because of family and cultural bonds; it is a destination for half of all Chinese tourism to the United States.

– Agriculture: Two dozen agriculture-related industries support the California Grown program, and Schwarzenegger will highlight California wines, nuts and fruits at a huge trade show urging Chinese consumers to “Buy California.”
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China’s clout

The following statements are taken from “China, Inc.: How the Rise of the Next Superpower Challenges America and the World,” by Ted Fishman (released in February):

— China has 320 million people under the age of 14 – more than the entire population of the United States.
— China has 100 to 160 cities with populations of 1 million or more – compared with nine such cities in the United States.
— China has more than 300 biotech firms that operate unhindered by ethical standards boards, religious groups or animal rights lobbies.
— On average, U.S. companies make a 42 percent return on their China operations.
— More people use the Internet in China than in the United States.
— China has more speakers of English as a second language than America has native English speakers.
— General Motors Corp. expects the Chinese automobile market to be bigger than the U.S. market by 2025. Some 74 million Chinese families can now afford to buy cars.
— Every month, China must build enough urban infrastructure to accommodate a city the size of Houston in order to absorb the 300 million rural Chinese who will move to cities in the next 15 years.