Chinese companies have invested more than $126 million in South Carolina-based operations and now employ almost 1,250 people in the state. Most of the investments here have been made in the past five years.

State Commerce Department officials say the relative newness of China's ability to invest overseas makes it difficult to gauge the financial impact Chinese companies have had on South Carolina and the rest of the country. But one sign the state is ahead is that the only Chinese manufacturing center in the nation is located here.

Haier America, an arm of the Qingdao-based maker of kitchen appliances, has a $40 million, 110-acre refrigerator factory and sales unit in Camden. It's planning to expand into an industrial park in the next few years.

A Chinese construction company, China State Construction and Engineering, arrived here in 1999 to build the Haier factory and saw so much potential for success here, it stayed. The firm opened a three-person operation in Columbia several years ago that has grown to about 25 employees. It recently bid successfully on a contract to build a school in the Palmetto State.

Chinese giants such as Techtronics Co. Ltd., a Hong Kong-based tool company, have opened several operations in the state. Techtronics' subsidiary, OWT Industries, employs 1,500 people at a Pickens plant, and its Ryobi Industries Inc., which makes power tools, employs 374 people at its Anderson headquarters.

Chinese powerhouses like these made close to $11 million in investments in South Carolina and hired 40 new employees in 2002, the latest year for which figures are available.

The success South Carolina has had in recent years is the result of a still-early, full-court press by state officials to foster the relationship developing between the state and the communist nation. Commerce department officials are working to establish a trade office in Shanghai, a bustling city with four times as many people as the entire state of South Carolina.

Agencies Upstate, such as the Greenville Area Development Corporation, along with private investors are helping a duo from Hong Kong build a 60,000-square-foot business incubator and trade hall in Greenville that they hope will entice more Chinese manufacturers, and eventually other international firms, to settle in the region.

The state is on this progressive track to lure Chinese companies to settle here at a time when the economic relationship between the U.S. and China is, at best, tenuous.

Presidential candidates point to the $54 billion trade deficit the U.S. has with China as a black mark in the relationship. And political leaders and candidates in South Carolina say setbacks in the state's textile and furniture industries are almost entirely the result of Chinese firms exporting cheaper goods to the United States, making it difficult for domestic producers to compete for customers.

But proponents of South Carolina's agenda to attract more Chinese-owned firms say the state is right to face up to the power China has in the global economy and to step out front as the recipient for whatever investments the country is willing to make abroad.

"Taking money out of that country up until now has been fairly controlled," said Bill Ward, director of the Center for International Trade at Clemson University. "You haven't expected any sort of investments with all the capital controls they have had. But those are likely to start to come off in the next couple of years, and someone has to be ready to take advantage of it. We just went ahead and stuck our neck out."

While other nations last year sank a whopping $54 billion in direct investments in China, the country had for decades imposed strict controls on the amount of money allowed to flow out of its borders. Those restrictions are slowly easing. Last year, China invested almost $3 billion in companies abroad, up almost 6 percent from 2002. The U.S. got almost $58 million of those investments.

At about the same time China relaxed limits on foreign investments, South Carolina leaders began to see the potential to get ahead in the game.

In 2002, China's ambassador to the U.S. made a stop in South Carolina, spurring state leaders to look for a "sister state" in China with which to build an economic bridge.

Last year, Gov. Mark Sanford decided to continue the outreach by making a trip to China. He was accompanied by a handful of Commerce officials, one of whom, John Ling, is solely responsible for recruiting Asian companies to expand here. Ling now is in China working to open a trade office in Shanghai by Jan. 1.

For less than $750,000 a year, the Commerce Department will operate the Shanghai office as well as trade offices already open in Tokyo and Munich.

Jack Ellenberg, director of business development for the department, said establishing a physical presence in China will be key to strengthening the bonds between the two regions.

"We've learned the value of having an office overseas because relationships are a critical part of it," Ellenberg said. "Being on their time zones, having access to them instantaneously. ... We can be in front of them on a regular basis to tell them why they should be in South Carolina."

The factors that make the state so attractive to Chinese firms start with accessibility to the Port of Charleston and cheaper shipping opportunities.

"We've taken advantage ... of the problems West Coast ports have had: labor troubles, ships not being able to unload," said Al Parish, professor of economics at Charleston Southern University. "We're right now one of the most efficient ports in the world, but we have to expand our port if we're going to stay competitive."

The Port of Charleston is, in fact, facing increased pressure to expand to keep up with the unprecedented growth in imports and exports. A lack of space on Charleston's waterfront has left port leaders scrambling to make more room for vessels, while ports in Savannah, Ga., and Hampton Roads, Va., have seemingly limitless room to expand.

At the same time, the amount of exports the state is sending to China has nearly doubled since 1999. Last year, South Carolina shipped almost $353 million in goods there, which port officials say will help lay the groundwork for Charleston as a gateway for Chinese companies into the U.S.

South Carolina already is seen as a gateway for China to major metropolitan areas on the East Coast.

"Accessibility to the market is the initial interest," said Ellenberg, the commerce official. "These are products that are bound just for the North American market. (Chinese companies) ask the question, 'Why not build here versus ship here?' A lot of that is shipping costs and the time it takes to get here. That's time and money wrapped up in transit."

Firms like Haier America and Techtronics also had essentially tapped out the Chinese market before expanding here.

"Without exception, these are people whose companies had become as successful as they could in China," said Clare Morris, communications directorfor the Commerce Department. "The only way to reach the next level of success was to expand to the U.S."

The name recognition most of these firms have in China gives South Carolina an advantage over states that just started competing for a piece of the pie.

"One of the values we have with already working with so many large firms is we have found the companies are very accessible and very agreeable in speaking to other companies around the globe about why they've decided to invest here," Ellenberg said.

To keep those investments flooding in, economists say the growth of research programs at South Carolina's universities will be essential to create the skilled work force companies need.

"Assembly-line operations -- those tend to be labor intensive, and labor is much cheaper in China and it will be for a long time," said Clemson's Ward. "The parts of the production process that include research and design, after-sales service, tailoring the product to suit the local market -- that's where we can compete.

"The advantage we have here is that you can protect intellectual property here," Ward said. "The universities play such a critical role in the kind of research jobs we are trying to create."

U.S. laws on patents, trademarks, trade secrets and copyrights are much stronger than China's, and corporations here have to cut through a lot less bureaucracy to make use of them.

Hong Kong native Vivian Wong, who, along with her brother, Peter Kwan, is working to build the $3 million international incubator in Greenville, said support from South Carolina's political leaders has often made it easier for Chinese firms to do business here.

"The climate is right and the timing is right," Wong said.

Wong says she's already built ties to the free-trade zone of Tianjin, a heavily industrial region in China trying some progressive tactics to overcome years of economic decline. The government there offers economic incentives and subsidies for companies to expand overseas.

Wong said she already has interest from small Tianjin bicycle manufacturers, textile makers and plastic packaging producers who hope to exhibit goods and set up small offices at her Greenville facility until they can afford to build big in South Carolina.

But there is a downside to this burgeoning relationship that some trade leaders say South Carolina isn't considering -- the struggle to keep many of its own homegrown firms in business.

"At the same time you're wiping out American companies, you're helping Chinese companies grow," said Patrick Mulloy, who serves on the U.S.-China Economic and Security Review Commission, a congressionally chartered research agency based in Washington, D.C.

"It's not what's best for the country in the long term," Mulloy said. "The profits don't stay here. The long-term decisions about whether a plant stays open or closes down aren't in the hands of domestic owners or local governments. It's in the hands of a foreign owner. I don't think it's a good situation."

Clarke Thompson, director of international trade for the state Commerce Department, said the Chinese companies casting lines in South Carolina know they have to be seen as friends, not foes, to communities here.

He said companies like Haier initially had difficulty finding acceptance in a state where people blame outsourcing and the influx of Chinese imports for drastic job losses. The companies have started now to put emphasis on hiring local workers and "fitting in" with their communities.

"It's a big, big step for them to take," Thompson said. "They had been behind the wall for so long that doing business and investing somewhere else is still a foreign thing to them. At first, they had all Chinese managers. They didn't quite fit into the community, (and) you had the whole problem of managers not speaking English. ... They realize now they have to integrate more with the community."

BY THE NUMBERS

$2.9 billion

Amount China invested overseas in 2003

$54 billion

Amount other countries invested in China in 2003

$33.2 billion

China's total overseas investment since the early 1980s

$400 billion

Total amount other countries have invested in China since 1978

$126 million

Amount China has invested in South Carolina since the late 1990s

1,250

Number of South Carolinians employed by Chinese-based companies

Source: State Commerce Department

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