November 11, 2009 at 1:00 am

Michigan benefiting from increased exports to China

Frank Kestler, president and CEO of Mark One in Gaylord, stands by a multimillion dollar steel-cleaning machine which is headed to China. (John L. Russell / Special to The Detroit News)

Washington -- When President Barack Obama takes off for China on Thursday, a steel-cleaning machine manufactured in Gaylord will be starting its journey for the Asian economic giant as well.

The overlapping journeys highlight the high stakes of the president's trip for Michigan, which has a complicated, evolving relationship with the fastest growing economy in the world.

Frank Kestler, president and CEO of Mark One, is ecstatic about the sale of a multimillion dollar steel cleaner to a U.S. company operating in China that will put it to use on large, industrial drums.

"That'll be our biggest sale this year," said Kestler, whose company employs 50 people. He hopes the president's trip sparks even more interest by China in U.S.-made products.

"The Chinese are spending a lot on infrastructure and on building manufacturing plants. We'd like to expand our exports to China. We are on the right track," Kestler said.

Michigan is benefiting from its soaring exports to China, as well as investment dollars flowing both ways.

Of the state's Big Three automakers, General Motors Co. in particular is benefiting from its partnerships producing vehicles in China, catching the wave of a growing Chinese middle class that increasingly sees U.S. brands as a status symbol.

In the first nine months of 2009, GM sales in China hit nearly 1.3 million vehicles, a jump of 55.6 percent above the same period a year before.

Ford Motor Co. saw record sales of 119,338 units in the third quarter, and 316,639 units through the first nine months of the year in China.

"We intend to continue strong future growth," said Whitney Foard Small, Ford's Asia Pacific spokeswoman.

She added that Ford announced last month a third plant in China that will increase annual capacity at the Changan Ford Mazda Automobile Co. joint-venture operations to 600,000 units by 2012.

Chrysler has no plants in China, said spokeswoman Linda Becker.

"A key objective of the president's trip will be to reaffirm the basis of a stable, mutually trusted and beneficial relationship between the two countries. It sounds trite, but at a fundamental level, it is not," said Stephen Collins, president of the American Automotive Policy Council, the Big Three's trade group.

But some of the state's employers have been hammered by alleged unfair trade practices by China, including currency manipulation, intellectual property theft and subsidies to make its exports cheap.

Look no further than Sappi Fine Paper, which announced in late August it was permanently closing its Muskegon mill, putting 190 workers out of work.

In September, Sappi and three other U.S. companies filed an unfair trade petition against China and Indonesia, alleging that subsidies not allowed under world trade rules are the reason the countries controlled 30 percent of the U.S. market for coated paper in the first six months of 2009 -- nearly double that of the same period a year before. China is accused, for example, of providing its paper producers low-interest loans, tax subsidies and grants, as well as undervaluing its currency.

"China is an incredibly important market, so it's very important to straighten out problems in the trade relationship," said Rep. Sander Levin, D-Royal Oak.

"Michigan has a stake in China becoming a competitor that plays by the rules," said Levin, who chairs the House Ways and Means subcommittee on trade.

One sore point has been China's reluctance to let its currency appreciate against the U.S. dollar. That means the weak U.S. dollar hasn't made U.S.-made goods as cheap to Chinese consumers as in other large markets, such as Europe.

"The weak dollar hasn't done us much good with the Chinese," said Don Grimes, a senior researcher at the University of Michigan's Institute for Research on Labor, Employment and the Economy.

The president, who will also stop in Japan, Singapore, Indonesia and South Korea before returning on Nov. 19, will focus on economic and security issues.

"China is an essential player on the global issues that are ... center stage of our agenda -- global economic recovery, ... climate change, energy, North Korea, Iran, nonproliferation issues generally, success in Afghanistan and Pakistan, arms control," Jeffrey Bader, the senior director for East Asian affairs in Obama's National Security Council, told reporters Monday in a preview of the trip.

"On none of these issues can we succeed without China's cooperation," Bader added.

Obama's trip coincides with Chinese trade officials having launched an investigation into whether the U.S. automobile industry is getting unfair subsidies, such as the "cash for clunkers" program and low-interest loans.

But the Big Three sell about 9,000 U.S.-produced cars total to China, so some analysts see the move as a pushback to U.S. complaints about dumping against China.

"The Chinese love American stuff," said David Cole, chairman of the Ann Arbor-based Center for Automotive Research.

"The most serious danger right now for Michigan is any trade wars with China. The president needs to be very, very careful, and encourage trade," Cole said.

Exports from Michigan to China have skyrocketed, from $212 million in 2000 to nearly $1.3 billion in 2008 -- a 500 percent jump, compared to a 30 percent increase in overall Michigan exports during the same period.

China's move to clean up its environment has it looking at Michigan as well, which had a similar experience of cleaning up its waterways and air from an earlier industrial era when there were environmental safeguards.

Ann Arbor-based Atwell-Hicks, an environmental consulting firm, is working with the Charlan Technology Development Group to improve water qualify for municipalities in Chongquing, China's largest provincial-level municipality.

Atwell-Hicks is doing similar work with China's Hefei University's Institute for Water Quality through a joint venture company, Atwell Anhui Environmental Consulting Ltd., to help it clean up degraded water in the Anhui Province and other locations in the country, according to William Henderson, vice president of Atwell-Hicks' environmental and natural resources division.

"In efforts to enhance its environmental regulations, China is in the process of revising its environmental regulations to conform more to U.S. Environmental Protection Agency criteria. With expected implementation in 2010, these new environmental regulations ... will have a profound effect on cleaning-up the environment from pollution," said Henderson, adding that his company is helping Chinese facilities meet the coming environmental standards.

Wayne County Executive Robert Ficano said he hopes the president's trip adds to the momentum in Michigan by focusing on increasing U.S.-China trade and investment.

Among those on the trip are representatives from Atwell-Hicks; Miller Canfield, a Troy-based law firm; and House Speaker Andy Dillon and Wayne County Commissioner Burton Leland. They return Sunday.

This is a high-stakes moment for Michigan, Ficano said, because China is looking for smart places to invest money.

"Investment goes where it's welcome and stays where it's wanted," Ficano said Friday before catching a flight to China on his fifth trade mission. The county has three economic development offices in China.

"We have 40 to 50 Chinese-owned companies in Wayne County alone," said Ficano. "China is attracted to Michigan's technological and engineering know-how. We want to do everything we can to encourage that."

This month, for example, BWIGroup of Beijing paid $100 million to buy the former Delphi Ride Dynamics and Brakes.

And investments by Michigan-based companies in China can pay off back home.

Midland-based Dow Corning will open its second plant not far from Shanghai next year.

The profits from the new plant can be used for research and development in the company's Midland headquarters.

"We see a lot of long-term growth in China that will be helpful to our company," said Dow Corning spokesman Jarrod Erpelding.

"Our healthy business there will help us grow jobs here in Michigan. We hope the president strengthens business relationships with China for companies like ours.""> (202) 662-8736