Nevada's Lt. Gov. Brian Krolicki discusses the 'spectacular' growth in trade and investment between China and Nevada in the last 10 years during a recent interview in Beijing.
*This is part one of “China n' USA: On State Business,” a new series by NBC News that will look closer at the efforts by state governments to assist American companies doing business in China and attract foreign direct investment from the mainland.
BEIJING – For Nevada businessman Tim Wallace, one of the biggest challenges doing business in China was figuring out what Chinese chicken tastes like.
“When it comes to custom flavors … every region has its own particulars,” said Wallace, whose company makes food flavoring. “The cheese in the U.S. doesn’t taste exactly like the cheese in Europe and the milk in China is not the same as milk in the U.S.”
And Chinese chicken?
“Chicken flavor was a unique one. This was a little different from the normal.”
Twenty years ago, Wallace was busy selling food ingredients in a crowded and mature market in the United States. At that time, many of his fellow import-exporters viewed international exports as a prohibitively expensive logistics nightmare. Wallace, however, saw an increasingly saturated domestic market with shrinking growth potential.
So his eye started to drift east – toward China.
“People were telling me that only 5 percent of people in China can afford packaged food,” Wallace said in a conversation with NBC this week. “But I’ve always been pretty good at math, and China had 1 billion customers – and 5 percent of 1 billion still sounded like a pretty good chunk of business.”
With that simple math, Wallace struck out into China and gradually pecked out a business. Along the way, however, he learned that developing chicken flavoring for the Chinese market was easy to mess up.
A Chinese client had approached his company, the Las Vegas-based Flavor Consultants, to create a chicken flavoring for a new instant noodle product to be sold in China. However, the client complained that the flavoring Wallace’s company produced just didn’t taste like Chinese chicken.
“We had the standard chicken flavors … and they found one they liked, but it wasn’t quite the same style they were looking for,” said Wallace, who worked closely with flavor chemists, known as flavorists, in the United States.
“One of the flavorists I was working with out of Cincinnati said, ‘Man, it’s kind of a weird flavor. It’s kind of like a barnyard after a rain.’”
And with that, Wallace suddenly understood the flavor profile the client was looking for: the taste of chicken fresh from the yard right into the cooking pot.
“If that’s what the customer is looking for, let’s give it to them,” Wallace thought. “It may taste terrible to us, but then again there are a lot of things that may taste terrible to us that the world loves.”
Bucking recessionary trends across America, Flavor Consultants has continued to grow over the years, chalking it up in no small part to the more-than 50 percent increase in exports to China during the past five years.
Wallace's success has, in part, led to his home state now having China as its third largest foreign trading partner. From 2000 to 2010, Nevada’s exports to China grew an astounding 4,797 percent – compared with the 270 percent increase in worldwide exports during the same time period.
Picking up on this success, the Nevada Commission on Economics (NCED) has appointed no fewer than three independent state representatives to China. A fourth is designated to handle just tourism.
It’s a far cry from the days when Wallace first encountered the NCED nearly 17 years ago and ended up wring a $250 check to the agency’s underfunded international trade representative to help him pay the application fee for federal funding to attend international trade shows and missions.
That investment, and the subsequent ones by state agencies and other business people, has proved a wise one. With natural resources like lithium and copper, vast geothermal and solar potential, gold deposits that make the state the world’s fifth largest gold producer, Nevada can only benefit by close ties with a resource-driven economy like China.
The Nevada Council of Tourism created a Chinese language tourism page as one way to help Chinese tourists learn more about the state.
Trade will be critical as Nevada begins the laborious task of diversifying revenues long dependent on the travel and hospitality industries. In particular, green energy has become a rallying cry for state officials looking to rebalance the economy.
And they’ve been aggressively courting China, one of the few countries with plentiful financial capital to invest, and seeking to persuade Chinese companies to open their American operations in their state.
Putting Nevada on the map
Travel and tourism, however, are not being ignored.
“The saying goes in China, 'If you haven’t been to America, you have not really traveled abroad. If you haven’t been to Las Vegas, you haven’t really seen America.’" So says Karen Chen, Chief Representative of the Nevada Commission on Tourism’s (NCOT) China Office.
The siren song of deep-pocketed Chinese tourists has simply become too alluring to ignore. According to figures from the China Travel Academy, in 2010 more than 57 million Chinese traveled abroad and spent $48 billion dollars. And the World Tourism Organization estimates the total number of outbound tourists from China will reach 100 million by 2020.
Since Nevada's tourism office opened in Beijing in 2004, the office has worked aggressively to promote the state as a destination tourist site and a gateway for America’s West Coast. It opened a second office in Shanghai last year.
Establishing a presence early on in Beijing was wise. Many of the major Chinese travel agencies, national tourism organizations and media agencies are headquartered in the capital. And as the nation’s burgeoning middle-class have begun spreading their wings and beginning to travel internationally in earnest, Chen and her team have persuaded tour operators to include Las Vegas as a stop in large-scale mass tours of America.
In essence, Nevada forced its way – via Las Vegas – into the Chinese people’s roadmap of the United States.
“Based on our sources, about 1 million Chinese tourists visited the United States by the end of 2010 compared with 300,000 when our office opened in 2004,” said Chen. “Exactly how many tourists visit Nevada is a difficult statistic to acquire, but we know that most Chinese visitors to the U.S. make a stop in Las Vegas and the Grand Canyon.”
Come for the sin, stay for the sun
Las Vegas may be Nevada’s tourism crown jewel, but it has some stiff competition on China’s home turf: Macau.
As early as 2005 the former Portuguese enclave’s vast potential was evident in one stunning example: The Sands Macau opened in 2004 at a cost of $240 million -- and paid for itself in just one year. Just last month, Macau's casinos earned $3 billion in revenue.
When NBC News interviewed William Weidner, COO of the Sands Corporation, back in 2006, he observed, “Within a five hour flight of Las Vegas there are approximately half a billion people. Take that same flight circle, move it to Macau, and there are 3.1 billion people. That's the enormity of the opportunity."
Macau’s success and impressive statistics have not fazed Las Vegas backers, largely because Nevada-based casinos are profiting handsomely through their own branded operations in Asia, allowing them to compensate for sluggish growth back home during these tough recession years.
Jae C. Hong / AP
With more than 57 million Chinese traveling abroad while spending $48 billion dollars, U.S. state tourism offices are working harder than ever to attract tourists from China
Nevada's mission, however, is further complicated by the growing sophistication of Chinese tourists.
“Since 2004, we have marveled at the growth of Chinese outbound tourism as well as the refinement of tastes and the increased budgets, just getting on a bus and snapping pictures is not enough for most Chinese travelers anymore,” said Chen.
“There is interest Nevada’s history, especially Virginia City and the Chinese role in the development of the American West,” she continued. “Even Area 51 and Nevada’s nuclear test site are just some of the things many Chinese have read about or have seen on television.”
Nevada is catering to the new sense of adventurism by tapping deeper into its natural gifts: skiing in Lake Tahoe, golfing in Mesquite and trying out the cowboy life in Elko. All have become attractions offered up to travel operators through trade shows and through its Chinese language website.
One creative attempt to draw tourists beyond Las Vegas is currently taking place: this week, northern Nevada played host to the Miss China Cosmos Pageant semi-finals.
“Eighteen of the loveliest Chinese women on the planet will be assembled in northern Nevada… and it really gives us an opportunity to really showcase another area in Nevada, other than Las Vegas,” said Brian Krolicki, Nevada’s Lt. Governor, during a quick trip to Beijing last month.
Glamour, though, is only part of the picture.
Blessed with plentiful geothermal hotspots and sunny skies, Nevada in recent years has aimed to diversify its economy so it’s less dependent on tourism.
Not for nothing, did Sen. Harry Reid (D-Nev.) once boldly declare his state was poised to one day become the “the Saudi Arabia of renewable energy.”
In 2011 alone, both Reid and Krolicki paid visits to China to promote their home as a future renewable energy hub and to investigate opportunities for Chinese foreign direct investment (FDI) into the state’s nascent clean tech efforts.
These visits and others to drum up business in the state have proven fruitful for Nevadan businesses.
Earlier this year, Nevada-based Applied Soil Water Technologies and Shengong Environmental Protection Company of Shanghai signed a partnership agreement to market $85 million waste-to-energy recovery and recycling facilities that would be the first of its kind in the United States and could potentially reduce the flow of solid refuse into landfills by 85 percent.
Perhaps most prominent of such potential green deals is a $6 billion project pitched by ENN Group, a privately-held Chinese energy company with more than 24,000 employees worldwide. Reid gleefully described the potential deal earlier this year saying it “would be the biggest [foreign investment] we've had, period.”
Slated to be located in the southern Nevada town of Laughlin, the ENN project will be a mixed residential/industrial/commercial “eco-city.” Its proposed vast 9,000-acre campus will include a solar-cell manufacturing plant, a green energies industrial park, a solar energy farm and residential housing for employees.
Steve Marcus / Las Vegas Sun
Senator Harry Reid (D-Nev), center, is seen here arriving with Jinxiang Lu, second from right, chairman and CEO of A-Power Energy Generation Systems for the dedication of a wind farm in Henderson, Nev., on Oct. 12, 2010.
Aside from the boon of nearly 4,000 construction jobs that this ambitious four-year construction project would bring to Clark County – an area currently suffering from 14 percent unemployment – ENN has claimed that the solar-energy park and other sections of the business would bring 2,000 badly needed long-term manufacturing jobs with an average salary of $72,000 a year.
Construction on the Laughlin project was due to start this year, with state officials hoping to see solar cell production beginning in the first quarter of 2013 and the solar farm producing electricity the following year.
However, sticking points still remain – namely over ENN’s desire to purchase, not rent, the land and a change in the plans that would expand the building area from the initial 5,400 acres to 9,000 acres.
Not all the seeds planted by Nevada have borne fruit. One of the earliest energy deals to be championed by Reid was a proposed wind turbine assembly plant. The project has been potentially derailed by a growing concern: financial and accounting irregularities on the part of the Chinese investor.
The deal was an oddball joint venture between A-Power Energy Generation Systems, a young upstart provider of distributed power generation systems in Shenyang, the American Nevada Company, a prominent Southern Nevadan real estate developer, and The U.S. Renewable Energy Group, a Dallas-based investment group whose close Washington ties attracted scrutiny.
A-Power planned to construct a turbine assembly facility, its first in the United States, in Henderson, Nevada. The plan was that the facility would supply the company’s first 240 2.5-megawatt wind turbines for a proposed $1.5 billion dollar wind energy farm in west Texas, built by another Sino-American joint-venture, Spinning Star Energy.
Approximately 250 tons of steel are needed to make the nearly 8,000 components that make up a wind turbine, ranging from the blades to the towers. So the pitch was that the A-Power plant would be a huge boon not just for the newly hired plant employees, but also the United Steel Workers.
But the project gained instant notoriety after charges that the wind farm would create 300 temporary construction jobs and a mere 30 permanent positions for Americans. In contrast, the farm would reportedly generate 2,000 Chinese jobs.
The fact the backers were also seeking $450 million of federal stimulus money to pay for the project was the final nail in the coffin.
In spite of the setback, A-Power has gone ahead with other investments in the U.S. In October 2010, A-Power in conjunction with a Singapore partner opened a new LED manufacturing plant in Henderson, with Reid in attendance.
“The more we invest in and develop clean energy – like the kind A-Power generates – the faster we’ll solve two of our toughest challenges: Creating jobs and reducing our reliance on oil,” said Reid during his prepared remarks that day.
Blessed with more than 250 days of sunshine a year as well as ample wind and geothermal resources, Nevada has been aggressive in seeking out Chinese investment for renewable energy projects.
“Nevada is already our nation’s hub of renewable energy [and] companies like A-Power are making us the international hub of the renewable energy industry.”
Not all that glitters…
Despite the promise of A-Power’s Henderson deal, things took a dramatic turn in June of this year. The company’s auditor, MSCM, suddenly resigned amid allegations that A-Power “had not retained a qualified independent forensic accounting firm to evaluate certain business transactions... "
A-Power, which at the time wase a NASDAQ listed and traded company, saw trading of its stock suspended soon after and was delisted just this week.
Since the accounting fallout, there has been little talk of the Henderson plant and A-Power’s intentions for the U.S. market. A spokesman for A-Power declined to comment on the NASDAQ suspension, the delisting, or its current financial position — citing the advice of the company’s legal counsel
A-Power’s financial status is unknown, but the company recently hired a new Korean auditor and earlier this month announced a plan to for a joint feasibility study for a biomass fueled electric generation plant with Lincoln County in Nevada.
Nevada is not the only state vying for dollars
If Nevada has its way, Chinese investment will be a key driver for overhauling the state’s economy and for creating jobs.
Robert F. Bukaty / AP
Using 250 tons of steel to fabricate the nearly 8,000 components that make up a wind turbine, the A-Power plant was also a potentially huge financial windfall for the United Steel Workers and the American steel industry.
It’s already taken steps to position itself for more Chinese foreign direct investment. The state has no corporate or personal income tax, foreign trade zones, favorable tax incentives such as reduced property and business taxes, and a full embrace of the EB5 visa program, which offers permanent residency for those who invest $1 million into the state.
But if and when Nevada’s manufacturing and export driven economy really does take off, it will come with the same lingering problems that plagued Nevada even before the recession: namely logistics and the problem of California.
With no true logistics or shipping hub in Nevada – air freight and other cargo predominantly arrive in or depart from California first –the former will always find itself justifying its competitiveness to countries like China.
California could also blunt Nevada’s efforts to tap into its increased investment in green energy. The former is poised to generate 40 percent of its energy from resources like wind, solar and geothermal by 2020. If so, California could export cheap renewable energy to neighboring states at the cost Nevadan power.
But as we’ll see next week, these two states are not the only ones looking to corner the market for America’s renewable energy.
Next week: Illinois, where "Our carp tastes better."