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Indiana and China:Enhancing Connections for Prosperity

August 22, 2012

TABLE OF CONTENTS

3 Agenda

4 IN-China Probably Won’t Look Like IN-Japan

5 Indiana and China Trade in Brief

7 Indiana Businesses in China

9 Q & A with John Watkins: Cummins in China

12 Daniels-Skillman Build Up Indiana, Champion Trade

14 Indiana Working Group on China

14 Indiana – China Sister Cities

AGENDA

11:15 Arrival of guests

11:30 Lunch

12:15 Move to the mezzanine for remarks

12:20 Welcome: Jay Hein, President Sagamore Institute

12:30 Remarks by Lt. Gov. Becky Skillman

12:50 Presentation of Indiana-Zhejiang Exchange Council MOU to Sagamore Institute

12:55 Closing Remarks

1:00 Adjourn

4 www.sagamoreinstitute.org

Indiana-China Probably Won’t look like IN-JapanIn the early 1970s and 80s, an economic recession hit the United States, which caused double-digit unem-ployment, double-digit inflation and high mortgage rates. Indiana was hit especially hard by the recession: Anderson, Indiana led the nation with 20 percent unemployment. With very few American companies making investments at home, prospects for endogenous growth were slim.

To remedy Indiana’s economic slump, Indiana Governor Robert Orr (1981-1989) and Lt. Governor John Mutz sought out solutions to offer hope to struggling Hoosier communities. Taking advantage of Japan’s own economic slump, Orr and Mutz determined that they would bring in Japanese companies to provide jobs for Hoosiers, increase the tax base, and infuse Indiana with new technology. At the same time, the relationship with Japan would facilitate Hoosier industrial and agricultural exports to Asia.

In his 2006 Sagamore Institute study, The Indiana-Japan Partnership, Larry Ingraham carefully details how Governor Robert Orr and Lt. Governor John Mutz courted Japanese business leaders, bankers, and policymakers while convincing their Hoosier constituents that opening to the world and to Japan would be the best way to reinvent the state’s struggling economy. The Orr-Mutz maneuver was a masterpiece of enlightened political leadership that was perfectly attuned to the geo-economic realities of the 1980s: the nature of Japanese businesses, the automotive industry, U.S.-Japanese political relations, and the devo-lution of economic authority to the states. The times were ideal for skillful hierarchic leadership from Indiana to navigate in a hierarchic Japanese business culture and to negotiate with hierarchic political and economic leaders.

Times have changed, however. Compare China today with Japan in the 1980s. Investment flows predomi-nantly (but not exclusively) from the U.S. to China. Formal and informal political decision-making power in China is fragmented, scattered across thousands or even millions of local, provincial, and national government and Party officials. No one industry dominates the way the automotive sector did in relations with Japan during the 1980s. And for businesses, the number of access points into the Chinese economy is exponentially greater than those of the Japanese economy in the 1980s.This shift applies to more than business relations with China. The nature of global power itself is chang-ing, says the former deputy director of policy planning at the U.S. State Department. And that is good news for America. In “America’s Edge,” Anne-Marie Slaughter argues that in “the emerging networked world of the twenty-first century, the state with the most connections will be the central player, able to set the global agenda, and unlock innovation and sustainable growth. Here, the United States has a clear and sustainable edge.” Less relevant will be the hierarchies of yesterday that underpinned power and promoted prosperity. Today and tomorrow, diverse and multiple linkages will be the key. With its tradition of wel-coming newcomers and its cultures of openness and curiosity, the U.S. should flourish, she says, perhaps more than any other country.

What is true of global power is also true for local economies engaged in commerce around the world. But Slaughter’s view of the non-hierarchic and networked future may not seem so rosy for particular parts of the United States. It will depend on the nature and number of local and state economies’ connections to the rest of the world. This makes connections to China particularly important.

In 2010, Chinese direct investment in U.S. topped $5 billion. And while the international economic envi-ronment has caused investment to cool, China will continue to directly invest on U.S. soil for a number of reasons: a desire to escape potential trade friction, need for global markets, access to raw materials, escape rising transportation costs, avoid rapidly rising domestic labor rates. With these developments, Indiana would do well to build new relationships with would-be Chinese investors.

5Sagamore Institute 2012

Indiana and China Trade in BriefSome Americans see China’s rise as a threat while others view it as an opportunity. It has the potential to bring out the best or the worst in both societies. The risks of China’s rise are real, but less threatening than most think. More importantly, the opportunities are far greater than most can envision. American stakeholders who want improvements in the trade and overall bi-lateral relationship will be better served by focusing more time, energy and resources on maximizing opportunities through solution-oriented, innovative approach.

China’s economic growth has been extraordinary over the last decade. The economic powerhouse’s growth rates peaked at 14.2 percent in 2007 with subsequent figures hovering around 8-9 percent. With a 2011 GDP of $7.2 trillion, China surpassed Japan as the world’s second largest economy after the U.S. Even with the recent slowdown in China’s growth, the country’s GDP is still expected to expand at an average of 8 percent.

Yet with its impressive growth in GDP, China is still considered a low-income country. In 2011, China’s GDP per capita was about $5,400—or about $8,000 taking purchasing power parity (PPP) into account. While that number is still small by comparison to, say, the US’s $48,000 GDP per capita, China’s house-hold incomes have quadrupled over the last 10 years. In 2010, the average disposable income of urban Chinese households rose to around $3,000 per capita. But even with the gains in disposable income, China’s is not yet a consumer economy. Rather, China’s economy is dominated by manufacturing.

With $1.9 trillion worth of merchandise flowing out of the country, China is the world’s largest exporter. According to a report by Ernst and Young, China’s exports will continue to grow at around 12% per year until 2020, at which point it will reach a total of over $5.6 trillion. Most of that number is comprised of manufactured goods. The same Ernst and Young report cited that machinery, transport and other manu-factured goods account for three-fourths of all China’s exports and will continue to be for the near future.


Partners in Commerce

Though it is often pitted against China as a rival, the United States is China’s biggest market and the U.S.’s second largest goods trading partner. In 2011, China exported $325 billion to the U.S. comprising the world’s largest trade flow. Of course, the story isn’t one sided. The U.S. exported $100 billion to China in 2011—a 539 percent increase from 2000.

The U.S. export market in China is comprised primarily of machinery ($12.2 billion) followed closely by soybeans ($10.7 billion). Growth in China’s domestic livestock production has created massive demand for soybeans. In fact, the increases in soybean sales to China over the last 10 years have accounted for nearly all growth in the international soybean market. Overall, China is second only to Canada in the value of agricultural imports from the United States, purchasing over $18.9 million in agricultural prod-ucts from the U.S. in 2011.

Top US exports to China 2011Machinery $12.2 billionMisc. Grains, Seed, Fruit (soybeans) $10.7 billionElectrical Machinery $10.1 billionVehicles $6.8 billionAircraft $6.4 billion

Source: The US-China Business Council

Indiana-China Trade

In February of 2012, the Chinese Vice-President Xi Jinping made a statement during his trip to the U.S. saying by 2015 China’s total imports will top $8 trillion and outgoing investments will surpass $500 bil-lion.

With Chinese companies striving to position themselves in world markets and China in need of increased agricultural imports to feed its population, these numbers represent ripe economic development prospects for Indiana.

Indiana’s export industry is a central compo-nent to the state’s economy. According to a 2011 report by the Indiana Business Resource Center, Indiana ranks 10th in terms of export dependency. In 2011, Indiana exported $32.2 billion in 2011—a relatively small percent-age of the U.S. total but a record high for the state. Over the last decade Indiana has out-performed the nation in its average annual growth rate of exports. While the nation’s exports have grown at 7.1 percent, Indiana’s exports have grown at a rate of 8.1 percent.

China is Indiana’s sixth largest trading partner

Marketplace Snapshot • China is the 4th highest importer of Hoosier Ag

goods, after Canada, Mexico and Japan.• Indiana exported an estimated $1.035 billion

in food and agricultural products to China in 2011.

• Between 2000 and 2010, Indiana exports to China grew 554 percent.

• According to WISER Trade China ranked #6 on the Indiana’s Top Export Destinations List in 2011 valuing $1,149 (Millions of current dollars) a 17.5% increase from the previous year.

• In 2011 China as a destination equaled 3.6% of Indiana’s total exports.

• During the 2001-2011 time-period China ranked number two only behind Canada for exports in Plastic Products equaling $134.5 dollars growing at an average rate of 15%.

• China invested over $100 million in invest-ments between 2008-2011 creating over 200 jobs.


and its second largest in Asia. Since the beginning of the century, exports to China have more than qua-drupled. In 2011, Indiana exported $1.1 billion to China. Perhaps expectedly, China’s top imports from Indiana are related to vehicles, machinery, and the life sciences.

Beyond Indiana’s variety of manufactured exports, agriculture is also very important. China is second only to Canada in the value of agricultural imports from the United States, purchasing over $22.4 billion in agricultural products from the U.S. in 2011. In 2010, soybeans and related products accounted for half of Indiana’s agricultural exports, totaling $1.7 billion.

Some Hoosier agriculture businesses engaged with China include Weaver Popcorn, which is one of the largest suppliers of popcorn to the Chinese market. Additionally, Maple Leaf Duck Farms located in Milford, IN, is one of the largest suppliers of duck to China and the world. Other major exports to China include DDGS, chicken and poultry products, pork and livestock products. (For more see “Indiana Busi-nesses in China”)

With the state’s rich asset base and China’s nearly limitless market potential, prospects for commerce and partnership are bright. Hoosiers need only take action.

Sources:

Beyond Asia: Strategies to support the quest for growth China Highlights 2011. Ernst and Young. 2012.

“China Connection: Chism Participates in trade mission to Indiana’s sister province.” The Hoosier Farmer. 2012.

Global Positioning Indiana’s 2011 Export Data and Trends. Kelley School of Business. 2012.

Indiana State Department of Agriculture

Mafi-Kreft, Elham. International Outlook 2012. Indiana University Kelley School of Business. 2012

US-China trade statistics and China’s World Trade Statistics. The US-China Business Council. URL https://www.uschina.org/statistics/tradetable.html


Indiana Businesses in ChinaOn June 11th 2012, Lt. Governor Becky Skillman and a delegation of key Indiana individuals traveled to China to take part in a weeklong trade mission that celebrated a 25-year relationship with its sister prov-ince, Zhejiang. The trip’s intent was to further bolster Indiana’s trade relationship with China, which had an estimated export value of about $1.035 billion USD in food and agricultural products from the state in 2011 alone. Many Indiana companies have made strides to strengthen their place in the Chinese market. In 2011, the Indianapolis Business Journal ran a special section called “The New China.” The section fea-tured some of Indiana’s top businesses in China. Highlights from that report are discussed below.

The obvious standout is Cummins Inc. Columbus-based Cummins Inc. has been investing in China since the 1970s. According to the Indianapolis Business Journal, in 1975, J. Irwin Miller, former chairman of Cummins, visited China in search of business opportunities, years ahead of most other U.S. companies. The company opened its first office in Beijing in 1979. This longstanding relationship helped set Cummins up to become the largest foreign diesel-engine maker in China. This was achieved through joint ventures such as the one with Dongfeng, China’s largest truck manufacturer in 1987. This joint venture with Dong-feng generated over $1.4 billion dollars in sales last year alone.

Thanks to the success and strong presence in emerging markets such as China’s, company officials claim that the company has weathered the U.S. financial crisis much better and has protected U.S. workers from layoffs due to a slow domestic market. Cummins spokesperson Mark Land explained to the IBJ that, “As we grow outside the United States, it directly benefits Indiana.” It is joint ventures like this that has helped the Cummins operation employ over 9,000 people in China today and rack up 2010 sales of $3.1 billion – a 79% increase from the previous year. Cummins’ secret to success is to create lasting relationships with Chinese businesses as well as the 50-50 partnerships it establishes with its partner companies.

Steve Chapman, head of Cummins operations in China explains that most American companies work to establish majority leverage in their joint ventures. He stated in the IBJ, “50-50 has proven to be very suc-cessful, and I think almost no other American company will try that unless they are forced to.” According to the IBJ article, these relationships as well as the even-keeled business strategy have allowed Chapman to establish long-lasting trust, which has helped accelerate partnerships. Chapman also challenges his executives to learn Chinese as well as to immerse themselves in the culture, which he believes helps build trust and relationships. Implementation of these successful strategies has helped Cummins record over $30 million in sales within China in 1990. Cummins has roughly tripled revenue in the country every five years since.

Another Hoosier company that has made its way into China is Eli Lilly and Co. Eli Lilly first entered China in 1918 but then left the country after the 1949 communist revolution. The company re-entered in 1993 after China stated they would allow drug patents. In an IBJ interview, Lilly’s CEO John Lechleiter explained Lilly’s strategy behind investments within China. “We’ve invested in everything from biotech startups to companies that provide pharmaceutical distribution. We have invested in several companies that are planning to enter the market with branded generics- in other words, high-quality versions of ex-isting products for China and maybe eventually for export.” Because of these investments China is Lilly’s second-biggest employee population outside of the United States, employing about 3,200 persons. Today, Lilly has sales representatives in over 300 cities across the country.

According to the IBJ, due to a change in the global economy, Lilly began outsourcing their research and development to Crown Bioscience, located outside of Shanghai. Chuan Shih, Crown’s executive vice president of integrated drug discovery explained to the IBJ that, “The total annual cost for one researcher


at Lilly might run $300,000 to $350,000 a year. The figure at Crown is one-third of that.” Shih himself was once a researcher of 25 years at Lilly attaining the lofty title of distinguished scholar. Shih is not the only former Lilly employee at Crown, its founder Faming Zhang, a former Lilly executive and Indiana Univer-sity Professor is another example of the rapidly growing skilled labor force that is luring companies like Lilly to outsource their R&D.

Lechleiter explained in a 2011 interview with the IBJ, that it is not only the rapidly growing skilled labor force that attracts companies to China but also the lack of talent coming from the States as well as politics. “In recent years Lilly has had difficulty getting green cards of permanent resident visas for some of the Chinese people graduating from American universities it wants to hire. So we need to follow the talent.” Asked by the IBJ whether the emergence of high-quality pharmaceutical research in China puts research risk in the United States, Lechleiter answered: “There is not one easy answer. I will say I think our research tends to migrate to where the intellectual capital sits.”

But once again the cost savings are particularly compelling given the struggling pharmaceutical industry’s need to invent new drugs quickly and the high risk of failure stated Rachel Gong, an independent health care consultant in China. During an IBJ interview she remarked, “In the U.S., a $100 million investment might advance just one or two drugs to late-stage development. In China, that money might advance 10.” However it might not be just talent or cost savings that lures companies like Lilly to China. It could also be rosy economic predictions that compel companies to pack up and move operations. According to the IBJ, China is expected to become the world’s third-largest pharmaceutical market in the near future and by 2015 it is predicted to pass Japan for the number two spot. This is largely due to China having one of the oldest populations in the world. In 2010 Lilly generated over $320 million in China alone. With an estimated 92 million adults or about 10% of the Chinese, adult population having diabetes, Lilly is looking to reap sales from the increasing wealth of the middle class as well as their need for prescription drugs. To confront the increasing prevalence of diabetes, Lilly has planned to open a diabetes research center in Shanghai.

WellPoint Inc. is also anticipating huge gains from these predictions. The Indianapolis health insurer en-tered China in 2007 to capitalize off of China’s growing need for health insurance, largely due to the rapid increase of a middle class. “This is, without question, a significant market opportunity,” explained John Domeika, CEO of WellPoint China to the IBJ. “But there are also many challenges. It’s important that we meet the market’s needs and do it in a way that provides sustainable future growth.”

According to the IBJ, premiums for private health insurers are expected to rise to $90 billion in 2020 from $9 billion now. These estimates are largely due to the rapid expansion of China’s new middle class. Today China only spends about 5 percent of its gross domestic product on health care, compared to 17 percent in the United States. In a 2011 interview, Matt Neff, president of CHV Capital Inc., explained the motiva-tion behind moving to China to the IBJ, “We all know the tremendous change China is going through, and the fact that its population is four times the United States’ is pretty compelling.”

In 2008, the Chinese government attempted to satisfy the need of increasing access to healthcare. They announced the goal of providing basic government-provided health care to 90 percent of the population by the end of 2011. However these plans still require the customers to pay up to 40 percent of the bill. Domeika stated to the IBJ that WellPoint would now need to distinguish itself as different from the gov-ernment plans to really capitalize on the growing demand. According to an IBJ interview, Domeika stated, “We must make the case to the Chinese consumers that it’s offering more than an insurance policy. It’s also providing programs and information that help consumers stay healthy and avoid chronic disease. Well-Point plans to be fully operational by the end of 2012 when they will begin to sell their first health plans.”


Q & A with John Watkins: Cummins in ChinaFew know the opportunities and challenges in China better than John Watkins.

He was the Corporate Vice President of Cummins Inc. and President of Cummins East Asia. In 2009 he served as Chairman of the American Chamber of Commerce in China. He was also the Corporate Vice President and General Manager for China at Northwest Airlines. Today Watkins is the CEO of GE AVIC Civil Avionics Systems Company Limited at GE Aviation.

Cummins is an important asset in Indiana’s China story. Cummins began business in China in 1975 and today employs more than 9,000 persons across China in 26 facilities, including 15 manufacturing sites.

Watkins spoke with Sagamore Institute to offer insights on doing business in China.

Sagamore: Cummins was one of the first American companies in China, is that correct?

Watkins: Yes. In the mid 1970s there were some mining projects that opened in China. The Chinese were importing mining vehicles including mining dump trucks that had Cummins engines installed in them.

We actually got our start because we needed to put people and resources on the ground, which would service these mining trucks. And so we provided that service to these products. That’s how our relations in China began.

Sagamore: Was Cummins already a global corporation at that point?

Watkins: Yes, Cummins had international operations at that time. Whether today we would call it “global” or not, I don’t know. But we certainly had operations overseas at the time.

Sagamore: This was a very new venture in an inexperienced enterprise, meaning it was only a couple years before your entry there that President Nixon traveled to China to begin to open up relations.

Watkins: That’s correct. American business in China, especially in the industrial segment of the market.

Sagamore: When you arrived in China in the 1970s, the market wasn’t open at that stage, though they were desirous of building new relationships. How did you learn the culture as American business leaders? Can you describe the culture of how American companies successfully engaged?

Watkins: Different companies have used different approaches. At Cummins, we started exporting prod-ucts from our overseas plants into China either directly or indirectly. And by indirectly I mean that an engine was placed in a mining vehicle that was made overseas and then exported to China.

In the mid-70s, or even early, 1980s, the legal, political and economic environments were not conducive to direct foreign investment. So we began to enter and win in the market by exporting. And as we set up after-market sales and service capabilities, we began to establish some relationships.


Additionally, we had Cummins executives and ethnic Chinese leaders in the company here in Indiana. Our Chief Technical Officer at the time was Dr. Alan Lin, who graduated from the “MIT of China”, called Tsinghua University.

So it was the combination of us having these products in China through the mining trucks, and the ad-vantage of Dr. Lin who was a senior executive at Cummins at the time.

Dr. Lin began to reestablish ties with classmates that he had at Tsinghua. And through those ties we began to engage in discussions with the government and factories in China.

At the start, there were a couple factories that were interested in licensing our products. This included a licensing deal, in which we licensed two of our engines to a plant in Chongqing, China. Several years later we licensed a different engine to a plant in central China. So for over a decade, we continued to export product into China, while we both did the licensing agreements, in which the Chinese factories licensed our technology. We got royalties and licensing fees from it and they made money from making and selling our engines. That was very profitable for all parties involved. And through that, we began to learn more about the market and all things involved. As we did training in these factories, the people got to know us and we got to know them.

In the mid 90s the emissions requirements began to get more stringent. They had been licensing an older technology. We were interested in doing that. The political, economic and legal environment was better. We began discussions and asked, instead of doing another licensing agreement; why not take it to the next level of cooperation? And that’s when we decided to do 50/50 JVs with these licensing plants. So we continued to export to China and we continued to license our products. Then we began to do Direct Foreign Investments through these 50/50 JV’s. As we did that, other opportunities, other relation-ships began to arise and we established an aftermarket dealer network. We began selling to other custom-ers beyond our licensing and JV partners. And once we had engines plants in China, our components also began to invest in China—turbo chargers, filtration systems, etc.

Sagamore: Is it fair then to say that the first phase of your engagement, the export phase enabling Chinese counterparts or businesses that you were in a first order of partnership with, was the design of a win-win relationship? You were exporting product and moving product, into China and those companies were making money on resale and manufactur-ing of that product. Is it fair to call that a win-win partnership? Is that how you conceived it at that time?

Watkins: Very much so. And I think the genius of the Cummins approach since the mid 1970s has always been to take a win-win approach and to really look at the interests of our customers and our partners no matter where they are.

We asked: How can we make our partner successful? How can we make them win, putting our engines into their vehicles? Then everybody wins. So that has been the core of our personality and the core of our strategy in China. Something as simple as our joint venture with one of the top vehicle makers in China called Dongfeng Ltd. The name of our venture is the Dongfeng-Cummins Engine Company. It’s not Cum-mins-Dongfeng; it’s Dongfeng-Cummins. We have another venture with the largest light duty commercial vehicle maker in China called Foton-Cummins Engine Company.

Sagamore: Does it take a corporate humility or is that overstating?

Watkins: That’s as good a term as any. The culture at Cummins is very strong and we found that the foun-


dations of that culture in J. Irwin Miller, an Indiana icon, a national class business person, a philanthropist and a religious leader. I think those values that Mr. Miller left in the company are still alive today.Sagamore: Let me ask one more question on that train of thought: Mr. Lin, who sounds like a critical figure in Cummins early development, worked his network. He operated within the relationships that existed for him in China. So what’s the role of relationships or networking in US-China relations, and is that similar to how it’s done in the States?

Watkins: I think business relationships are critical. There is a balance between the legal and techni-cal aspects and the relational aspects. In any successful business enterprise, in my opinion, you need all aspects of that. I would say the difference between doing business in the United States and doing business in China is really more one of emphasis or a matter of degree where you are on that spectrum. Let’s say in the United State it’s 60/40, with the 60 on the legal and technical and 40 on the relational or 70/30. In China it would be more focus on the relational and having the trust, but you would also need to be on the technical side as well.

The bottom line in China is that no matter how strong your legal documents are if your relationships are bad you’ll never have a good business. So we spend a lot of time working on the relationships.

Sagamore: One more questions about Cummins: You’ve referenced the 50/50 Joint Ven-tures. How was that discovered at Cummins, that a 50-50 JV as you say, would be an effec-tive way to do business in the 1990s?

Watkins: First of all, let me say that the objective is never to have a JV. The objective, going into a market, is to win and to have a leading position in that marketplace. In order to do that, you need to understand the customer, put the customer first and develop products that deliver value to the customer. Having part-ners in the marketplace, primarily customers that allow you to do that are very important. In some mar-kets you can’t have a wholly owned or majority owned investment. Cummins’ approach has been based on the fact that we are primarily a diesel engine maker—not exclusively but primarily—in the systems that go into that. We don’t make the end use vehicle. One recipe for success that we have found is to do these partnerships: 50/50 JVs with other vehicle makers not through engine makers.

And so our partner becomes our largest customer but not our only customer. We are able to immediately have scope and scale in the supply base and the aftermarket dealer network because our partner immedi-ately takes volume from the JV and we are also to sell engines out of that JV to other customers and some-times even our 50/50 JV partners’ competitors. We have found over the years this recipe is the best recipe for success and have done it with Komatsu in Japan, a firm in India and with 3 vehicle maker partners in China.


Daniels-Skillman Build Up Indiana, Champion TradeSince 2005, Gov. Mitch Daniels and Lt. Gov. Becky Skillman have presided over an incredible economic comeback in Indiana. At the beginning of their tenure Indiana had an $800 million dollar deficit, which they turned into a $370 million surplus in one year. Seven years later, the Hoosier state can boast a $2 bil-lion surplus during FY 2012 as well as the state’s first triple-A credit rating.

Through their efforts, Indiana has received a number of accolades nationally and internationally. Accord-ing to the IEDC:• Indiana ranks best in the Midwest and 5th overall in Area Development magazine’s “Top States for

Doing Business” study (Sept. 2011)• Indiana ranks 1st in the Midwest and 5th in the nation in Chief Executive magazine’s annual “Best

& Worst States” survey (May 2012)• Indiana ranks 6th in the nation for its business climate according to Site Selection magazine (Nov.

2011)• Indiana ranks 1st in the Midwest and 11th nationally in the Tax Foundation’s 2012 Business Tax

Climate Index (Jan. 2012) • Indiana is one of three recipients of Area Development magazine’s Gold Shovel, the publication’s top

economic development honor (May 2011)

One innovation of this administration has been the Indiana Economic Development Corporation, which was tasked with the mission of attracting new jobs. In the first four years of existence, the IEDC, “broke all previous records for new jobs in the state, and was associated with more than $18 billion of new invest-ment.” According to the IEDC website, in 2008 Site Selection magazine and CNBC both named Indiana as the Most Improved State for Business in the country. The state is now near the top of every national ranking of busi-ness attractiveness survey.

The Trade Agenda

In the midst of these accomplishments, both Gov. Daniels and Lt. Gov. Skillman have rigorously encouraged inter-national trade. Over the past decade Indiana exports have grown 8.1 percent, outpacing national exports growth rates of 7.1. In 2005, Indiana was exporting $21.5 billion worth of goods and services. In 2011, Indiana’s exports topped $32.2 billion. Moreover, between 2009 and 2011 Indiana captured 17 percent of the FDI within the Midwest, with an estimated value of $5.1 billion and 11,799 jobs according to the Indiana Business Resource Center.

Benefiting from the foundation laid by Gov. Robert Orr in the 1980s, the Daniels-Skillman team has continued to build out Indiana’s trade portfolio with Asia, China in particular. Both Daniels and Skillman have prioritized China as a trading partner over their tenure. Gov. Daniels visited China in 2009—the first economic development mission to China in more than a decade. He again traveled there in 2010. Lt. Gov. Becky Skillman has made two trade missions to China in 2010 and most recently in 2012. Between 2000 and 2010, Indiana exports to China grew 554 percent. Today China is Indiana’s sixth largest trading

Governor Robert Orr of Indiana (middle) meets Vice Governor Zulun (right) of Zhejiang, China in 1987. Governor Orr estab-lished Indiana’s sister-state relationship with Zhejiang province. Lt. Governor Becky Skillman traveled to China on an economic development mission, June 11-17 to recognize the 25-year rela-tionship between Indiana and Zhejiang.


partner and its second largest trading partner in Asia.

It’s safe to say that the Daniels-Skillman administration helped put Indiana on China’s map.

According to the Indianapolis Business Journal, one of the largest Hoosier trade deals grew out of a meet-ing Mitch Daniels had with Shandong Province-based Nanshan Group. In the IBJ article it says, “In 2011, Nanshan announced that it would spend nearly $100 million to build a 435,000 square foot aluminum-extrusions plant in Lafayette, creating up to 150 jobs.”

China 2012

Most recently, Lt. Gov. Becky Skillman lead a 37-mem-ber delegation of mayors, business and agriculture lead-ers on an economic development mission to China. The mission was significant both ceremonially and substan-tively. This year’s mission marked the 25th anniversary of Indiana’s sister state relationship with Zhejiang Province that was first established by Gov. Robert Orr in 1987. The trip was part of Indiana’s “Guanxi” or the building of personal relationships and connections required to do business with Chinese executives.

“The men and women of this delegation will help strengthen Indiana’s 25-year relationship with our sister-state, Zhejiang province,” Lt. Gov. Skillman said before leaving on the trade mission “With China’s grow-ing needs, we have an even greater opportunity to bring additional job growth and investment to the entire state.”

At a substantive level, the team accomplished much:

• MOUs signed with three Chinese businesses: Jiaxing Stone Wheel, Godeagle, and Fukang Feather Company all with the intent to build or grow their company in Indiana

• Celebration of the 25th Anniversary of Indiana’s sister-state relationship with Zhejiang Province. The relationship was started by Governor Orr in 1987

• The creation of the Indiana-Zhejiang Exchange Council. The counterpart to the Indiana Working Group on China house at the Sagamore Institute. By definition the groups will “Identify, develop, cultivate, and maintain long term and mutually beneficial trade investment, culture, and educational relationships between governments, businesses, and people of China and Indiana.”

• Members of our delegation visited nine various sister-cities. I personally spent part of the day in An-derson’s sister-city Yuhang. There I made visits to China Ting Garment Company, a Primary school, and met with Vice-Mayor Xu.

• Two more sister-city relationships created by Logansport and White County. Indiana and China now have 22 sister-city relationships or potential relationships.

• Agreement signed between IU health and Zhejiang Hospitals to begin a partnership.• Met with Chairman Nan of Chint Solar about potential for investment in Indiana and current projects

in our state including the Indianapolis Airport.• Held the 9th Indiana-Zhejiang Business and Trade Exchange Summit. Chinese businesses, 40 total,

had time to visit booths set up by our delegation to explore potential investments in our state.• MOU signed with ZURDRC to demonstrate the intent to collaborate on agricultural needs and prod-

ucts with Purdue Extension and Farm Bureau

Lt. Governor Becky Skillman presented an Indiana lime-stone carving on behalf of the state to Madame Qiao Chuanziu, chair of the Chinese People Political Consulta-tive Conference. The limestone carving was a gift to the people of Zhejiang to recognize the 25-year sister-state relationship between Zhejiang and Indiana.


• MOU signed with Jilin Province to show the intent to begin an agriculture based relation-ship and collaboration on our goods, products, and research.

Indiana’s relationship with Zhejiang is especially advantageous and will continue to be a boon to the state. “Zhejiang is one

of the wealthiest provinces in China and has become the top province as far as agricultural and industrial output,” says Sagamore Senior Fellow Larry Ingraham. “It offers many opportunities for business, educa-tional and cultural exchanges with our state.”

President of Pacific World Trade and China trade veteran Dennis Kelly traveled with Gov. Orr to Zhejiang in the mid-1980s: “After 1 day in Zhejiang, Gov. Orr said, ‘This is the place!’ It was a good fit for Indiana.” He continued, “Zhejiang also has a mixed economy and they are the provincial leader in economic devel-opment, exports and private sector development . . . Zhejiang is a key province in China.”

Indiana Working Group on ChinaIn February of 2012, the Chinese Vice-President Xi Jinping made a statement during his trip to the U.S. say-ing by 2015 China’s total imports will top $8 trillion and outgoing investments will surpass $500 billion. With Chi-nese companies striving to position themselves in world markets and China in need of increased agricultural imports to feed its population, these numbers represent ripe economic development prospects for Indiana. To de-velop an edge in the world’s fastest growing marketplace, Indiana requires a concerted effort by all of the IN-China stakeholders.

In 2011, Lt. Governor Skillman formed the Indiana Working Group on China. This group is intended to create a long-term, forward-looking group that would develop, monitor and encourage bridge-building rela-tionships between Indiana and China, especially with Zhejiang. The Indiana Working Group on China provides continuity of strategy and mission to the development of Indiana-China relations. Lt. Gov. Skillman has autho-rized Sagamore Institute to house the IWGC, which will assist by providing research and administrative support as the group moves forward. According to IWGC member Larry Ingraham one of the first projects for the IWGC

Lt.GovernorBeckySkillmanandafewmembersoftheHoosierdelegationmeetwithofficialsfrom Zhejiang Commerce to discuss Indiana’s agricultural products.

IWGC Co-Chairs• John Sampson, Northeast Indiana Regional

Partnership• Amy Warner, IUPUI Office of External AffairsIWGC Members• Steve Akard, IEDC • Don Babcock, NIPSCO• Phil Boley, Central Indiana Educational

Service Center (CIESC)• Quinn Buckner, Pacers• Kip Chase, Eli Lilly and Company• Albert Chen, Telamon• Chris Felts, Barnes & Thornburg• Mayor Greg Goodnight, City of Kokomo • Larry Ingraham, Sagamore Institute• Dennis Kelley, Pacific World Trade INC• Tom King, Indiana State Museum• Scott Lawrence, Whiteshire Hamroc• Virgil Madden, Office of Lt. Governor

Becky Skillman • Jessie Mills, Global Interactions• Ken Perkins, First Farmers Bank• Shawn Reynolds, University International

Partnerships and Strategic Initiatives-IU• Mayor Wayne Seybold, City of Marion• Gina Sheets, Indiana State Department of

Agriculture • David Terrell, Indiana Office of Rural and

Community Affairs • Diane Thomas, International Center • Chuck Williams, Butler University


was to plan and help implement the Lt. Gov’s trade mission to China in June of 2012.

The establishment of the IWGC is a strategic maneuver to spur economic development in Indiana at a time when the Chinese investment climate is especially prom-ising.

Indiana – China Sister CitiesLocated just south of Shanghai along the East China Sea, Zhejiang is one of the most entrepreneurial and economically developed provinces in China. It is also Indiana’s sister state. Former Indiana Gov. Bob Orr, who was a strong advocate for Indiana’s economic development trail in Asia, established the relationship with Zhejiang in 1987.

In 2012, Lieutenant Governor Becky Skillman led her sec-ond trade mission to Zhejiang to recognize and celebrate the 25th anniversary of Indiana and Zhejiang’s sister-state rela-tionship. During the trip, three more cities (Bedford, Decatur, and Frankfort) signed Memorandums of Understanding with their prospective sister-cities in Zhejiang. Currently, 22 cit-ies or counties in Indiana have established or are developing sister-city relationship with cities in Zhejiang province.

Additionally, Lt. Gov. Skillman and Vice Governor Gong signed a memorandum to establish the Indiana-Zhejiang Exchange Council to enhance and advance Indiana’s connec-tion with Zhejiang. As Lt. Governor Skillman said, “The last 25 years have proved that our relationship with our sister-state Zhejiang has been beneficial, and this agreement will make it easier for additional investment in Indiana.”

Although the sister-state relationship between Zhejiang and Indiana was reached over two decades ago, city-level interac-tions did not really pick up until after 2008. Actually, the 2008 recession may have boosted such a rapid development due to economic and investment concerns. According to the media coverage of Indiana-China Sister Cities, only two cities in Indiana reached an agreement for setting up sister-city relationship with cities in Zhejiang prior to 2008—Anderson in 2006 and Bloomington in 1994.

In 2008, Indianapolis and Columbus helped spark the rapid growth of sister-city relationship between Indiana and China. From 2010 to 2012, fifteen additional sister-city relationships have been formed. Four were established in 2010, seven in 2001 and four in 2012. There are still several sister-city relationships that are being developed between Zhejiang and Indiana. With China’s rise as a major trade partner, the number of sister city relationships will likely growth.

Besides the fast growing number of new sister-city relationships, the interaction between sister cities is deepening. Currently, the emphasis is mainly on business, agriculture and education. Through the Global Indiana network and sister-city relationship, more than 90 K-12 schools in Indiana and China have estab-lished relationships. Furthermore, whenever Indiana mayors visit their corresponding sister cities, they

The Human ConnectionThe Chinese have been immigrating to Indiana for well over a century. ThefirstChineseresidentsinthestateappeared in the 1880 U.S. Census, according to R Keith Schoppa, writing in Peopling Indiana: The Ethnic Experi-ence. Many Chinese came to central Indiana for jobs and to go to school. Some of the most recent immigrants have come to train in the medical fieldandtogetadvanceddegrees,whereas others came here on visas to work in restaurants or in construction.

In fall 2010, there were 2062 Chinese students enrolled at Purdue University, which was more than 30% of the total international student population at Purdue University. It is estimated that within Indiana University system, there would be more than 2000 Chinese students admitted in 2012. IUPUI alone recruited 319 Chinese oversea stu-dents in 2011.

The number of Chinese in Indiana has certainly increased since 1880. According to the most recent U.S. Census conducted 2010, the Chinese foreign-born population has exceed-ed 18,8000 in Indiana.


meet with company executives and government officials to explore potential investment, business collabo-ration, and trade opportunities. Indianapolis and Hangzhou may be the most fully developed sister city relationship so far. After their official Sister City Agreement reached in 2008, Indianapolis and Hangzhou have set up two investment and community interest conferences in each city where many local corporations and organizations attend. Additionally, the Indianapolis Public Library also began a sister library relationship with the Hangzhou Public Library in April 2012.

With strong leadership and dedication, the sister-city relationships will deepen and expand the two coun-tries’ understanding of their business, cultural and social connections.


IndianapolisHangzhou

Fort WayneTaizhou

ElkhartJinhua

AndersonYuhang District

ColumbusWuxi, Jiangsu

KokomoDongyang

BloomingtonJiaxing

FishersBinjiang District

BedfordFenghua

MuncieZhuji City Shaoxing

ValparaisoNanhu District, Jiaxing

MarionJindong District, Jinhua

FrankfortLanxi City

FranklinLuqiao District, Taizhou

GreencastleShaoxing County

DecaturJiaoJiang District

BatesvilleHaiyan County Jiaxing

MonticelloDeqing County, Huzhou City

CarmelXiangyang, Hubei

LafayetteLongkou, Shandong

WhiteJiaxing

Allen

Jay

Lake

Knox

Vigo

White

Jasper

Cass

Clay

Laporte

Pike

Rush

Parke

Grant

Greene

Perry

Ripley

Clark

Noble

Gibson

Porter

Wells

Posey

Elkhart

Owen

Henry

Boone

Miami

Jackson

Putnam

Dubois

Shelby

Pulaski Fulton

Marion

Wayne

Clinton

Sullivan

Harrison

Benton Carroll

Daviess Martin

Orange

Kosciusko

Monroe

Morgan

Madison

Newton

Marshall

Warrick

Wabash

Warren

Brown

DeKalb

Franklin

Adams

Starke

Spencer

Decatur

Randolph

Lawrence

Whitley

FountainHamilton

Washington

St. Joseph

Tippecanoe Tipton

Jennings

Delaware

Hendricks

Lagrange

Montgomery

Jefferson

Steuben

Howard

Johnson

Scott

Huntington

Hancock

Crawford

Dearborn

Bartholomew

Fayette Union

Floyd

Switzerland

Ohio

Blackford

Vermillion

Vanderburgh

Indiana Cities with Sister Cities in China

County with Sister City in China

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August 15, 2012Deb Fairhurst, ISDA Program Manager

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