Photo: Greg Becker, CEO of Silicon Valley Bank, joins Secretary Kerry and Ambassador Baucus before the sixth annual US-China Strategic and Economic Dialog in Beijing in July 2014. Photo courtesy of the U.S. Department of State
Last week I got a rare first-hand look at U.S.-China relations at the highest levels, and flew home with a deeper appreciation of the tightrope Secretary of State John Kerry and U.S. Treasury Secretary Jack Lew walk when interacting with leaders of the world’s second largest economy. I also arrived home with an even greater commitment to help innovative American and Chinese companies succeed in the global economy.
I am grateful to have spent a day in Beijing as part of a delegation of 12 American and 12 Chinese business leaders invited to discuss opportunities and challenges in our two nations’ economic relationship. The exchange was part of the annual U.S.-China Strategic and Economic Dialogue.
There are many ways to measure the impact and speed of global innovation, but I thought Secretary Kerry summed it up best, calling China and the U.S. “the greatest economic alliance trading partnership in the history of humankind.”
There is no question the alliance has several flashpoints, but just the fact that American and Chinese government and business leaders were all in the same room at the Diaoyutai State Guesthouse is far better than no conversation at all. As it has been reported many times before, it will take bi-lateral flexibility and openness to improve business opportunities between the nations, and it is even more clear to me now why it is such hard work.
Longevity in China
SVB has been involved in China since 1999, and I have travelled there many times to help establish relationships and visit our joint-venture, SPD Silicon Valley Bank, with the Shanghai Pudong Development Bank. It opened in 2012. This trip was a special opportunity to speak in front of China’s vice premier, the nation’s top economic officials and leading Chinese CEOs, not to mention Secretaries Kerry and Lew, Commerce Secretary Penny Pritzker, U.S. Ambassador to China Max Baucus, and U.S. Trade Representative Michael Froman. On the business side, I was in the company of Goldman Sachs, General Electric, Boeing and Federal Express, among others.
Leading politicians from both nations have repeatedly criticized each other for breaking the rules and favoritism toward domestic companies, so this breakfast with business leaders was designed as a grievance session of sorts so they could hear the corporate point of view. Of course, what constitutes interference and a level playing field is very much in the eye of the beholder, hence these high-level bilateral talks.
Scrambled Eggs and Pot Stickers
The potential for cross-border business is huge and SVB is already there helping introduce American companies to China and vice versa.
The formal setting and diplomatic niceties did not dissuade frank, animated conversation. U.S. and Chinese business executives, including me, clearly noted that a lot of work has to be done to ease commerce restrictions in both countries to fuel growth and job creation in both places.
There also has been a lot of progress. Not lost in translation: there is a lot at stake for everyone. Annual trade between the U.S. and China has nearly quintupled since SVB entered China 15 years ago, according to a February report from the Congressional Research Service. China is currently the United States’ second-largest trading partner, its third-largest export market, and its biggest source of imports. And here’s my favorite stat: China is estimated to be a $300 billion market for U.S. firms (based on U.S. exports to China and sales by U.S.-invested firms in China).
SPD Silicon Valley Bank is the first commercial 50/50 joint venture bank in China, and now our work in China accounts for approximately five percent of SVB’s total client funds. I shared over breakfast of scrambled eggs and pot stickers how we appreciated the opportunity of working with SPD in the joint venture, and noted the potential for enormous growth in our China business. It’s not inconceivable that by the end of the next decade, China-related business could account for one quarter of SVB’s total client funds.
Then and Now
Here is a taste of how things have changed. A decade ago, I was part of a delegation of Chinese and American VCs, again meeting with a Chinese vice premier. At the time, a well-known Silicon Valley venture capital firm on the trip to test the waters told me they had no plans to work in China. Fast forward, and today that firm is in China in a big way. They are not alone.
Consider the story of our client, Secoo, with whom I visited on this trip. The Chinese company started in 2008 as an online retailer of second-hand luxury goods, using a consignment model. Now, we are helping finance Secoo’s global expansion by handling their global banking and working capital financing.
Our ability to act as a conduit for the innovation economy globally is impacted greatly by the progress we are able to make in talks like these. When we helped Kingsoft, a leading Internet-based software developer in China, and Sungy Mobile, a NASDAQ-listed company that provides mobile Internet products globally, with banking services and their entry into the US, we were able to connect them to the right legal and accounting services, M&A deal flow, and professional recruiters to help build their US team. As a champion of innovation, this is the kind of work we strive to do—across borders.
Passion on Both Sides of the Pacific
From the American executives’ perspective, several of us at the breakfast explained how complex Chinese regulations sometimes can tie you up for months or years. We see it in our banking business and when helping U.S. companies tackling the Chinese market.
Speaking of U.S. firms operating in China, Secretary Lew said, “it is important that these firms are able to participate in healthy competition—on a level playing field—that will produce benefits for both of our nations and the global economy.
The Chinese showed equal passion for arguing their case. The Chinese CEOs were very well scripted, and after each spoke (especially those heading state-owned enterprises) Vice Premier Wang Yang supported them in requesting more fair treatment in the U.S.
Secretary Kerry Gives the Perfect Closer
On a topic of great interest to our technology clients looking to do business in China, I was glad that intellectual property protection is on the radar of Secretary Kerry. “We need to make sure we’re protecting intellectual property rights, make sure we're creating transparency in the regulatory process, make sure we are raising the bar for everybody in terms of the standards by which we do business,” he said.
He also added, at a closing press conference, that neither country wants to fall into the “trap of zero sum competition.” I know from my experience doing business in China that is very much the case.
After last week’s meetings, I have even stronger confidence that government leaders in both nations understand that the global innovation economy cannot thrive without a vibrant U.S.-China relationship. I’m eager for more breakfasts of scrambled eggs and pot stickers. On behalf of all the companies in the innovation economy, we are thankful that these conversations are happening.