ELIOT

R. CUTLER CHAIRMAN, MAINEASIA LLC CHAMBER OF COMMERCE BREAKFAST BANGOR, ME JANUARY 9, 2012

Melanie and I had lived in Beijing for three years, from 2006 to 2009, where I had opened and built an office for my law firm, and I have believed for many years that Maines future economy will be largely driven by our development of export markets for our products. So, as I thought about how I wanted to spend my time after I lost the 2010 election for governor, it didnt take me long to decide that I wanted to devote some significant effort to building bridges and economic relationships between Maine and China. With three other partners, I formed a firm MaineAsia to do just that. Two of us are fluent in Mandarin, and among us we have 50 years of experience living and working in China. The rise of China has been the economic story of the last decade and a half. Chinas rapid growth has changed the competitive landscape for America, challenges many of our notions about Americas place in the world, and will shape our future in ways for which most of us are not at all well prepared. Heres what I mean. Professor Robert Fogel, the Nobel Prize economist at the University of Chicago, published a paper a few years ago in which he forecast the kinds of changes for which we need to be prepared.

Global GDP in 2000

Grouping
United States EU 15 China Japan SE Asia 63 India Rest of World

Population % of Total GDP % of Global (millions) Population1 ($ billions) GDP2

282 378 1,369 127 381 1,003 2,546 5 6 22 2 6 16 42 9,601 9,264 4,951 3,456 2,552 2,375 12,307 22 21 11 8 6 5 28

1 2

Totals may not add to 100 due to rounding. Totals may not add to 100 due to rounding. Singapore, Malaysia, Indonesia, Thailand, South Korea and Taiwan

This is the way the world economy looked in 2000. As had been the case since the late 19th century, the U.S. ranked way ahead of the rest of the world in both total and per capita GDP. Even in comparison with our closest per capita competition, the EU15, Americans were about 28% better off in 2000. We were nearly 10 times more productive than China on a per capita basis, and almost 15 times more productive than India. We dont need Professor Fogel to tell us that the ground has been shifting under our feet in the years since 2000. But its interesting to see what he projects for 2040, when his analysis says that Chinas output will be three times the entire global output in 2000.

Global GDP in 2040

Grouping
United States EU 15 China Japan SE Asia 63 India Rest of World

Population % of Total GDP % of Global (millions) Population1 ($ billions) GDP2

392 376 1,455 108 516 1,522 4,332 5 4 17 1 6 17 50 41,944 15,040 123,675 5,292 35,604 36,528 49,774 14 5 40 2 12 12 16

Totals may not add to 100 due to rounding. 2 Totals may not add to 100 due to rounding. 3 Singapore, Malaysia, Indonesia, Thailand, South Korea and Taiwan

Chinas economy in 2040 will be three times larger than that of the U.S., and the Chinese will approach 80% parity with America on even a per capita basis. At $85,000, Chinas per capita GDP will be twice that of the EU15, which along with Japan will have shrunk by 2040 to near insignificance. There obviously are a lot of variables at work in Fogels analysis, with plenty of room for subjective judgments, but the trends remain clear, persistent and incontestable. To give this phenomenal rate of growth a little more flavor, consider these numbers:

Change in Share of Global GDP

40 35 30 25 20 15 10 5 0

2000 2040

U.S.

EU15

China

Japan

SEA6

India

ROW

Chinas current five-year plan calls for the standard minimum wage to increase by 13% annually and for disposable income among residents of urban areas to increase by 7 % a year, all in real terms. These numbers startle and even alarm many Americans. Yet, what is happening is simply a reversion to the historical mean. About 150 years ago, China closed itself off to the West; it was bypassed by the Industrial Revolution, and its share of global GDP fell to 4.5% in 1950 one-tenth that of the U.S. But those 150 years are an historical anomaly. In each of the previous 2000-3000 years, China accounted for 22-34% of the worlds economic output. Today, there are 150 cities in China with more than 1 million people. There are dozens and dozens of cities with more people than the entire State of Maine. Annual per capita retail sales in China have increased from about RMB 3,300 in 2000 to about RMB 15,000 today, an increase of 455%, or more than 40% per year. How can we in Maine take advantage of this burgeoning new market?
5

Maines economic future requires a strategic agenda that responds to this new world order, that recognizes the importance to Maine of these new markets in China, and that builds a relationship with China that will create opportunity and economic growth here in Maine.

A China strategy for Maine Build the relationship

This shouldnt be difficult. Closer relationships between Maine and China will be rooted in the fact that Mainers and Chinese share many of the same characteristics. The Chinese are hard-working, motivated, creative and entrepreneurial. They are capitalists to their core. They are strongly family-oriented and place a high value on education. They are candid, funny and loyal. Hundreds of millions of people in China are developing new eating habits and preferences. They have new ambitions to see the world, and the time and the incomes to do it. There are millions of people in China who will be searching for better tourist opotunities, better ways to educate their children . . . and better ways to grow organic vegetables.

This is my friend Shen Lejen. Lejen and her husband run an organic farm near Beijing, and they own and manage a small bakery and restaurant in a suburb of Beijing. They make the best bagels and the best pizza in northern China. Lejen loves Maine. She has been to the Common Ground Fair in Unity not once, but twice, and she is looking at Maine colleges for her daughter. As we build these relationships, we need to bring our Chinese partners to Maine.

A China strategy for Maine Build the relationship Bring Chinese partners to Maine

I know that there is a great fondness in some circles for sending trade delegations to China, but when we do that, we are squandering one of greatest competitive advantages: Maine itself.

In 2010 I brought to Maine the Chairman of Hopu, the largest Chinese USD private equity fund and the Chairman of COFCO, the largest food company in China. COFCO is one of Chinas largest state-owned companies, with 80,000 employees.

I took Chairman Fang and Chairman Ning lobstering in Casco Bay, to the Wyman blueberry barrens in Deblois and their plant in Cherryfield, and to the University of Maine experimental aquaculture station in Franklin. In 2011 we
8

hosted another COFCO delegation in Maine, and I have met with them several times in Beijing.

Last year our Maine Seafoods Ventures business shipped to China tens of thousands of pounds of Maine lobster whole shell, frozen raw, ready to thaw and cook and COFCO has named us its Preferred Supplier for lobster products.

Customers in Beijing and Shanghai are going to www.womai.com and buying Maine lobster on this COFCO web site for about $25.00 each.

Within 24 hours their lobsters are delivered to their home in a net bag and an attractive box.

Then, they are learning how to cook their Maine lobsters it from a video on COFCOs womai.com web site.

10

We will soon be test-marketing wild Maine blueberries with COFCO in China, and we are discussing with COFCO a fuller line of branded Maine foods.

11

A China strategy for Maine Build the relationship Bring Chinese partners to Maine Focus on what makes Maine unique . . . and on what China needs that we can provide
One of the advantages of bringing the Chinese to Maine is the opportunity it provides to show in ways that words and pictures cant just what makes Maine unique. Food, yes. But so much more..

On the day in 2010 when Chairman Fang and Chairman Ning visited Maine, when we were done for the day, I took them to dinner at the Crocker House at Hancock Point. First, though, we went to the shore at the end of the Point, so they could see Acadia National Park across Frenchman Bay. They took off their shoes, rolled up their pants legs and went wading in the bay; they
12

couldnt get over how clear the water was. Their reactions spoke volumes about Maines competitive advantages, and those advantages dont have nearly the same impact when Mainers go to Beijing or Shanghai and show pictures and tell stories.

13

The national parks in China are beautiful, but crowded. The Jiuzhaigou park in northern Sichuan Province expects to host 3.5 million visitors next year.

14

Tourism is Maines biggest industry, and China is the fastest growing source of visitors to the United States.

Lets figure out what Chinese tourists want, package it and deliver it to them. Remember, that not only is tourism Maines biggest industry, the tourist experience is our largest single export product.

15

There is nothing that middle-class Chinese parents want more than good education opportunities for their kids in safe places. Could we couple solid performance in a secondary school program with assured admission to one of Maines great colleges?

16

 A China strategy for Maine

What does China need? Healthy, clean, traceable and sustainable sources of protein High-end food products Wood fibre Service models for solving persistent rural problems Educational opportunity Boats, recreation and tourism opportunities What can Maine provide? Lobster and other marine protein; beef, lamb and pork Blueberries to maple syrup Pulp Innovation and creativity Schools and colleges in safe environments The best built boats, the coast of Maine and the north woods
There is a remarkably close fit between what China needs and what we can provide . . . Our foods can help meet their need for protein and the growing desire of affluent Chinese to purchase imported foods from clean, traceable and sustainable sources. Chinese papermakers need wood fibre, and we have it; thats why a Chinese investor bought the Domtar mill in Woodland two years ago, is keeping 300 Mainers employed and the town of Woodland alive, and helping to reinvigorate the Port of Eastport.

17

And the Chinese are buying paper products from Maine mills, too, not just the pulp. Chinese customers buy most of the release paper that is produced by the 340 employees at the Sappi mill in Westbrook.

A China strategy for Maine Build the relationship Bring Chinese partners to Maine Focus on what makes Maine unique . . . and on what China needs that we can provide Brand our competitive advantages
But we need to build our brand.

For example, we may be the largest harvester of homerus americanus, but the Chinese didnt know that. Indeed, most of them didnt know that there is a difference between Maine lobster and Australia and New Zealand lobster, and almost all of them have no idea where Maine even is!

18

We are trying to do something about that in our marketing of Maine lobster with COFCO, but there is so much more to be done. NOTHING is more important for Maines future as an exporter than the development and promotion of the Maine brand, and we have been sitting on our hands for years. We need to develop and spin out across the world a Maine brand that embraces our state, the experience of visiting and living here and the extraordinary qualities of our workforce and the products that they produce.

A China strategy for Maine Build the relationship Bring Chinese partners to Maine Focus on what makes Maine unique . . . and on what China needs that we can provide Brand our competitive advantages Learn the Chinese language and culture
Finally and perhaps this will warm the hearts of the nameless, faceless Democrats who sent around those nasty flyers attacking and smearing me in the closing weeks of the 2010 campaign we need to learn to speak their language and to understand the Chinese culture. This is a lesson we cant seem to learn. Almost exactly three years ago, I spoke in Portland about the problems with Maines system of public higher education and about the Systems lack of responsiveness to the States needs. Preparing that talk in late 2008, I searched the catalogs of every university in the System for courses in the Chinese language.

19

There was nothing at UMO except for the self-taught Chinese in the Critical Languages program. Indeed, when you plugged in your search for Chinese, all the site returned to you was a course in Complementary Nutrition Practices. And there was nothing at all at USM. In fact, there was no Chinese taught anywhere in the System except at UMF. Well, three years is a long time . . . And during that time weve had the Flanagan study and a lot of discussion and debate about how to make our university curricula more relevant to Maines future. So with high hopes, I decided to repeat my search a few weeks ago.

20

Imagine how excited I was when I saw in Mandarin characters a link for Chinese on the UMS front page. I clicked on it, and . . .

Heres what I got! There are still pages of French and German and Spanish language, culture and history courses at UMO . . . . and 10 pages of German courses at USM . . . but no Chinese anywhere except at Farmington. What are we thinking???? Simply stated, we need to make the teaching of Chinese language and culture one of the top strategic priorities for the State of Maine and for our universities.

21

A China strategy for Maine Build the relationship Bring Chinese partners to Maine Focus on what makes Maine unique . . . and on what China needs that we can provide Brand our competitive advantages Learn the Chinese language and culture

We have been trapped in a vicious cycle in Maine for decades one where we have failed to adapt to a world where the opportunities for us are no less great than they have been in the past, but where they are different. We have watched our public education systems slip slowly to the middle of the pack, at best, from a once lofty perch at the top of the heap. We have allowed our skilled labor force, once the envy of America, to age and to shrink. We have failed to lever our very considerable competitive advantages into the kind of branded dominance in markets that rightfully should be ours. We can turn our backs on that vicious cycle once and for all. We can create a virtuous cycle in Maine one where a strong education system will breed innovation and creativity, leading to good jobs, higher wages, a stronger economy and a healthier tax base. To do that, we need begin thinking and acting strategically. We should start with a China strategy that flows from a renewed commitment to shared enterprise and a compelling and affirming vision of Maines future in a world where, as it was for thousands of years, China is a real and significant force.
22