State by State: China and Pennsylvania Trade

September 25, 2015 Posted by China Briefing Reading Time: 5 minutes

By Ruairidh McPherson

With a GDP of around US$644, the State of Pennsylvania is ranked as the United States’ sixth largest state economy. If Pennsylvania were an independent country, it would be included in the top 20 largest economies in the world. The state’s strong economy is also highly diversified, with no single industry accounting for more than 5 percent of businesses.

International trade is particularly important in the state, with export and import industries supporting over 1.6 million Pennsylvanian jobs. World Trade Pennsylvania is a highly successful state programme aimed at promoting exports, and has helped position Pennsylvania as a state built on success in international business.

Imports and Exports

Trade between Pennsylvania and China remains strong, despite exports dropping between 2013 and 2014. In 2014, exports to China had dropped to US$2.4 billion from $2.9 billion a year earlier. Despite this, Pennsylvanian exports to China between 2005 and 2014 experienced growth of 159 percent. This compares to growth of 79 percent for the rest of the world. China is now Pennsylvania’s third largest export market after Canada and Mexico, and exports to China make up 5.9 percent of the state’s total export value.

Pennsylvania’s top export to China remains computers and electronics. Machinery, excluding electrical, follows closely behind. In 2014, these two exports to China accounted for US$444 million and US$439 million respectively. Chemicals, electrical equipment and primary metal manufacturing make up the rest of the top five most successful Pennsylvanian exports to China.

When we look at imports to Pennsylvania, the picture is even more promising. China is, by a long way, the state’s top import partner. Imports from China now comprise 21.8 percent of total imports to Pennsylvania, breaking through US$18 billion in value by 2014.

RELATED: Pre-Investment and Entry Strategy Advisory

Pennsylvania-China Relations

The relationship between Pennsylvania and China isn’t purely an economic one. Pennsylvania’s two largest cities – Philadelphia and Pittsburgh – are twinned with Chinese cities Tianjin and Wuhan respectively. Pennsylvania has also established authorized trade representative offices in Shanghai and Beijing. The Pennsylvania Center, based in Shanghai, has supported numerous companies from the state to succeed in doing business in China.

China has directly invested over US$245 million in the state over the past two and a half years. This is a significant improvement when compared to a few years ago, but the figure remains just 1 percent of the nationwide total of US$54 billion. Efforts are now being made to present Pennsylvania as a more attractive investment location.

Investment Opportunities

Manufacturing

In the past Pennsylvania was traditionally regarded as a manufacturing stronghold. More recently, the role of manufacturing in the state economy has declined but, accounting for 12 percent of gross state product, it remains an important sector. Pennsylvania has been earmarked as one of 19 states leading a recent US manufacturing resurgence.

Only last year Chinese company Fuling Plastics chose Pennsylvania as their new home for manufacturing in the U.S. The company, a division of Taizhou Fuling Plastics Co. Ltd, received numerous grants in return for making the US$21 million investment. There are now 39 Chinese firms operating in the state.

Likewise, Pennsylvanian companies manufacturing machinery, computers and electronics are thriving through trade with China. As Chinese industrialization continues, appetite for equipment such as electrical transformers remains significant. Pennsylvanian strength in these industries has allowed the state to excel. In 2014, these three sectors alone accounted for almost US$1 billion in Pennsylvanian exports to China.

Health and biotechnology

Pennsylvania isn’t merely a state specialized in heavy industry. The area is home to a thriving health and biotechnology sector that is supported by numerous universities, institutions and medical centres.

Being home to 20 percent of the world’s population, it’s clear that China bears a significant health burden. China’s spending on healthcare is expected to see annual growth of around 12 percent through 2018. The biotechnology and biopharmaceutical industries are among those sectors currently seeing particularly strong growth in China and thus presenting Pennsylvanian firms with opportunities.

Pennsylvanian biotech, pharmaceutical and other related industries provide 60,000 jobs in over 1,100 companies. As a state, Pennsylvania is home to the fifth highest number of biotechnology companies in the U.S. This has been recognized, and Chinese investment in these industries in Pennsylvania has totaled over US$88 million since 2013.

Tax Treaty – U.S. Trade with China

The United States has signed a Double Tax Treaty with China. This can reduce tax burdens under certain circumstances in both trade and any China legal establishment. Please seek professional advice for specific China investment requirements. Treaty details can be found here.

Further Support from Dezan Shira & Associates

Dezan Shira & Associates can service Pennsylvania-based companies that are looking to further develop their operation in China. The firm can help companies establish a direct office in the country and can guide them through the affiliated tax, legal and HR issues that come with doing so. To arrange a free consultation, please contact our U.S. office at usa@dezshira.com.

About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email china@dezshira.com or visit www.dezshira.com.

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