State by State: China and Illinois Trade

By Dezan Shira & Associates

Being the 5th most populous state in the U.S, Illinois has been the economic engine of the Midwest region and a national hub for global commerce. The state owns the third largest intermodal port in the world, after Hong Kong and Singapore. As the state of innovation, Illinois is home to 32 Fortune 500 companies, involved in everything from agribusiness to life sciences, aerospace and financial services.

In 2013, the GDP of Illinois was US$720.7 billion and ranked 5th in the U.S. Advanced manufacturing is the largest industry in Illinois, due to the state’s highly trained workforce and superior logistics and infrastructure. Other major industries include financial services, agribusiness, coal technology, energy & recycling, life sciences, logistics and information technology.

Trade and Exports

Exports form a significant portion of Illinois’ economy, and totaled over US$68.18 billion in 2014. The state’s exports have grown faster than the rest of the nation. In 1974, Illinois became the first state to open a trade office in China, and China is now the state’s third largest export market. Last year, Illinois exports to China totaled US$4.7 billion, a small decrease over 2013. The top five exports are agriculture and related products, transportation equipment, machinery (excluding electrical), waste and scrap and computer and electronic products. In 2014, imports from China reached US$29.5 billion, making China the state’s second largest trade partner.

Investment Opportunities 

• E-commerce/ Cloud Computing  China is currently experiencing huge growth in e-commerce. It is estimated that e-commerce in China will be worth US$540 billion by 2015, and by 2020 worth more than e-commerce in the U.S., the UK, Japan, Germany and France combined. China has recently opened up its e-commerce and cloud computing industry – all equity restrictions on e-commerce enterprises have been lifted, which means that foreign entities are allowed to invest in and set up enterprises that engage in e-commerce. China announced earlier this year that foreign investors are now allowed to set up wholly foreign-owned e-commerce companies in the Shanghai Free Trade Zone to provide online data processing and transaction processing services. This includes cloud computing.  Illinois is an information technology leader, home to well-known e-commerce company Groupon and innovative companies such as Grubhub, a Chicago-based online food ordering company. Illinois is also the birth place of the world’s first cellphone, remote control, LED and Web browser.

• Advanced Manufacturing  China is already the second largest air travel market in the world, leading to considerable opportunities for foreign investment in the country’s aerospace and aviation industry. Foreign investors are more likely to find opportunities in China’s aerospace and aviation industry through component systems (engines, hydraulics and electronics) and services (design engineering, precision machining and training), which will be worth at least US$8 billion over the next five to ten years, or more than US$32 billion over the next 20 years.

Tax Treaty – US 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.

[box]This article was first published on China Briefing.

Since its establishment in 1992, Dezan Shira & Associates has been guiding American investors through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, including liaison offices in Boston and Waltham specifically established to support our American clients, we are your reliable partner for business expansion in Asia and beyond.

For inquiries, please email us at [email protected]. Further information about our firm and how we can support American investors in Asia, please visit our North American Desk. [/box]