Trade between China and the southern U.S. has skyrocketed over the past decade, but states are eager to see their relationship with the world's No. 2 economy depend less on container ships and more on investment.

"We need Chinese companies," said Alabama Gov. Bob Riley, who hosted five other governors and many state commerce secretaries in Hoover, Ala., for the annual meeting of the Southern Governors' Association.

During an all-day program focused on China, the leaders unveiled a new effort by the association to jointly market a 16-state region called the "American South" to investors overseas.

"What we're trying to do is convince the Chinese that if you're going to make an investment, you really need to look at the American South first," Mr. Riley said.

As China's economic clout has grown, politicians and economic developers have worked to position their states for what they envisioned as an inevitable wave of Chinese investment. Trade missions to China by governors including Georgia's Sonny Perdue, who missed the Aug. 28 meeting, have led to many export contracts, but new investment has been scarce in most states.

Even some signed deals promising millions of dollars and hundreds of jobs have sputtered on arrival. Georgia, for instance, helped General Protecht Group, a Chinese electrical components maker, buy a 211-acre site between Atlanta and Macon. Three years later, the land sits empty, and the promised $30 million has yet to appear.

Only a miniscule portion of foreign direct investment in the U.S. comes from China, which makes up only 0.5 percent of the U.S.-bound investment from Asian countries, with Japan dominating at more than 70 percent.

In the first quarter of 2010, there was a net outflow from the U.S. of $76 million in Chinese investment, likely because U.S. units of Chinese firms returned money to their parent companies or wrote down the value of assets like companies and factories, according to data from the U.S. Bureau of Economic Analysis.

"The potential for Chinese investment in the United States is great, but to date we really haven't seen that much overall," said Aaron Brickman, director of the Commerce Department's Invest in America program.

Perspective is important, though, Mr. Brickman said. China didn't open its own economy to the world until 1979. Even for years after that, Chinese firms weren't allowed - much less encouraged - to invest abroad.

"There's a steep learning curve for those companies about the global marketplace and competition. There aren't that many Chinese firms, comparatively speaking, with the ability of going global," he said, although he added that the number is increasing.

Chinese projects have faltered in some cases because the firms didn't have the right approach, said Zhou Wenzhong, who was China's ambassador to the U.S. from 2005 until earlier this year.

But there are other factors at work, Mr. Zhou said at the Alabama conference. Chinese firms have attempted acquisitions worth billions of dollars in sectors like energy and telecommunications only to be rebuffed by the U.S. Senate's Committee on Foreign Investment in the United States, which determined that the companies' ties to the Chinese government represented a national-security risk.

"Sometimes the investment is good-intentioned, it doesn't constitute a threat to U.S. interests, but for some reason it was reported as a threat, it was described as a threat to the security of the United States," Mr. Zhou said.

Still, very few investments require Senate approval, and the Chinese government is encouraging its companies - particularly state-run enterprises - to invest overseas, Mr. Zhou said. They need help from the Southern states and local governments in the form of data and services and in finding appropriate investments, sites and service providers.

"What is lacking here is the mechanism whereby we could match private sector people or enterprises in China with their potential partners," Mr. Zhou said, praising the governors association's efforts as positive first steps.

While upbeat about China's potential, the governors had a sober view of the cultural challenges that sometimes inhibit cooperation.

Tennessee Gov. Phil Bredesen noted a "gulf" between American and Chinese citizens in business practices and views on the role of government in the economy. Dialogues like the conference are essential in taking the relationship to the next level, Mr. Bredesen said.

"Tennessee certainly works hard to export to China, but in the end, that cross-investment, the operation of Chinese businesses here in the South and the ability for our companies to invest and become a part of the business climate in China, is ... more important in the long run," Mr. Bredesen said.

Few Chinese companies have been able to integrate seamlessly into the American business landscape.

Haier Group, the world's top refrigerator producer, is an exception. The company employs 300 at a Camden, S.C., refrigerator factory that opened in 2000. The Haier Group has sales operations across the Americas, including in Georgia. Global revenues in 2009 were $18.2 billion.

In addition to refrigerators, washing machines, air conditioners and other major appliances, the Qingdao, China-based company makes cell phones, flat-panel televisions, laptops and other consumer electronics. Haier America has focused so far on appliances, its best-selling product being a window-unit air conditioner.

Shariff Kan, president of Haier America, said he has no complaints about operating in the South. As for what makes the region attractive for Chinese companies, he's evaluating the issue as Haier refines its strategy and mulls new U.S. factories.

"The state of South Carolina, this Camden facility, is the beginning, it's not an end. We continue to grow and we continue to look for opportunities," Mr. Kan said. "Perhaps within next three to five years we will go from a single plant to multiple plants, perhaps in the same space. We will further expand. Instead of just having a factory, we can have an R&D facility."

In marketing the South to China, he put the onus more on the Chinese companies, which he said should be transparent about their intentions and abilities as they look to the U.S.

He also noted Haier Group Chairman Zhang Ruimin's philosophy that building rapport with local communities is the only way to be successful globally.

"Being global is the aspiration, but he always felt that being local is the step to take to get to be global," Mr. Kan said.

Chinese appliance and flat-panel television manufacturer Hisense, a Haier rival, has taken a similar approach in its operations in Georgia. The company is developing a 7,000-square-foot research and development center adjacent to its U.S. headquarters and distribution facility in Gwinnett County.

Future Chinese investment holds great job-creation potential in the U.S., but companies must avoid the pitfalls of their predecessors, Erin Ennis, vice president of the U.S.-China Business Council, said at the conference.

First, Chinese firms should be open about their intentions in the U.S. and vocal about the benefits their investments will provide the community.

They should also hire qualified advisers as early as possible to help navigate legal issues, negotiate incentives and raise capital.

"Many of our firms tell me that their biggest difficulty, particularly in helping Chinese companies that want to invest in the United States, is that they're called in too late, just before the deal is closed," she said. "Once the terms of an acquisition are set, there's very little your counsel would be able to give you good advice on and change without totally breaking down the deal."

States have to be vigilant as well in helping educate Chinese companies, Jim Cheng, Virginia's Taiwan-born, Mandarin-speaking secretary of commerce and trade, told GlobalAtlanta.

Even mature companies from countries with more U.S. investment experience want states to be a "one-stop shop" to help pinpoint potential building sites and outline available incentives.

That's even more important with Chinese companies, which are used to dealing with government, he said.

"They want to see, 'If we move somewhere, do we have the backing of the government?'" he said. "When we attract companies to come over they say, 'OK, the people are friendly, but does the state hook us up if we have a problem?'"

Virginia is targeting Chinese companies involved in energy, advanced and traditional manufacturing and electric vehicles. In May, Mercury Paper Inc., a Chinese paper company, announced that it would invest $21.2 million to expand its existing Virginia operation and relocate its North American headquarters there, creating 150 new jobs. The state will open a trade office in China within the next year, said Mr. Cheng, who spent most of June in the country.

Other Southern states have large Chinese investment prospects. HK Motors, a California subsidiary of Hong Kong's Hybrid Kinetic Motors Corp., is raising capital for a proposed $4 billion plant in Baldwin County, Ala. The plant would produce cars that run on a combination of natural gas and lithium battery power.

The company has said that it will use the EB-5 visa as a main funding mechanism. The U.S. government program provides a green card for immigrants who invest at least $500,000 to $1 million into U.S. businesses that create or sustain 10 jobs.

North Carolina has sent two delegations to China in the last nine months, Keith Crisco, the state's Commerce Secretary, told GlobalAtlanta. North Carolina's biggest Chinese success story to date is Lenovo, which bought IBM Corp.'s personal computer division in 2005 for $1.75 billion.

Georgia has sent many business delegations to China since opening a trade office in Beijing in April 2008. A state delegation will head to China later this month. Mr. Perdue has traveled twice on official missions to China, though it's unclear whether he will join the upcoming trip.

Though prior engagements caused him to miss the Aug. 28 meeting, the Georgia governor has been a "staunch advocate" of regional economic development strategies like the one proposed by Mr. Riley and the other governors, said Bert Brantley, a spokesman for Mr. Perdue.

"The reasoning is simple: Georgia is the capital of the South, and it's very difficult to get from any international destination to the South without coming through Georgia first," he said. "So we strongly believe that regional efforts are great for Georgia."

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