The Chinese Connection : Emergence of Consumer Class Could Be Boon for Southland Businesses

Bustling thoroughfares filled with shoppers clad in blue jeans. A store brimming with television sets, video cameras, stereos.

To Los Angeles businessman Charles Nevil, these images that he saw on Chinese television last December told a fascinating story about the China of the 1990s: Economic reform is rapidly creating a moneyed class of consumers eager for U.S. products.

The fact of increasing wealth and sophistication in China has only recently begun to sink in for businesses in Southern California. But what was once a trickle of interest is slowly approaching a steady stream, as businesses line up to take a crack at a country with a fifth of the world’s population.

“The degree of consumer demand and the success of the entrepreneurs in China is mind-boggling,” said Nevil, president of Meridian Group, a Los Angeles-based export management firm. “These people want things.”

Nevil has been involved in trade to China for years. But only in the last four months has he begun to actively promote exporting to China to anyone who will listen. He regularly makes speeches to business groups and at trade conventions, trying to drive home the message that the light has “gone from yellow to green on China.”

Some Southland businesses have listened and have taken steps to establish markets for their products in China.

To sell their wares, they have hired export management firms such as Nevil’s that are knowledgeable about the market and Chinese business and government practices. They have also sought advice from nonprofit groups and government officials eager to prop up Southern California’s sagging economy by promoting exports.

And they have met with Chinese trade missions that have made frequent visits to the Southland to buy U.S. goods.

Recently, a delegation of about 200 Chinese officials from Shandong Province held a trade exhibition in downtown Los Angeles and met with California-based businesses to discuss joint ventures. Another large Chinese delegation--this one to buy automobiles--is expected to tour California and the rest of the country later this month, said Lan Lijun, consul at the Los Angeles office of China’s consulate general.

The Chinese hope their U.S. purchases will help their country gain acceptance into the General Agreement on Tariffs and Trade, which controls much of the trade among nations of the world.

China wants to join GATT to ensure access to foreign markets and end the need for yearly renewal of most favored nation trading status with the United States. Negotiations have stalled over China’s refusal to make concessions that would bring its economic practices fully in line with other members of GATT.

Still, even with high import tariffs and other trade barriers that contributed to a record $18.2-billion U.S. trade deficit with China last year, local business executives can scarcely hide the gleam in their eyes when discussing China’s potential.

“There are a billion people there . . . that love made-in-the-U.S.A. goods,” said Tom Kuo, vice president of Vernon-based Bennini Inc., which sells a line of jeans called Not Guilty. “Five years ago they didn’t have money to buy imported jeans. Now it’s totally different.”

Bennini first considered exporting to China last year when Kuo learned that Levi Strauss & Co. was already selling its jeans in small quantities there, Kuo said.

Kuo met in Vernon last month with a delegation from the city of Xiangfan. Delegation members were excited about Bennini’s proposal to open retail stores in Xiangfan, a city of 6.6 million, Kuo said.

Bennini wants to beat major retailers, such as the Gap, into China and sell $5 million worth of jeans there in 1994.

The stream of Chinese delegations visiting Southern California has certainly sent encouraging signals to Southland businesses.

Last month, Chinese government officials visiting the Los Angeles County Chamber of Commerce said China plans to purchase more than $300 billion in machinery and equipment in the next five years, said Corinne Murat, the chamber’s program director for international commerce.

One area the Chinese government is targeting is medical equipment. Circon Corp. of Santa Barbara is racing to get a foothold in the Chinese market for its line of specialized surgical tools. In February, the company sold its first shipment to Beijing for $100,000. “We are moving in right at the infancy so we can grow” with the market, said David Piggin, Circon’s director of international sales.

Both Bennini and Circon are relying on expert advice to help sell their products in China. For Bennini, it’s the Fountain Valley-based U.S. Import & Export Corp. For Circon, it’s a Chinese-born businessman in Seattle and several U.S. doctors who will train the Chinese in the use of the surgical products.

Expert advice and outside assistance have been critical to helping small and medium-size companies export to China, Murat said. Large multinationals such as McDonald’s and Coca-Cola can afford the years of research and untold millions spent to establish themselves in foreign markets before showing a return on their investments.

McDonald’s, for instance, began working with Chinese farmers on potato production five years before opening the first restaurant in Beijing in 1990.

To help smaller firms tap into China, some government officials have extended a hand. Eager for export trade that would inject life into a regional manufacturing base that is “shrinking dangerously,” Lt. Gov. Leo T. McCarthy is organizing a trade delegation of Southern California-based manufacturing companies to China in June.

“The whole point of this trip is to sell,” McCarthy said. “We have to stop dreaming that there will be some easy transition from defense into manufacturing. Exports have to play a role.”

Problems that U.S. companies faced six to seven years ago in dealing with China, such as rigid central control and severe import restrictions, are easing, McCarthy said. The Chinese government has created hundreds--perhaps thousands--of buying and selling entities, which has helped China become the fourth fastest-growing export destination of the Los Angeles Customs District.

By relaxing government controls, China’s communist leadership allowed greater latitude for private industry in what leaders there say will be a “socialist market economy.” In South China especially, the creation of special economic zones has helped entrepreneurs become more sophisticated and pragmatic about conducting business internationally, said Lowell Dittmer, a political science professor at UC Berkeley specializing in China.

But pitfalls remain that make China a big risk for those lacking international business savvy. “China is not a good place to get your feet wet,” said Michael White, a trade consultant at the Greater Los Angeles World Trade Center Assn. “It’s still very bureaucratic, and there’s always a question of who to deal with.”

Worse, American businesses face stiff competition from Hong Kong and European countries already competing in the market for consumer and other low-tech goods, said Stanley Rosen, a political science professor at USC.

“The Chinese don’t want low-tech. They want to import something and learn how to make it themselves,” Rosen said. “You already see a lot of bright entrepreneurs selling consumer goods on the street--and they’re mostly from Hong Kong.”

Then there are the lingering political concerns in Washington over the Chinese government’s human rights policies, concerns that fuel old American uncertainties about forging long-term business relationships with the Chinese.

Still, for Nevil and others, the race to China is on.

“We have to start gearing up, to be proactive in getting business there for California manufacturers before someone else does,” he said. “We’re already a little late to the game.”

CHINA TRADE

Trade between the United States and China has increased dramatically in recent years, with U.S. exports to China growing more than 48% in five years. *U.S. domestic exports Year: (billions of dollars) 1988: 5.03 1989: 5.81 1990: 4.81 1991: 6.29 1992: 7.47 *But U.S. imports from China have grown faster (billions of dollars) ‘88: 8.51 ‘89: 11.99 ‘90: 15.22 ‘91: 18.98 ‘92: 25.68 *Resulting in a huge increase in the U.S. trade deficit with China (billions of dollars) ‘88: 3.48 ‘89: 6.18 ‘90: 10.41 ‘91: 12.69 ‘92: 18.21 *Exports to China from the Los Angeles Customs District have also risen dramatically.

Year: billions of dollars 1988: 0.65 1989: 0.81 1990: 0.65 1991: 1.20 1992: 1.60 *Principal U.S. exports to China in 1992

COMMODITY: value (millions of dollars) Commercial aircraft: 2,055 Industrial machinery and computers: 1,176 Fertilizers: 629 Electrical machinery: 464

Scientific and control instruments: 435

Wheat and other cereals: 273

Oil from minerals: 194

Cotton: 186

Motor cars and vehicles: 147

Wood: 130

*Sources: Economic Development Corp. of Los Angeles County, TradeWeek magazine, U.S. Department of Commerce.