China Trade Winds

As U.S. government and business focus on China in the wake of Deng Xiaoping’s death, keep in mind that Southern California has a different perspective on most matters concerning China and Asia.

The region is more directly involved with China than the rest of the country, which is an advantage if China prospers but trouble if it doesn’t.

Advantages are easy to identify. On trade, for example, Washington looks with alarm--misguided, in large measure--on the $39-billion excess of U.S. imports over exports to China. But Southern California knows that more than $25 billion a year of imports and exports from China and Hong Kong through the region’s ports and airports means business and jobs for customs agents, transportation firms, freight handlers and banks.

It means new industry. Imports from China include toys for the vast distribution business that has grown up in Los Angeles in just a few years. Some toy imports, in fact, come here to be transshipped to Mexico.

Money flows too. While diplomats and scholars debate whether China will continue Deng’s economic policies, local bankers and real estate dealers look at flows of investment from “the Chinas,” as Taiwan, Hong Kong, Singapore and China itself are collectively called.

“It’s at levels you could call bonanza,” says Randy Lee of Lilly Enterprises, a brokerage and real estate investment firm. For many reasons, including worries about political change in Indonesia, Thailand and Hong Kong, money from Asia is seeking investment opportunities in Southern California.

“Major investments are coming,” says Henry Hwang, who is selling his Los Angeles-based Far East National Bank for $90 million to Bank Sinopac of Taiwan, which is headed by Paul Lo, who once worked for Citicorp in Los Angeles.

After the Sinopac-Far East union is completed, more investments will flow from Taiwan and beyond.

“Banks in China want to open branch offices in California,” Hwang says.

But questions are being raised about those very banks because their balance sheets are overburdened by loans to state-owned enterprises in China.

State-owned enterprises, which run steel mills, factories and transportation systems, employ 67% of China’s urban work force. But they are unproductive and wasteful, resembling the failed enterprises of the old Soviet Union.

Yet their inefficiency goes on being financed by the Chinese banking system, says Nicholas Lardy, an economist and China specialist at Washington’s Brookings Institution. Lardy and other experts recently warned of dangers to China’s economy at a San Francisco conference of the Pacific Council and Rand Corp.

So Southern California’s perspective on China should include concern. If China’s centrally planned economy should stall out, as did the Soviet Union’s, California--not to mention all of Asia--would suffer.

However, China is not the Soviet Union. Reform is needed, but the underlying economy is healthy, thanks to household savings of 30% of income, says Jackson Tai, a managing director and head of Western states operations for J.P. Morgan.

“China also has high reserves of foreign exchange,” notes Tai, who says the country is in better shape today than “at any time in the past 150 years.”

China earns its foreign exchange reserves, which it invests in U.S. Treasury bonds, by exporting labor-intensive manufactures--such as toys and games. Further, those activities don’t depend on state-owned enterprises. China is attracting foreign investment, and joint ventures account for 44% of its exports.

That’s why its economy offers opportunity for Southern California firms with skills to share--engineering companies such as Parsons, Fluor, Jacobs; electronics and telecommunications firms such as Hughes, TRW, Qualcomm; and consumer product companies such as Disney, Mattel and many others.

The commerce is two-way, notes Suzanne Kai, head of CSI International of Newport Beach and San Francisco, which makes contacts between entrepreneurial companies in Asia and California.

“California is the American beachhead for Asian families and corporations,” says Kai, whose grandparents started a shipping business in San Francisco.

Chinese families send young people to be educated in California--USC has more Chinese students than any other U.S. university. And those young people are seeking to make investments in and form ventures with small companies in California, reports Dominic Ng, president of San Marino-based East-West Bank.

In fact, local bankers report that China wants to invest in California farmland so it can grow the food China imports.

“China trusts California as commercial America but distrusts Washington as political America,” says Frankie Leung, a Los Angeles attorney involved in Chinese American affairs.

The immediate future is clear, says Leung.

“There will be no sudden trauma in China’s economy,” he says.

The state-owned enterprises, which pay out wages and social benefits, will be reformed only slowly.

“The government wants the people to feel happy so they don’t vent frustration against the government,” Leung says.

Because California and China are close in so many ways, this region should keep several perspectives in mind, whatever the rhetoric from elsewhere in the U.S. At one level, China is a developing economy with abundant opportunity for joint ventures and investment on both sides of the Pacific.

But China also is more than a commercial market, more even than a newly developing economy. It is a civilization as the United States is a civilization. In the years and decades ahead, to paraphrase the double-edged Chinese saying, we will live in interesting times.

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China Trade Winds

The value of goods traded with China and Hong Kong through the Los Angeles Customs District--31% of total U.S. trade with those partners--has risen dramatically in the 1990’s. In billions of dollars:

Imports from Hong Kong and China: $18.01 (1995)

Exports to Hong Kong and China: $7.07 (1995)

Note: the Los Angeles Customs District includes the ports of Los Angeles and Long Beach, Los Angeles International Airport, Port Hueneme (Ventura County) and McCarran Field (Las Vegas).

Source: Jack Kyser, Los Angeles Economic Development Corp.

Researched by JENNIFER OLDHAM / Los Angeles Times