Though U.S. and China relations are sometimes prickly, local trade experts agree that China is a rapidly growing market for OC, and China’s entry into the World
Trade Organization might make all the difference.
Orange County’s exports to China in 1998 were up 95% over 1994, an increase second only to that with Mexico, to whom exports jumped 131.3% over that same time period, according to the U.S. Department of Commerce. China was the second-largest overseas market for OC goods and services in the first 10 months of 1999, behind Korea, and the second-largest for OC imports, behind Japan.
Larry Keller, executive director of the Port of Los Angeles, said the potential for more two-way trade with China, along with Taiwan and Hong Kong, is huge.
A few markets where China’s potential is wide open to OC firms are telecom and other electronics, and software. Also, Keller said, China is just beginning to address environmental issues, so it will need goods and services in that area, as well.
China’s economists are forecasting an average annual growth of 7.5% over the next five years. Already China accounts for more than $22 billion in cargo value moving through the Port of LA, about one-fourth of its annual total.
The Port of Long Beach is also seeing a rise in exports to China. In fact, East Asian trade accounts for more than 90% of the shipments through the port.
The optimistic economic projections for China are based on it avoiding devaluation of the yuan, and the waves of foreign business investment and heavy government spending on infrastructure and technology continuing, Keller said.
Some OC companies are already moving.
Garden Grove peripheral maker Bridge Technology Inc. is bolstering its presence in China with acquisitions designed to give it a bigger foothold in the emerging market. It purchased a 90% stake in Hong Kong electronics distributor Centennial Electronics Ltd. in December, and followed that with the purchase a 70% interest in CMS Technology Ltd., a computer distributor also based there, for $7 million..
The deals give Bridge a much-needed distribution channel in China to sell its voice and data communications products, said chief financial officer John Gauthier.
“Creating marketing from scratch is very expensive. This is a much more practical way to go,” Gauthier said.
Other Orange County companies doing business in China include:
n Rainbow Technologies, a software design company, has a joint venture with Beijing-based Goldensoft Co to sell software.
n Irvine-based PhrmaPrint Inc. last week formed a joint venture with China New Industries Investment Co. to sell in China herbal health products made with PharmaPrint’s proprietary processes.
n CCI, a maker of turbine-bypass systems for power stations, sells its system to new power stations in China.
n Allergan Inc., provider of eye care and pharmaceuticals, operates a manufacturing plant in China.
n STM Wireless Inc., a satellite communications company, supplies networking technologies to China-based JiTong.
n ENDOcare Inc., a maker of medical devices, has a distribution agreement with Hong Kong-based Charlson International.
Meanwhile, China’s entry into the WTO is seen as a way of opening up its markets.
Keller named China Ocean Shipping Co., the country’s largest shipper, as an example of a Chinese company that would flourish under a WTO membership. The company has predicted that it would double its trade volume.
Jack Kyser, chief economist of the Los Angeles Economic Development Corp., said in the absence of WTO membership, it is sometimes difficult to do business with Chinese companies. The government is heavily involved and it follows its own rules, he said. “There is a question about the reliability of China government information,” Kyser said. And in some cases, companies doing business in China have been disappointed, he said. “They make these promises and they don’t come through.”
Tom Yuen, chairman and president of Santa Ana-based SRS Labs, agreed that membership in the WTO would allow “more orderly dealing with China.” SRS Labs owns Hong Kong-based Valence Technology Inc. WTO entry will mean a better forum for negotiating disputes that arise between the two parties, Yuen said.
In addition, China’s WTO entry would eliminate export quotas and reduce import tariffs into China. China’s WTO agreement also includes:
n Elimination of tariffs on items such as computers, telecommunications equipment, and other high-technology products, and an opening of the telecom sector to foreign investment.
n Reduction of tariffs on autos to 25% by 2006 and of auto-parts tariffs to 10% by 2006.
n Allowing more products to be distributed in China; now foreign firms can only distribute products made in China.
n Opening up the Chinese market for hotel operators.
Ken Spencer Brown contributed to this report.
