China trade has an up side

By Evelyn Iritani
Los Angeles Times

Surging imports from China have produced record U.S. trade deficits with that nation, grabbing headlines and fanning protectionist flames here.

Spurred by China's sizzling domestic growth and market-opening measures triggered by the country's 2001 entry into the World Trade Organization, U.S. exports to China more than doubled from 2000 to 2004. China has become America's fifth-largest export market, behind Canada, Mexico, Japan and Britain.

"You can't ignore China today if you're a company that has any kind of global footprint," said Kurt Kuehn, a senior executive with United Parcel Service Inc., which tripled its service to China this year.

China's appetite for American products and services runs the gamut — notably in raw materials, technology, transportation and banking — with California companies enjoying a significant share of the action. Topping the export list last year were power generation equipment, electrical machinery, soybeans and medical equipment.

A huge part of that growth came from China's export-oriented factories, nearly half of which are owned by American and other foreign companies. China bought one-third of U.S. cotton last year, much of it grown in California, to produce the material that was shipped back to the States in clothing and fabric.

Semiconductors produced by Silicon Valley companies were sent to China, where they were installed in Dell Inc. computers and Motorola Inc. cell phones bound for U.S. customers.

California companies such as Ryan Security Technologies Ltd. have benefited from China's preference for American-made technology goods.

For the past three years, the distributor of U.S. medical and security equipment has enjoyed sales growth of 30 percent to 35 percent to Chinese government agencies and private companies.

"There's still an overwhelming perception that imports are better than local, at least in the quality of technology," said founder Eric Ryan, who travels between his company's Santa Barbara, Calif., headquarters and offices in China.

Airports, train stations and ports, prompted by the 2001 terrorist attacks, are buying X-ray machines sold by Ryan to screen for weapons and explosives. The growth in high-profile events — such as last year's meeting of the Asia Pacific Economic Cooperation forum in Shanghai and the 2008 Summer Olympics in Beijing — has generated demand for the company's surveillance products.

Chinese courts and police departments, under pressure to raise their operations to international standards, are buying handwriting analysis machines and other forensic devices distributed by Ryan. Private hospitals equipped with the company's latest in diagnostic and surgical equipment are springing up to serve middle-class Chinese.

"China is leapfrogging into the latest and greatest technology," Ryan said.

In all, U.S. exports to China totaled $34.7 billion last year, growing by 114 percent from 2000 to 2004. That compared with 7 percent growth in exports to Germany, a 6 percent rise to Canada and a 17 percent drop to Japan. California, the leading U.S. gateway for trade with China, saw its exports to the country nearly double, to $6.8 billion in 2004 from $3.6 billion in 2000.

But as U.S. exports to China boom in percentage terms, they still lag far behind the flood of goods coming from the other direction. That's why the politically sensitive U.S. trade deficit with China soared to $162 billion last year, the largest with any country.

That has prompted various lawmakers and industries to call for limits on Chinese imports.

But China has taken steps to open its markets to foreigners. Since joining the WTO, Beijing has slashed tariffs on imported goods by half and eliminated most import quotas and licenses.

One sector to benefit from such market-opening measures is services. Most restrictions have been removed on foreign service companies in the last two years, said John Frisbie, president of the U.S.-China Business Council.

The changes have inspired a rush to China by U.S. banks, insurers, retailers and transportation companies.

U.S. manufacturers contend that they would be able to close the trade gap much more quickly if China allowed its currency to float. The Chinese yuan is tied to the dollar and has weakened along with the greenback. A weak yuan makes that country's goods cheaper in foreign markets.