Value of state's China exports falls

Published: Sunday, Apr. 7, 2013 - 12:00 am | Page 1D
Last Modified: Sunday, Apr. 7, 2013 - 8:47 pm

Back in the doldrums of the recession, California exporters regarded China as a potential savior, a massive marketplace with an emerging middle class and a turbocharged economy.

And for a while, business was good.

By 2012, China accounted for nearly 9 percent of California's export trade, according to Beacon Economics, a consulting firm with offices in the Bay Area and Los Angeles.

Recently, however, things have cooled off.

Jock O'Connell, international trade adviser for Beacon, cited data showing that in the three-month period from November 2012 through January 2013, the value of California merchandise exports to China was down 6.9 percent (adjusted for inflation) compared with the same period a year ago.

Over the same period, U.S. merchandise exports to China were up 5.9 percent.

What happened?

"Basically," O'Connell said, "it's computer guts."

China has been a primary buyer of California-produced personal computer components, but O'Connell cited a "shrinking worldwide demand for PCs due to the increasing popularity of smartphones and tablets worldwide."

And it's not just China.

State exports to Mexico, far and away the No. 1 foreign destination for California merchandise, saw a nearly 20 percent decline in the November-January, year-over-year comparison.

O'Connell cited a sharp drop in shipments of electronic components to Mexico factories, many of them "foreign-owned assembly plants that exist primarily to produce goods for export."

Still, California businesses exported merchandise valued at about $5.6 billion to Mexico during the three-month period – about $1.5 billion more than what was exported to No. 2 market Canada in the same period. China came in third, taking in about $3.5 billion from California exporters – more than $2 billion behind Mexico.

Still, the huge potential of China's market remains the focus of public officials.

Last year, the city of Sacramento signed a memorandum of understanding with Chongqing, China, with an eye on developing business ties with that sprawling metro center of some 30 million people.

On Monday, Gov. Jerry Brown will begin a highly anticipated trade mission to China, including events in Beijing, Nanjing, Shanghai, Guangzhou and Shenzhen over six days.

Brown – being joined by a delegation that includes about 75 business, economic development, investment and policy leaders from throughout California – plans to meet with Chinese government and business leaders to highlight bilateral trade and investment opportunities and open a new California foreign trade and investment office.

"This year we will take another step to strengthen the ties between the world's second- and ninth-largest economies," Brown said, a reference to California's economy ranking in the top 10 among nations.

Trade experts privately acknowledge that while California's trade relationships with Mexico and Canada are well-established, there's work to be done in China – with a trade office being a key step. California's previous foreign trade offices in China were closed in 2003, part of a cost-cutting move.

Trade experts also say that China has not fully embraced made-in-California staples. O'Connell noted that California wines have not caught on in China, despite rising popularity in other overseas markets.

He said that while Chinese demand for PC components is waning, agricultural products (including oil seeds and grains) tend to be popular Chinese imports.

"Clearly, there is potential with ag exports," O'Connell said.

Arguably the state's top player in ag exports to China has been Blue Diamond Growers, the Sacramento-based cooperative. Blue Diamond says its 3,000-plus growers produce more than 80 percent of the world's almond supply.

Almonds are not only California's largest food export, China and Hong Kong imported a world-leading 236 million pounds of California almonds in 2011-12, according to the Almond Board of California.

Warren Cohen, director of worldwide sales for Blue Diamond's Global Ingredient Division, said the cooperative's involvement in China dates back to the 1970s, but exports really took off at the dawn of the 21st century.

"We're the largest shipper of almonds to China, and it is a competitive market," Cohen said. "It's a combination of things. China has a middle class that is growing very quickly. And they love snacking."

Cohen said that more than 50 percent of Blue Diamond's China business is in-shell almonds – roasted and salted in the shell, then packaged for China-based sellers. The business has been further helped by China recently reducing the duty on in-shell almonds from more than 20 percent to 10 percent.

Cohen said Blue Diamond is endeavoring to expand its own branded almond products for sale in the populous nation.

Barbara Hayes, president and CEO of the Sacramento Area Commerce and Trade Organization, agreed that California's massive agriculture industry represents opportunities in China – and for the area.

Hayes said SACTO's board will have a strategic planning session in June, with plans to reach out to food- and ag-related companies, including food-packaging firms and food researchers.

"We are the agriculture center of the United States," she said. "That has value abroad and for our region."

Call The Bee's Mark Glover, (916) 321-1184.

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