China Ranks as Region’s Top Trade Partner

While much of the world remained in a slump, China boosted its trade with Southern California 22.5% to $55.5 billion last year, replacing Japan as the region’s top trading partner, according to a report to be released today by the Los Angeles County Economic Development Corp.

That was in stark contrast to the fortunes of Japan, which is mired in its second decade of stagnant growth and saw its 2002 trade with Southern California decline by 8.1% to $41.9 billion.

But China’s explosive export-driven growth could be curtailed by the outbreak of severe acute respiratory syndrome, or SARS, which has wreaked havoc with the region’s airlines, hotels and other service industries, the report warned.

Any significant disruption to China’s economy would be felt throughout California’s trade-dependent economy. In addition to being a key manufacturing base, China has become an important market for California-produced oranges, almonds, semiconductors and aerospace parts. Last year, China imported $6.1 billion worth of goods from Southern California. That made it the region’s second-largest customer.

Since the SARS problem surfaced this year, most California firms have stopped employee travel to Asia and have been conducting business by telephone, the Internet or teleconference. The big worry now is whether the contagious disease will spread into the manufacturing sector, turning delays and inconvenience into canceled contracts, lost deals and disrupted production lines.

During a recent visit to Los Angeles, Fred Hu, managing director of Goldman Sachs Asia, said the “biggest wild card” was the threat SARS poses to China’s export-driven growth. China’s factories, concentrated in the southern Chinese province where SARS first surfaced, are critical to its economic health, producing 56% of the country’s gross domestic product.

“If this drags on, there could be real potential damage to the Chinese economy,” he said.

The uncertainty for California’s trade community isn’t limited to SARS, warns Jack Kyser, chief economist for the LAEDC.

His forecasters are predicting that trade through the Los Angeles Customs District will increase 8.7% to $232.9 billion this year, which would be slightly above the previous peak of $230 billion in 2000.

The Los Angeles Customs District includes the ports of Long Beach, Los Angeles and Port Hueneme as well as Los Angeles International Airport, Ontario International Airport and McCarran International Airport in Las Vegas.

“Everybody is focusing on SARS, and obviously that’s a major challenge for us,” Kyser said. “But trade security could impact smaller importers in terms of both cost and transit time.”

There also are lingering concerns triggered by last fall’s contentious labor dispute that led to a costly 10-day closure of the West Coast ports. The Los Angeles Customs District knocked New York out of the top position in 2002 and reclaimed its No. 1 ranking with a total trade value of $214.3 billion.

But Kyser warned against taking that leadership position for granted, given the healthy increases being enjoyed by Southern ports such as Savannah, Ga., and Charleston, S.C., that are getting cargo diverted from the West Coast via the Panama Canal.

Kyser said importers have been watching closely as the West Coast ports have begun introducing the technology that was at the center of last fall’s dispute between the Pacific Maritime Assn., which represents the shipping firms and terminal operators, and the International Longshore and Warehouse Union. Under the six-year agreement, the ports were allowed to adopt labor-saving technology in exchange for generous health and pension benefits.

“For a lot of people, that 10-day lockout was the last straw,” Kyser said. “More and more shippers are exploring options.”

Importers also are being hit by rising costs. On May 1, shipping companies working the transpacific routes raised their rates by $700 to $1,000 for a 40-foot container -- which represents a 50% increase on lower-priced commodities. Wholesalers and retailers already faced additional costs from security restrictions imposed after the Sept. 11 attacks.

Robert Krieger, president of Norman Krieger Inc., a large California freight forwarder, said his clients were worried that they wouldn’t be able to pass on these costs to their customers, given the softness of the economy.

“We’ve had to raise our prices to our customers,” he said. “The whole supply chain is being squeezed.”