Washington seeks opportunity in China's economic explosion

September 18, 2005 

Jevco's Chengdu workers take advantage of a generous luch break to walk down the New Century West Rd. to a local eatery. Cranes and high rise office buildings under construction populate the skyline as a construction boom in the Sishuan Chengdu Export Processing Zone converts rural farm land into a thriving economic center for western China.

DEAN J. KOEPFLER; THE NEWS TRIBUNE

SHANGHAI, China – In the heart of Shanghai’s flashy Pudong District, Washington Lt. Gov. Brad Owen stands at the base of the Jin Mao Tower and looks up.

The building, 88 gorgeous stories of glass and polished steel, rises like a vision from another, more advanced world. Taking it in, Owen’s head tilts so far back his mouth falls open.

“Oh, my God,” he says.

Owen is no country rube. He has led trade missions all over the world and, in fact, visited China just three years ago.

But the change in China is stunning.

The new China, of which this tower is a symbol, is a place where sophisticated young women cloaked in Armani sip cappuccino, where BMW and Mercedes showrooms crowd thoroughfares, where businessmen make billion-dollar bids on U.S. companies.

The array of some 3,000 new high-rises surrounding the Jin Mao Tower is so vast that the combined downtowns of Seattle and Tacoma would disappear within it like insignificant villages.

Owen visited China on a trade mission in June. Like much of the world, Washington is trying to get a handhold on China’s runaway economy, speeding into the future like a fast train.

Unless they catch a ride, business executives, trade officials and others fear they will be left jobless and gazing at taillights when China becomes the world’s next economic superpower.

“You either take advantage of it, or you lose,” Owen said.

Gary Locke visited China three times during his terms as governor, and Gov. Christine Gregoire is expected to arrive in Beijing on Thursday.

Washington has some distinct advantages to pitch – mainly its geographic location, ports and high-tech industry. And a few giants in the state’s private sector, notably Boeing, Microsoft and Starbucks, already are comfortably settled on the China express.

Starbucks has opened 187 China outlets since arriving in Beijing in 1998 and expects eventually to have more stores there than in the United States. Nearly a third of all Boeing’s planes worldwide include major parts and assemblies built in China. Microsoft’s research center in Beijing, established in 1998, plays a major role in the development of new products.

In all, Washington exported about $3.1 billion worth of products to China last year, more than any state except California and Texas, according to the state Department of Community, Trade and Economic Development.

But trade experts and some politicians say the state needs to do more, and quickly.

Owen is among them. He says Washington is losing export opportunities because of disorganization and poorly thought-out strategies.

“Right now, I see us being totally reactionary,” he said. “There is no larger vision. Basically, what we need is a total re-evaluation of how we’re doing this.”

What’s at risk is jobs.

The Economic Policy Institute, a nonprofit, nonpartisan think tank, estimates that, for every $1 billion the United States falls behind in the exchange of goods, 9,500 jobs disappear. Last year, the U.S. trade deficit with China was $162 billion.

Robert Scott, EPI’s director of international programs, says that between 1989 and 1997, trade with China created 1,808 jobs in Washington and cost 8,545 jobs, for a net loss of 6,738 jobs.

Meanwhile, China’s economy has grown at more than 9 percent each year for the past 20 years and shows no signs of slowing. The World Bank says China’s economy will pass America’s by 2020.

“China’s economy is so big and powerful, there is nothing that can stop it,” said Fox Island resident Sidney Rittenberg, one of America’s most respected China trade experts. “America’s choice is how to live with it in the most beneficial way.”

Economic revolution

The free market has remade China. On the way into Shanghai from the city’s elegant new airport, a billboard bursting with scantily clad women announces, “Hooters, now in Shanghai.”

A magnetic levitation train, capable of speeds in excess of 250 mph, flashes by so fast it disappears before the mind can fully register it.

Up and down China’s eastern “Gold Coast,” hundreds of thousands of new cars negotiate a freeway system as streamlined as Germany’s autobahns.

The energy that propelled these changes comes from new free-market necessities. China’s embrace of capitalism has taken millions of people out of the care of the state and left them looking for ways to make money.

For these new entrepreneurs, the culture of communism is ancient history.

“It’s just shocking,” said Thad Barnowe, a global business professor at Pacific Lutheran University. “It’s not just throwing up roads and skyscrapers, it’s the cultural change.

“The young people in China today were not even born when the Cultural Revolution was happening. To them, it’s just a completely different world. It’s a nation of completely different concerns.”

China’s economic revolution is not confined to Shanghai and the Gold Coast.

A thousand miles west, on the roof of the Yinhe Dynasty Hotel in Chengdu, Lester Tian, who works for the Sichuan provincial office of foreign affairs, looks down on his home city, searching in vain for the neighborhood he grew up in.

He knows it’s nearby, but in the 20 years since he started elementary school the city has been transformed. As in Shanghai, the new economy has whisked away old neighborhoods and replaced them with high-rise buildings.

Looking at a map doesn’t help Tian. Chengdu’s streets are being rerouted and widened so fast he can’t keep up.

At last he spots where he thinks his parents’ neighborhood might have been, behind a big turreted office tower with a seven-story “Olympic” billboard on its front.

“It’s all gone now,” he says, without a hint of regret.

Life in China improved since the government threw its support behind free enterprise, Tian says. For example, he bought a car last year, an Italian Fiat, a purchase unthinkable for his parents.

“There is more freedom now but less job security,” he says. “Now you have to think all the time about how you will make money.”

State imports goods, exports jobs

Washington’s natural advantages will help its economy grow along with China’s.

Its ports, particularly Tacoma’s, with its room to expand, stand to profit as receiving and distribution centers for the mountains of Chinese goods on the way to Home Depots, Costcos and Targets throughout the Northwestern quarter of the country.

According to a recent economic impact study, trade at the Port of Tacoma already provides more than 9,000 direct jobs. The port’s ripple effect creates thousands more.

Millions of square feet of warehouses have been built in Pierce, King and Thurston counties in the past four years, in large part to receive and sort Chinese goods.

It is important to note, however, that nearly half of Washington’s exports to China come from one company – Boeing – and economists warn that unloading Chinese ships and distributing Chinese products do not make up for lost manufacturing jobs.

China’s entrepreneurial drive (and abundant cheap labor) makes producing goods increasingly difficult in Washington, from the largest items to the smallest.

Scott Smith, a violin maker at the Applebaum Violin Shop on Tacoma’s Pacific Avenue, said Chinese string instruments are so inexpensive and their quality improving so fast it has left makers here wondering how they can continue to make a living wage.

“I’m feeling a little resentful because it costs me more to make an instrument than it does there,” Smith said. “China can crank them out a lot cheaper and with less overhead.”

Cheap Chinese labor has even changed the market for the Northwest’s iconic salmon.

Northwest salmon is increasingly shipped to China to be filleted before being shipped back to Washington to be eaten. According to the state, fish-processing jobs in Washington dropped by more than 25 percent in the past 10 years, from about 8,700 jobs to fewer than 6,500.

“How are we going to produce good-paying jobs with benefits if we can’t manufacture anything?” Owen wonders.

“Are we really going to become the country that provides services and warehouses? I hope not. But it’s going to take a real effort to avoid it.”

Establishing relationships

To benefit from China’s rise, Washington needs to concentrate on possibilities beyond its ports, wine and apples, trade experts say.

CTED, the state’s trade agency, is emphasizing opportunities in China for computer technology and biotech industries as well as for professional services, such as architecture companies, law firms and environmental technology.

The agency’s efforts to foster business in China already put most other states to shame.

CTED spends $365,000 a year furthering China exports. That’s 15 percent of its entire international trade division budget, and it includes salaries for two full-time staff members in Seattle, travel, marketing and representatives and offices in Shanghai and Guangzhou.

In comparison, the state of California abolished its Technology, Trade & Commerce Agency two years ago, cutting 300 workers and closing its overseas offices. California now has no budget and no staff assigned to developing China trade.

Dipeng Sun, the former chief financial officer for the Chinese steel giant, Baosteel, and now a Shanghai-based business consultant, praises Washington’s emphasis on high-tech exports and specialized services.

“You can never compete making products for the China market,” Sun said. “Your labor costs are too high.”

But, he said, “China needs many other things from Washington state.”

For example, Sun said, China urgently needs environmental and conservation technology.

One of China’s most pressing problems is producing enough electrical power, Sun said. Energy conservation can help solve that problem, he said, and Washington firms have that expertise.

Forestry management is another area of potential for Washington, Sun said. He visited the state recently with his friend, Jimmy Chen, a Puyallup businessman, and was impressed with its healthy forests and clean air.

What Washington’s China effort lacks, Sun said, is a thorough, ongoing analysis of China’s needs and an effective marketing effort. That, and a sense of urgency.

“If you continue this style, you will lose opportunity,” he said. “In 10 or 15 years, China can manufacture everything by itself. You need to establish relationships now.”

Washington’s competitive edge on highly technical manufacturing, such as computer software programming and bioengineering, might not last long.

“For now, China is focusing on the low-end products while the United States is focusing on high-end, high-tech products,” said Christine Fan, the Port of Tacoma’s representative in Shanghai. “But that is changing.”

China is steadily moving from labor-intensive products like shoes and clothing to sophisticated machinery and electronics.

If manufacturing continues to shift to China, manufacturers say, the manufacturing innovation process will shift along with it.

It is significant that when Microsoft vice president Kai-Fu Lee recently defected to Google, he left to run the Internet giant’s new research and development center in China.

Engineers are pouring out of China’s technical schools. According to Gregoire’s office, China’s colleges are producing 350,000 new engineers a year, compared to fewer than 100,000 in the United States.

Kelly Koontz is general manager of the Gig Harbor based company, Jevco International, which recently opened a high-tech tool manufacturing plant in China’s Sichuan Province.

Koontz is delighted with Chinese production laborers who work for about a tenth of Gig Harbor wages.

But, Koontz said, China offers not only workers who are willing to spend days on assembly lines but also highly qualified professionals. His company has its pick of top graduates from China’s technical schools, he said.

Earlier this year, Koontz said, Jevco hired a top Chinese engineering graduate for a position in Sichuan it can’t afford to fill in Gig Harbor. The young woman also is a computer whiz, Koontz said.

“She’s as sharp as they come,” he said.

Her salary at Jevco’s China branch? Less than $3,000 a year.

Frustrating as such stories are to Washington workers, most trade experts say it would be a mistake for the United States to try to block China’s rise. The numbers make it inevitable. China should be regarded not as a menace but as an opportunity, they say.

“It depends a lot on us,” Rittenberg said. “We can find the kind of relations that make it not a menace.”

“You can’t stop the world from changing,” he said. “We have to change.”

As an analogy, Rittenberg tells the story of the Viking king, Canute, who put his throne on the beach and ordered the tide to stop. Canute’s fate can be expected by those who resist the tide of China’s economy, he said.

“It didn’t work for him,” Rittenberg said. “And it won’t work for us.”

Rob Carson: 253-597-8693

rob.carson@thenewstribune.com

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