Local Asian-Owned Firms Will Cash In
While most sectors of the U.S. economy are just starting to fully explore the potential benefits of improved trade relations with China, one sector in Los Angeles is already moving to expand their business dealings there.
It’s the thriving community of small and medium-sized L.A. companies run by Chinese Americans, concentrated largely in downtown L.A. and the San Gabriel Valley.
Many of those companies already have extensive dealings with their homeland, so they’re perfectly poised to use their cultural ties and existing relationships in Taiwan, Hong Kong and mainland China to further their presence in the world’s largest consumer market.
Last month’s vote by the House of Representatives to eliminate the annual review of what used to be known as Most Favored Nation trade status for China effectively frees U.S. companies to make long-term commitments there and will help bring China into the World Trade Organization.
“So many little incidents would happen with China that some would say, ‘Oh no, maybe this year (the trade status renewal) won’t go through,'” said Dominic Ng, president of East-West Bancorp, which has several L.A. clients that do business in China. “People kind of hedged their bets. Now, I would think that with MFN and WTO going through, businesses will gear up to have more of a permanent base in China.”
And that is indeed what appears to be happening.
Shirley Fong, co-owner of clothing manufacturer YMLA Inc., only recently started importing some of her material from China. For her, finding partners who understood her needs took some time. But now the opportunities are too great to ignore. Chinese manufacturers are wooing her for her business and growing more sophisticated all the time. So the benefits of smoother trade relations can’t be underestimated.
“In the past six months, so many apparel manufacturers have approached me that I had to send my assistant to China to look at things,” Fong said. “The level (of business acumen) is very high, not like a couple of years ago when you had to do a lot of hand-holding. This is a must-time to get into China. If you don’t, you’ll regret it.”
For both large multinationals and small niche businesses, the name of the game in doing business in the most populated nation on earth is relationships. Building networks with both state-owned businesses and private entrepreneurs takes time, and anything that promotes goodwill on the part of U.S.-China relations can only help.
“The vote really helped the whole situation,” said Jerry Wang, CEO of Gus Networks Inc., an Internet and network consulting firm in Baldwin Park with offices in the booming southern city of Shenzen, as well as Hong Kong and Taipei. “If the vote failed, it would have become unwritten law in China that if there was a fight for a contract between a European company and a U.S. company, it would have gone to the European company. Business in China is based on, ‘You give us more, we’ll give you more.’ Passage (of the trade bill) will get the door further opened.”
Opportunities for firms like Wang’s are considerable. Under the terms of last year’s U.S.-China trade agreement easing China’s entry into the WTO, Beijing agreed to liberalize Internet services, phasing out all geographic restrictions on cellular and mobile telecommunications within five years and allowing up to 49 percent of foreign investment in telecommunication services.
Overall, import tariffs will be lowered to an average 9 percent from the current 25 percent.
“I think this will benefit telecommunications companies most,” Wang said. “It’s a perfect time to move into China.”
Pros and cons
Passage of last month’s bill only came after heated debate.
Advocates of normal economic ties argued that bringing China into the WTO would force the country to adhere to international trade standards that would in turn create pressure for reform and modernization, hurting the state-run apparatus with its entrenched bureaucrats that still runs most of the economy.
But opponents, in addition to arguing that passage would lead to cheaper imports that would cost U.S. jobs, also maintained that eliminating the annual review of China’s trade status took away a powerful stick to hold over Beijing’s head in times of conflict. And even while welcoming the benefits that the deal will bring personally, some Chinese-American business people were ambivalent about the result.
“Personally, I feel like we gave up an advantage (politically),” said Leo Wang, president of D.C. America, a lawn furniture and garden tool manufacturer in Pico Rivera. His company has four furniture factories in China that produce 70 percent of his $26 million in annual revenue, up from 25 percent six years ago.
China needs U.S. markets more than the other way around, Wang argues, meaning that trade concessions are inevitable. By removing the annual trade review, China gains more than the U.S. does, he said.
“(China) will open their markets in the long run, they have to,” Wang said. “For me, the timing was a little bit too early. The Chinese are very anxious for us to pass this and to get into the WTO. Their people needed this. It will benefit both parties, but will benefit them more than us. We’re still gambling that they will play by the rules.”
His ruminations, however, aren’t stopping his plans.
Seizing the moment
Wang is considering doing a joint venture to build more patio furniture and would like to open an office in Shanghai to keep an eye on his investments by next year.
“If you don’t do it now, you’ll get behind,” he said. “There’s no choice but to have more and more business there, because that’s the future.”
Meanwhile, one of L.A.’s highest-profile Chinese-American business owners, Charlie Woo, president of downtown toy manufacturer Megatoys Inc., can now go full speed ahead with his expansion plans.
About 90 percent of Megatoys’ products are made in China, worth about $20 million a year in revenue. His downtown L.A.-based company already has an office in Hong Kong; now, Woo is considering opening one in China, given the changing landscape.
“For the last 20 years, the U.S. has given China MFN status every year,” Woo said. “In that sense, this vote just institutionalizes what we’ve taken for granted. But we can sleep easier now knowing that a year from now, (this issue) won’t be up for another vote. This will increase the possibility of doing business in China.”
