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Thursday, Aug 11, 2022
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Taking Off

It’s easy to oversimplify U.S.-China trade relations as a story of scrap materials going overseas while finished products come back, but the reality is becoming more complicated.

There’s still plenty of American refuse filling ships headed to Asia, but exports of manufactured goods are on the rise, according to new figures.

The reason: China’s growing affluence is prompting the people there to buy more stuff, to the benefit of American manufacturers.

Among them: Robinson Helicopter Co., a Torrance company with more than 1,200 employees. Kurt Robinson, its chief executive, said that last year China cracked the firm’s top-five export markets.

“It could be one of our most important markets as we move forward five to 10 years,” he said.

While the value of all waste and scrap materials exported to China from the Los Angeles Customs District was a still-hefty $3.8 billion last year, that was down 6 percent, according to data recently compiled by the Los Angeles Economic Development Corp.

At the same time, the value of China-bound computers and electronic products leaving the district (which includes the ports of Los Angeles and Long Beach as well as Los Angeles International Airport and facilities in Ventura County, the Inland Empire and Las Vegas) rose 3 percent last year to $4.7 billion.

Among other categories, machinery exports to China rose 2 percent to $3.6 billion, transportation equipment rose 12 percent to $3.2 billion and beverages and tobacco products rose 112 percent to $921 million.

Those, electronic equipment and other miscellaneous manufactured products, taken together, rose by nearly 4 percent to $14.7 billion last year.

Local observers attributed the decrease of scrap exports to a slowdown in China’s manufacturing activity. But the increase in finished-good exports is mainly because the country’s emergent middle class wants more consumer goods and food.

Indeed, household spending in China rose from some $2.8 trillion in 2012 to $3.1 trillion last year, based on data from the World Bank. However, consumer spending represents only a little more than one-third of China’s gross domestic product, compared with more than two-thirds of that in the United States, so there’s still plenty of upside.

What’s more, economist Ferdinando Guerra of the LAEDC pointed out, the government in Beijing wants to increase domestic consumption.

None of this is to say the trade gap has been eliminated. The value of imports from China to Los Angeles exceeded that of exports by nearly $109 billion last year, according to numbers compiled by WorldCity for the Port of Los Angeles and Los Angeles International Airport.

Put another way, the value of imports from mainland China exceeded exports by a ratio of 5 to 1.

“It’s still imbalanced, enormously, but it’s starting to go in the right direction,” said Jim MacLellan, director of trade development for the Port of Los Angeles.

Consumption rises

At Robinson, a white board hanging on a wall inside the company’s cavernous factory showed China, alongside such destinations as Russia and the Netherlands, as a destination for aircraft being produced at its factory.

The company occupies some 600,000 square feet adjacent to Zamperini Field, Torrance’s municipal airport. There, employees operate machinery that uses jets of water or lasers to form custom parts and other high-tech equipment for helicopter components.

Robinson produces almost seven helicopters each week, destined for police departments, news crews or business owners who frequently travel between far-flung franchises. Kurt Robinson said his company’s business model is based on selling relatively inexpensive aircraft made to high-quality standards to civilian customers. His company’s success in China has been the result of that country’s government easing restrictions on civil aviation.

For those who can afford one, a helicopter might be the ideal way to get from city to city in a big country.

“Their roads and stuff aren’t great. There are a lot of areas that don’t have the infrastructure, so a helicopter makes a lot of sense,” he said.

Robinson said the firm sells 65 percent to 70 percent of its aircraft to foreign customers and the firm is on pace to produce more than 300 aircraft this year. The company’s newest and biggest model, the R66, retails for about $839,000 and was certified for use in China in late April.

Last year, the value of civilian aircraft and parts headed from the L.A. area to China totaled nearly $444 million. That figure is actually about 20 percent lower than the prior year’s activity, but MacLellan noted that aircraft exports tend to be highly volatile.

Crossing Pacific

Aircraft might be a big seller in China, but so are cars.

L.A. area-to-China exports of motor vehicles and automotive parts posted big gains last year. The value of vehicle exports rose nearly 30 percent to $1.1 billion, while the value of China-bound parts rose 92 percent to nearly $883 million, according to WorldCity data cited by MacLellan.

One area that he said he could see “enormous upside potential” is the export of food products such as sugar and starch residue, which rose 123 percent to $906 million last year, as China simply has a need for the ingredients required to produce food for its massive population.

And although consumer products were not counted among the top exports to China, he said producers of beverages or other consumer products such as cosmetics and apparel enjoy the advantage of being able to sell the California lifestyle and L.A. image to Chinese consumers.

And then there is our refuse and raw materials.

So-called input commodities, which can be used to manufacture other goods, and scraps remained important components of China-bound exports last year. Although the dollar value of cotton exports sent to mainland China from the L.A. district fell 37 percent last year, those exports were still worth a substantial $1.5 billion, according to WorldCity.

Copper waste and scrap similarly fell 4 percent to a still-high $1.2 billion.

LAEDC economist Guerra sees China as an improving market for exporters. The growth of the Chinese middle class, a government in Beijing that favors domestic consumption and higher rates of private investment in a country that is still technically communist are factors.

“Also, and very important to understand, is that as Chinese investment increases as it has (doubled) over the past five years, so shall exports to that country. That is exactly what we have seen,” Guerra said in an email.

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