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California Poised to Gain From Open Markets

Forecast: State in unique position to benefit from increased business ties, analysts say. High-tech industries have huge opportunities.


From almonds to aerospace, cell phones to semiconductors, California stands to be a big long-term winner in the wake of Wednesday's vote to normalize U.S. trade relations with China.

Analysts and business executives say the opening of the vast China market will mean more jobs and prosperity in a state uniquely positioned to gain from better trade ties. Not even California's dockworkers' union could bring itself to oppose the trade deal.

Technology-hungry China's lack of communication and transportation infrastructure presents huge opportunities for companies like Qualcomm Inc., the San Diego-based wireless company, and Boeing Co., the aircraft space manufacturer that is California's largest private employer.

And China's voracious appetite for computers signifies a potential mother lode for manufacturers of the parts and equipment that go into making them, especially semiconductors. The chip industry is predicting that the state's semiconductor exports to China and Hong Kong could explode to $100 billion in 2010 from $4 billion currently.

"We are growing friends in China at a phenomenal rate," said Alex Lidow, chief executive of International Rectifier Corp. of El Segundo, a manufacturer of power management chips, whose Chinese revenues are already up 55% from a year ago.

Ports Prepare for Growth in Traffic

China's fast-expanding middle class also means a huge and largely untapped market for the state's high-quality foods and entertainment exports, economists said. And the ports of Los Angeles and Long Beach, the nation's busiest commercial harbor, are investing heavily in anticipation of significantly higher levels of traffic.

Last month, for example, the Port of Los Angeles completed a $338-million landfill project that will increase its terminal space by nearly a fifth. The Port of Long Beach has budgeted about $895 million for dockside capital improvements, including conversion of a former Navy shipyard into a 375-acre cargo-container terminal.

"Nationally, there might be more pain" from job losses, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. But California is less dependent on industries that must now compete with China.

"We're not churning out huge amounts of textiles for jeans or T-shirts. There's only one auto manufacturing plant in California. And we really don't have people making appliances."

In fact, California's ties to China help explain why the San Francisco-based International Longshore and Warehouse Union was one of the few labor groups to dissent from the national AFL-CIO's negative stance on China trade. The core of the union's membership consists of longshore workers who stand to benefit from increased port traffic.

But other local labor leaders, echoing the nationwide labor coalition that opposed Wednesday's vote, said focusing on the short-term economic gains of China trade has blinded business interests to the long-term hazards.

"We have to be realistic that China has an agenda that's not a capitalist agenda, it's a nationalist agenda," said Goetz Wolff, research director for the Los Angeles County Federation of Labor. He cited China's history of human rights and labor abuses, including its use of forced labor and denying workers the right to organize into unions.

Not All Companies Happy With Vote

There are other dissonant voices, including apparel companies that provide low-wage jobs to thousands of immigrants in the Los Angeles area. Many fear the deal will hasten offshore job flight, which is already underway, to Mexico and other cheap-labor nations. Also, while most agriculture officials applauded the vote, some fresh vegetable growers say China over time could steal some Pacific Rim produce markets.

And to be sure, there will continue to be plenty of problems and risks to doing business in China, with graft at the top of the list. Moreover, it will take years for some California industries to realize the benefits, which are phased in over several years.

Although the film industry applauded the legislation, it is chafing at restrictions that still limit it to exporting to China only about 20 of the 400 movies it makes every year.

"The door still has quite a ways to open," said Craig Parsons, senior vice president at MGM Inc. studios in Santa Monica.

But on balance, "I don't think that there's any question that the benefits for both sides are substantial," said Ted Gibson, economist for the California Department of Finance.

Pace of Exports Should Accelerate

The state now exports about $2.67 billion worth of goods to China, the 11th-biggest foreign market for California-made goods, a figure that should compound quickly.

Economists say California has more to gain economically than any other state because of its high-tech profile. While Chinese tariffs overall are dropping from an average 25% to 9%, tariffs on computer chips and most high-technology goods that California specializes in will disappear altogether by 2005.

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