Trading Up

All the ‘t’ we’ve always heard about in China may stand not for 'tea’ after all, but Texas.

Last year, China became the world’s top trading nation despite not having the world’s largest economy (it’s still America’s). The combined value of all Chinese imported and exported goods totaled $3.87 trillion in 2012, surpassing the U.S. at $3.82 trillion, according to February news reports based on both government’s figures. International Business Times reported in March that China’s overall foreign direct investment (FDI) in the U.S. quintupled and then some from 2008 to 2012, up 17 percent last year.

Not surprisingly, Texas is smack dab in the middle of it all.

Among the states, Texas trails only California in the value of imported Chinese merchandise, although by a factor of more than three ($41 billion to $128 billion in 2012, according to the U.S. Census Bureau). But Texas imports more than two-thirds more goods from China than does Number 3 Illinois, at $27.8 billion. China is second only to Mexico as a source of Texas imports. China’s 2012 import total was less than half that of Mexico, Texas’ longtime top trading partner, at almost $100 billion, but more than double that of Number 3 Saudi Arabia at $20 billion.

Top 3 Nations Exporting to Texas

in 2012 Mexico near 90 billion, China near 40 billion, Saudi Arabia near 20 billion

Source: Foreign Trade Division, U.S. Census Bureau.

On the other side of the trade ledger, Texas – far and away the leading export state overall – was third in the value of its exports to China in 2012, behind Washington and California. More than a third of Texas’ $265 billion in exports went to Mexico in 2012, and almost 10 percent went to Canada. But at $10.3 billion, China ranked third despite a 5.5 percent decline over 2011 in Texas goods exported there.

Texas sends China mainly chemicals, computer and electronic products, agricultural products, non-electrical machinery and waste and scrap plus, of course, petroleum products. China, on the other hand, sends Texas mostly electric industrial machinery (including computers), TV and sound equipment and parts and iron and steel goods … and that’s just the top three categories.

Texas' Top 5 Export Desti-Nations, 2012

Mexico $94.8 billion, Canada $23.7 billion, China $10.3 billion, Brazil $10.0 billion, Netharlands $9.5 billion

Source: Wisertrade 2012 Preliminary numbers - Feb 2013

“What aren’t they selling us?” John Doggett, a member of the management faculty at UT-Austin’s McCombs School of Business, asks rhetorically. “They’re the factory of the world.”

China’s current manufacturing superiority stems at least in part from Asian culture’s preference for tangible goods, said Siva Yam, president of the U.S.–China Chamber of Commerce in Chicago. He noted that the Chinese are not as adept at developing technology.

China’s inroads in the Lone Star State are not solely mercantile, however.

Financial Times FDI Markets estimates that, since 2003, China has invested more than $1.58 billion in 17 Texas projects creating an estimated 1,752 jobs, according to the Governor’s office. Doggett, an Asian markets expert at the University of Texas at Austin, says that, for purposes of revenue generation, Texas is the primary target for direct investment from China.

“More money is coming into Texas from China than any other state,” said Doggett.

The largest project to date is a billion-dollar pair of new steel and pipe mills begun in 2009 near Corpus Christi by a subsidiary of China’s largest seamless steel pipe maker. The most recent, in 2011, is a $52 billion steel pipe factory housed in a converted plastics compounding plant on the Houston Ship Channel.

Yam said that 90 percent of Asian billionaires made their fortunes in real estate, which Doggett identified as another major driver of Chinese investment. They are buying land and structures here because in China investment opportunities are few and real estate is exorbitant.

“A 1,000-square-foot home in Beijing costs the equivalent of a million (U.S.) dollars,” Yam said. “In Texas, you can get a ranch for that.”

During the Great Recession, Doggett recounted, some Chinese travel agencies recruited well-heeled Chinese investors to take “foreclosure vacations” in America to buy up distressed properties. More altruistically, perhaps, other wealthy Chinese buy U.S. homes for their children (and sometimes, wives) to live in while attending college.

China has less arable land than the U.S. and a massive water problem. Doggett said those factors largely are behind China’s land and food “outsourcing” efforts in Africa. There, he estimated that China has more than 1 million farmers cultivating the equivalent of France. The Comptroller’s economic analysts have noticed that Texas is sending many of the same commodities to Africa as China. Doggett confirmed that those Texas goods probably are helping fuel Chinese development there.

Houston boasts the largest “Chinatown” community this side of Los Angeles, Doggett said, and Chinese Texans number approximately 300,000. The demand for traditional foods from back home is stimulating Chinese imports as well, noted Linda Toyota of Houston’s Asian Chamber of Commerce.

The Sino-Tex trend appears to be unabated. We send China beaucoup cotton from West Texas, where they’ve set up a wind farm. A major Chinese energy company announced recently that it’s partnering with a small Utah firm to build liquefied natural gas refueling stations on U.S. highways.

“The United States will continue to be strong economically,” Yam predicted, “because it remains the ultimate destination for the most talented people in the world.”

Yao Ming playing for the NBA’s Houston Rockets hasn’t hurt relations either, he indicated.

Published 06/26/13