China trade bounds to top of the list at L.A. ports.

Trade figure jumps 37 percent -- to $7.5 billion -- in year

Los Angeles' trade with the People's Republic of China is running hot, from imported T-shirts to exported jetliner kits. China was the fastest-growing trade partner of the Los Angeles Customs District in 1991, and several trade experts say the trend continues into this year.

According to 1991 import-export declarations made to the U.S. Customs Service, made public by the TradeWatch data service this spring:

* Total trade between L.A. and China soared 37 percent to $7.5 billion last year;

* Imports to L.A., heavily promoted by the Chinese government, climbed 32 percent to $6.3 billion;

* Exports to China lept 78 percent to $1.2 billion. The growth came despite the dampening effect on the U.S. recession on economic activities ranging from factory orders to consumer spending.

"These figures are dramatic," said trade attorney David A. Hayden of Graham & James in Los Angeles.

"The Chinese have gotten ideology out of the way and let business happen," said Hayden, who set up his law firm's Beijing office in 1980 and was later hired by Walt Disney Co. to help it develop a business plan for its activities in China.

Two-way trade will probably run even higher this year, estimated W. Guy Fox, a customs broker for the huge Target Stores chain and dozens of other China-goods importers. Fox, vice president of Global Transportation Services Inc., is one of 16 licensed customs brokers at that Redondo Beach firm.

China, however, was not L.A.'s biggest trading partner. It ranked fourth. No. 1 Japan posted $35.4 billion in two-way trade, followed by Taiwan with $11.3 billion and South Korea at $10.3 billion.

But trade with Japan and Taiwan grew by 1 percent and 8 percent, respectively, while Korean trade dipped 1 percent. At that pace, in fact, China could overtake Korea this year and surpass Taiwan in 1993.

The greatest threat to the growth of L.A.-China trade is the possible ending of China's "most-favored nation" trade status, which currently affords China the lowest category of import-duty rates.

Thanks to a host of allegations of unfair trade practices and human rights violations in China, U.S. Congress last year attached conditions to the annual renewal of MFN status for China. But early this year President Bush vetoed the bill, to China's benefit.

A similar showdown is expected to take place in June and the whole relationship remains "volatile," said Fox, a customs broker for 25 years. For instance, if the trade status is ended, duty paid on importing a woman's cotton jacket would shoot to 90 percent of value from 16.9 percent. Duty on toys would rise to 70 percent, up from 6.8 percent.

The uncertainty is pushing some U.S. importers to seek sources in other countries, said several customs brokers.

Also throwing curve balls into L.A.-China trade is U.S. Customs. It has an ongoing campaign to seize any slave-made goods which, by law, may not be imported into America. Last November, for instance, Customs ordered the return of imported Chinese diesel engines allegedly made with slave labor to Customs' clearing stations. There they sit, even today, until Customs' investigation of the allegation is resolved.

Because importers must forfeit goods that are deemed slave-made, some have issued specific labor rules to their Chinese partners and asked them to sign affidavits of compliance, said a spokesman for Mattel Inc.

Still, many local companies remain entrenched in China trade, like airplane-maker Douglas Aircraft Co. in Long Beach and toy maker Mattel in El Segundo. Hundreds of smaller L.A.-area firms also trade with the Chinese, but most remain anonymous. U.S. Customs does not disclose all the names behind the deals.

Apparel importers are the hungriest. Apparel and textiles brought in from China totaled $2.1 billion last year.

Port and airport officials say roughly one-half of imports into the L.A. Customs District's ports of entry -- largely made up of the twin ports of L.A. and Long Beach and L.A. International Airport -- are transported inland. The other half stay in the area. In other words, L.A. consumed some $1 billion of Chinese imports last year.

Bugle Boy imported about $60 million of jeans, shorts, T-shirts and other clothing last year through L.A. ports, said company Import Manager David Hsu. That comprised about 20 percent of all imports for the giant clothing company, which feeds major department stores and its own chain of 85 retail stores nationwide.

Nevertheless, Hsu said, China has lost some of its appeal for Bugle Boy because prices have risen 40 to 50 percent since 1989. "Everything is getting very expensive from China," he said. Starting late last year, he began placing more orders with rival suppliers from Bangladesh, Turkey and Pakistan, Hsu said.

Despite low labor costs, China is being undercut by other developing countries, sources said. "But Sri Lankan and Bangladesh (products) are not as good quality, generally," Fox claimed.

China-pioneer Mattel, which established two Chinese plants in the 1980s, has kept its foreign sources diversified. While its Chinese plants produce Barbie Doll products, Disney toys for infants and pre-schoolers and stuffed toys, other plants in Malaysia and Mexico turn out almost as much product, said Mattel spokesman Glenn Bozarth. By mid-1992 Mattel expects to fire up its newest plant, in Jakarta.

Despite the company's diversification, China remains a huge source for Mattel, with nearly one-third of its $1.6 billion in 1991 sales involving goods made in China. (Bozarth declined to estimate Mattel's portion of the $1 billion in toys, games and sports equipment imported to L.A. in 1991.)

Mattel's Chinese plants are in the booming southern province of Guangdong, which borders Hong Kong and sends much of its output through that gateway. Many of L.A. traders' partners are based in Guangdong, estimated Steven Hess, an economist at First Interstate Bancorp.

"The development of Southern China and the role of Hong Kong as the financial and marketing capital for that region is going to be a major phenomenon in the 1990s," predicted Hess.

The economic zones in Guangdong, offering liberal hiring and firing rules and low taxation, are likely to spread to other parts of China, thanks to their now-celebrated endorsement by Chinese leader Deng Xiaoping in January, claimed attorney Hayden.

Up north in Shanghai, Douglas Aircraft Co. has produced 28 MD-80 passenger planes for Chinese airlines. The co-production agreement allows Douglas to sends "kits" of parts for final assembly in China, under auspices of the Chinese government.

The accord will likely expand this summer, said Douglas officials. They expect the Chinese government to ratify their mutual memorandum of understanding calling for 40 more of the 140- to 170-seat passenger planes.

If the agreement is ratified that action will almost cinch the security Douglas needs to launch a separate program to make MD-95s in China, company officials said. Those 100- to 120-seaters would be the first China-manufactured Douglas airplane for the world market, said Douglas spokesman John Thom.

China is also one site being considered by Douglas for the company's planned competitor to Boeing's 747 -- the MD-12.

In China low labor costs and relatively high-quality work still is prevalent, said Thom. "We have to be the high-quality, low-cost provider in the world," he said, citing certain advantages of its two dominant rivals. Boeing has big market share and a war chest of income from its wildly successful 747, while Airbus Industrie has subsidies from European governments.

Hughes Aircraft exported a communications satellite to China in January for launch from Chinese soil later this year on behalf of its owner, an Australian communications company. Two years ago, a Hughes satellite was launched aboard a Chinese rocket for client AsiaSat of Hong Kong.

"The least expensive launch (deal) at the time was Chinese," explained a Hughes spokesman. The satellites are worth more than $100 million each, said a Hughes spokeswoman.

While satellites are generally flown by air cargo, most goods from China come by ship. Indicating L.A.'s importance, the China Ocean Shipping Co. -- the government steamship company and reportedly the world's six-largest merchant fleet -- calls first at the Port of Long Beach on its Asia-U.S. routes.