The U.N.'s purchases from China have increased over 700% during the 2005 to 2006 period, however the vast majority of goods procured by the U.N. are still from the United States. In 2006, the U.N. purchased over $700 million from the U.S. while only purchasing $8 million from China.

China's Importance to the California Business Economy
Are Small to Medium Size Businesses Winners? - by Stephen Perl, MBA, MS

In early 2000, I was astonished to see that most of my portfolio of +100 businesses representing all business sectors throughout California were almost all doing business with China in some fashion." This was the catalyst that lead our bank, 1st PMF Bancorp (and myself) to begin understanding this phenomenon and to determine if it was beneficial to California businesses.

Many have complained that California has suffered its job losses and problems due to the growth in China's trade imbalance and the Globalization of our economy; however, it is important to first look at the economic indicators in California over the last 5 years.

Based on the latest US Department of Commerce statistics, California's economy or its Real GDP has grown by 4.4% per year from 1997-2004 and is ranked #4 out of all the States in the U.S. Additionally based on the latest Bureau of Census Department statistics, California has gained over 500,000 new non-farm jobs between 1999 and 2003. So, even though California has lost jobs in certain sectors such as manufacturing, California has absorbed the loss by growth in other sectors such as warehousing, transportation, wholesaling, shipping, etc. The expansion of these growing sectors is fueling the expansion and creation of small businesses (especially in California) due to the overall increased positive economic activity. In fact, between 2000 and 2005 according to the SBA's California State Profile Report, California's small businesses became approximately $30 billion dollars more profitable.

However, the above facts are not meant to support China's trade imbalance with the U.S., but rather to support the idea that the California's increased business with China due to Globalization has more of a positive impact than negative on its economy. 45% of all imported goods in the U.S. (most from China) are funneled through California's ports and subsequently, through our small businesses which reap many of the profits (literally as seen by California's Small Business Income figures above).

It is true that Globalization and our close economic ties to China have made the world a much smaller place and much more competitive, but it has more importantly opened new markets around the world for our small businesses. In fact, California's Small Businesses are winners on the export side too. Knowing that 99% of all employers in California are small businesses (based on SBA and Department of Commerce) makes the next statement by Howard Shatz testimony before the House Committee on Small Business (September, 2003) on exports in California especially interesting. According to Howard Shatz, "94% of all exporters in California are made by small to medium size businesses." This data should give any Californian pause because it means that 94% of all the businesses with under 500 employees (or approximately 94 out of 100 businesses) in the State of California are dependent on "Exported Goods" sales in some fashion. Our country's exports to China have also grown by approximately 300% since 2000 whereas the rest of the world's exports to China have grown less than 5%. So, California's small businesses success in recent past has also been heavily dependent on exports as well imports.

My perspective comes not only from the statistics, but also as the CFO of 1st PMF Bancorp in the U.S. and as the CEO and architect for our subsidiary, Baoli, the first privately owned factoring/trade finance company in China. I have been lucky enough to have been given the opportunity to see the Chinese and U.S. businesses up close as we have them both as clients. I have and continue to see the effects of Globalization first hand because my extensive travel and involvement in underwriting this business on both sides of the Pacific. From my point of view, the Globalization has some definite draw backs, but in the end California is prospering and always will because of the many comparative advantages it enjoys while the same goes for China.

Stephen Perl, MBA, MS is the Chief Financial Officer of 1st PMF Bancorp (USA) and CEO of its Chinese subsidiary, Baoli Investments with head offices located in Los Angeles & Guangzhou, China.

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