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

 

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

Many have complained that California has suffered job loss and other problems due to the growth in China’s trade imbalance and the globalization of our economy. To resolve that issue it is important to first look at the economic indicators in California over the last 5 years.

Based on the latest U.S. Department of Commerce statistics, California’s economy – as measured by its Real GDP has grown by 4.4 percent per year from 1997 to 2004 and is ranked No. 4 out of all the states in the U.S. Additionally, based on the latest Bureau of Census Department statistics, California has gained more than 500,000 new non-farm jobs between 1999 and 2003. So, even though California has lost jobs in certain sectors such as manufacturing, it has absorbed the loss by growing in other sectors such as warehousing, transportation, wholesaling, shipping, etc. The expansion of these trade-related sectors is fueling the expansion and creation of small businesses due to the overall increase in positive economic activity. And that is precisely what has happened. According to the SBA’s California State Profile Report, between 2000 and 2005 California’s small businesses became approximately $30 billion dollars more profitable.

These facts are not meant to support China’s trade imbalance with the U.S., but rather to support the idea that California’s increased business with China, and its globalization in general, has had more of a positive than a negative impact on its economy. Forty five percent of all imported goods to the U.S. (most from China) are funneled through California’s ports and subsequently through our small business community, which reaps many of the profits.

It is true that globalization and our close economic ties to China have made the world a smaller place and far more competitive, but it has just as importantly opened new markets around the world for our small businesses. Indeed, California’s Small Businesses are winners on the export side, too. Knowing that 99 percent of all employers in California are small businesses (according to the 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 research by Shatz, an adjunct fellow at the Public Policy Institute of California, “almost 94 percent of all exporters in California were small to medium size firms.” This data should give any Californian pause because it means that 94 percent of all the businesses with fewer than 500 employees in the state are dependent on in some fashion on exported goods. Since our country’s exports to China have also grown by approximately 300 percent since 2000 – whereas the rest of the world’s exports to China have grown less than 5 percent – California’s small businesses success in the recent past has depended on exports to, as well imports from, China.

My perspective comes not only from the statistics, but also from my vantage point as the CFO of 1^st PMF Bancorp in the U.S., and as the CEO and architect of our subsidiary, Baoli, the first privately-owned factoring/trade finance company in China. Because we have them both as clients I have been lucky enough to see Chinese and U.S. businesses up close. I have seen, and continue to see, the effects of globalization first hand because of my extensive travel and involvement in underwriting business on both sides of the Pacific. From my point of view, the globalization has some definite drawbacks, but in the finale analysis California is prospering as a result -- and always will -- because of the many comparative advantages it enjoys, especially relative to China.