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Originally published January 22, 2011 at 6:23 PM | Page modified January 24, 2011 at 12:26 PM

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Patterns shifting in sales to China

The nature of Washington state's trade with China is subtly changing, reflecting China's appetite for materials to feed its booming industries.

Seattle Times business reporter

China is Washington state's biggest foreign customer, with a shopping list long dominated by Boeing planes and aerospace parts worth close to $4 billion annually.

Yet the nature of that trade is subtly changing, reflecting China's appetite for materials to feed its booming industries.

What we're shipping from Seattle to ports such as Shanghai are more raw materials, food and basic commodities, things such as timber, copper and silicon.

"It looks like we're a Third World country," said Trade Development Alliance of Greater Seattle President Bill Stafford.

It's also something of a role reversal for China's trade relations.

"It's ironic the world has changed so much," said Conrad Lee, deputy mayor of Bellevue. "One time we go to another country to exploit their resources. Now it's coming back."

While increasing commodity exports has helped local economies, it has also led Stafford and others to question what the region will be selling to the world's largest market in the future, especially as China produces more of its own technology.

Along with state and national initiatives to ramp up exports, they say the region needs a strategy to ensure it keeps creating high-value products that provide better jobs.

Trade-dependent Washington sells more products to China than to any other country, and exports have grown even during the recession.

Among the state's top 10 exports to China, those rising fastest include chemicals, iron ore, silicon, wood and fur.

As China works to change its reputation as the world's sweatshop to a producer of technology, its thriving solar-power industry, for example, needs lots of silicon and silane gas.

For Washington state, that demand helped drive a 300 percent rise in silicon exports to China in the past year, worth $144 million, according to trade data from the U.S. Census Bureau.

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Sales of wood climbed 400 percent in the past year to $347 million, propelled by China's housing boom.

While Washington sold China $14 million in minerals and ores in 2005, that grew to $133 million in 2009. Petroleum and coal products, just $21,000 in 2005, jumped to $30 million four years later.

On the technology side, medical devices are one of the bright spots for Washington, with exports to China rising dramatically to about $200 million in 2010. Top Chinese hospitals are seeking modern equipment and trust U.S. quality.

New approach in China

Meanwhile, Chinese companies are busy acquiring foreign technology to move from making low-cost goods to more sophisticated products for sale around the world.

"Chinese are working hard to upgrade their products so they offer greater value and more innovative technology," Tay Yoshitani, chief executive of the Port of Seattle, wrote in a recent column. "This is smart from Beijing's perspective, but it represents another potential challenge to the U.S. in terms of global competition."

Addressing the United States' $252 billion trade deficit with China topped the agenda during Chinese President Hu Jintao's talks with President Obama last week.

When imports exceed exports, the U.S. makes up the difference by borrowing from overseas, adding to its already massive debt.

The trade gap with China can be narrowed by helping small and medium-sized firms sell more to China, said Joe Massey, partner at advisory firm Sierra Asia and former chief U.S. trade negotiator with China.

Only 1 percent of U.S. companies currently export. Many of them have world-class products in biomedical or clean technology, but they're held back by concerns about intellectual-property theft in China, or lack the resources and knowledge to enter unfamiliar markets, Massey said.

Washington Gov. Chris Gregoire set a goal to increase exports by 30 percent in the next five years, counting on robust trade with China. China's economy is expected to grow more than 9 percent a year over the same period.

Increasing trade with growing Asian economies, especially China, is critical to the Pacific Northwest, says Ross Macfarlane, senior adviser for business partnerships at Climate Solutions, a Seattle nonprofit.

At the same time, "we need to adopt China's laser strategic focus on the kinds of markets that will really create better jobs on both sides of the Pacific, rather than becoming a resource colony for the dirtiest and least valuable commodities," Macfarlane said.

Push for partnerships

While local officials are trying to pump up exports, Stafford says they also need to do a better job attracting more investment by Chinese companies in local businesses.

Some of that is already happening. As Chinese companies look for partnerships with local firms, they also bring access to new markets. That helped convince Anders Brown and Lincoln Popp to sell their Kirkland software-consulting business to China's iSoftStone in 2008.

"Our perspective is that we're in a global economy right now and we're not going to go backward," Brown said. "China's domestic economy is one of the largest and fastest growing, with opportunities for U.S. companies to sell products and services into that local market."

iSoftStone went public last year on the New York Stock Exchange and quadrupled its local work force from 40 to 160.

"I think people feel like this is a great chance to be part of global growth generally and China and Asia specifically," Brown said. "I think it's been all upside in terms of opportunities for employees from the Northwest."

Nuclear opportunity

TerraPower, a Bellevue company backed by Microsoft co-founder Bill Gates, is also exploring partnerships with China.

The company is designing a new kind of nuclear reactor to run for decades on depleted uranium. TerraPower aims to have a demonstration reactor built by 2020, but the location has not been determined.

Jon Huntsman Jr., U.S. ambassador to China, said last week that such a partnership with China could help TerraPower commercialize the technology.

Lee, the Bellevue deputy mayor, recently brought a Chinese telecommunications delegation to the city to explore business opportunities. The group included a manager from Tencent, China's largest Internet portal. Tencent plans to offer an online platform for tech companies aimed at the Chinese market. Its instant-messaging service called QQ has more than 600 million users, roughly twice the U.S. population.

"I'm a realist with a lot of faith that America offers the best innovation and creativity," Lee said. But he thinks success also requires collaboration, such as pairing local wireless entrepreneurs and Chinese partners to solve problems in Africa.

"Technology tools are advancing so quickly, we want to see what assets each country or each company has, and how can they work together to develop in the future."

Kristi Heim: 206-464-2718 or kheim@seattletimes.com

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