State by State: China and Texas Trade

If Texas were a country, it would have the 14th largest economy in the world. With a GDP of US$1.414 trillion, the Lone Star state would be vying with South Korea to be ranked 13th, leaving Spain and neighboring Mexico at a respectable distance. 

Texas has been the American state with the highest volume of exports for 13 consecutive years. Again in 2014, Texas led American exports, totaling US$289 billion. The state boasts 16 sea ports, three of which rank in the country’s top ten busiest. As part of the Gulf Intracoastal Waterway that runs from Brownsville, Texas, to St. Marks, Florida, the state covers 67 percent of the U.S. waterborne traffic.

Trade and Exports with China

With the Panama Canal recently deepened, Texas is in an excellent position to step up its trade with China. Exports to China reached a new high of US$10.9 billion in 2014, making China Texas’ fourth largest export partner behind Mexico, Canada and Brazil.

Imports from China are even larger, reaching US$45.4 billion in 2014. China has placed itself firmly as the state’s second biggest trade partner, between Mexico with US$90.1 billion and Saudi Arabia at a distant US$19 billion.

Key Industries and Investment Opportunities in Texas-China Trade

Six industries dominate the business environment in Texas. These are petrochemicals, energy, high tech manufacturing, aerospace, biotech and IT. Being a major oil producing state, the oil & gas industries and related sectors are well-represented in Texas’ economy. The state is a major center for the refining of petroleum, production of chemicals, rubber, paints and coating, synthetic fibers and petrochemicals.

Petrochemicals

40 percent of the U.S.’s production capacity in petrochemicals is based in Texas. In fact, at US$3.1 billion, chemicals make up by far the largest share (28.3 percent) of Texan exports to China. Chemicals have led China-Texas trade for years and, despite decreasing somewhat recently, look set for a prosperous future. China removed practically all restrictions to foreign investment in the chemical industry with the release of this year’s Catalogue for the Guidance of Foreign Investment.

Energy Generation

A unique opportunity has recently arisen for energy generation, one of Texas’ specialties. The construction and operation of power grids has been moved from the restricted to the encouraged category in the Catalogue for the Guidance of Foreign Investment. A Chinese party would, however, still need to be the controlling shareholder. Many other restrictions in the sector have been lifted as well.

RELATED: Latest Guidance Catalogue for Foreign Investment Industries Released

Transportation Equipment

Texas is a major manufacturer of transportation equipment, both in the automotive and aerospace industries. China surpassed the U.S. to become the world’s largest car market in 2009, and has continued to grow ever since. A recent anti-trust crackdown by the Chinese government opened access to the auto parts aftermarket to car parts manufacturers. Car assemblers had previously been able to use their market position to force parts manufacturers to exclusively sell to them. Following the government’s anti-trust measures, this opportunity is now wide open for Texas’ auto parts manufacturers, as the car parts aftermarket is still vastly underdeveloped.

The aerospace sector, another one of Texas’ strengths, is an encouraged industry for foreign investment in China. Aerospace is set to benefit from the opening of the Tianjin Free Trade Zone, which will have a special focus on transport equipment and equipment financial leasing. Some restrictions do apply to the manufacturing, design and maintenance of passenger aircraft (joint ventures required) and smaller regional aircraft (Chinese controlling shareholder), but the overall trend for foreign participation in the aviation industry is increasingly positive.

Electronics and Machinery

With major multinationals such as Texas Instruments and Dell Computers originally from Texas, the state is a large producer of electronics, computers and both electrical appliances and components. The fourth major export to China is accordingly computers and electrical products at US$ 1.3 billion, a total of 11.3 percent.

Both electronics and machinery are potentially key areas of interest for Texan companies. China’s labor costs are rising, and the country is increasingly looking towards more sophisticated technology for its manufacturing base. While Chinese machinery producers are competitive and have started exporting to other markets, there are certainly many promising opportunities for Texan innovators.

Tax Treaty – US Trade with China    

The United States has signed a Double Tax Treaty with China. This can reduce tax burdens under certain circumstances in both trade and any China legal establishment. Please seek professional advice for specific China investment requirements. Treaty details can be found here.

Further Support from Dezan Shira & Associates

Dezan Shira & Associates can service Texas-based companies that are looking to further develop their operation in China. The firm can help companies establish a direct office in the country and can guide them through the affiliated tax, legal and HR issues that come with doing so. To arrange a free consultation, please contact our U.S. office at usa@dezshira.com.

For further Texas-Asia trade data, please see our articles on trade with India, ASEAN and Vietnam.

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