Indiana exports eked out a gain in 2008 despite the imploding world economy—rising 2 percent to $26.5 billion, according to preliminary data from the U.S. Department of Commerce.
All things considered, "exports held up pretty well last year. The last 60 days of the year is really the first time we saw deterioration on the export side," said Patrick Kiely, president of the Indiana Manufacturers Association.
In ordinary times, 2008 would be called a flat year, considering that Indiana exports soared 14.5 percent in 2007 over 2006.
That there was any export growth in 2008 given the depth of the economic plunge might be surprising. Perhaps even more so is that the fastest-growing destination for Indiana goods in recent years is also the country that buries the state with its own exports.
"China is Indiana's fastest-growing export market by far," said Scott Kennedy, an associate professor and the director of the Research Center for Chinese Politics & Business at Indiana University.
Indiana exports to China grew 23 percent last year. The $930 million in Hoosier goods it bought last year exceeded even Indiana's stalwart trading partner, Japan.
And China's growth came without high-level visits to China from Indiana's chief executive, Gov. Mitch Daniels, who in recent years has focused on growing the relationships with Japan and other Asian nations.
The latter have built factories in Indiana that employ thousands of Hoosiers, while few Chinese companies have set up manufacturing outposts here.
For now, China enjoys relatively low labor rates that keep manufacturing at home competitive. Its growing infrastructure is hungry for Hoosier goods, buying from the state last year mostly machinery.
That was followed by chemicals, computers and electronics, waste and scrap metal, and primary metals, according to the U.S.-China Business Council.
The group said Indiana exports to China over the last eight years have risen 458 percent.
Perennially popular have been Indiana's advanced machine tools, automotive components and specialty metals, said Dennis Kelley, president of Indianapolis-based Pacific World Trade Inc., which helps companies and state economic development officials find international opportunities.
"China typically will buy a lot of machinery to produce other things ... products they can then sell back to us," said Mark Cooper, director of the U.S. Department of Commerce's Export Assistance Center in Indianapolis.
Among companies charging into China have been Columbus-based engine- and generator-maker Cummins Inc., Warsaw-based orthopedics innovator Biomet Inc. and drug giant Eli Lilly and Co., Kelley said.
Many companies won't break out their Chinese sales, though Lilly indicated in December its sales in the country of 1.3 billion people were growing about 25 percent annually.
Lilly plans to invest $100 million in venture capital over the next several years in promising life sciences companies, not only to reap rewards in new drug discovery but also in boosting its share of China's prescription drug market.
Cummins, which not only exports to China but has a number of engine-making operations there as well, held its own in sales to China last year, said spokeswoman Janet Williams.
The company reported sales in China of $783 million in 2008, although it's not clear to what degree that represents sales generated by its numerous manufacturing operations there and what portion was exported to China.
Peerless Pump in Indianapolis for several years has been exporting to China fire-fighting water pumps used in manufacturing and oil facilities. About 30 percent of the goods it makes are for export markets, said Tim Killion, director of international sales at Peerless.
Some smaller companies that serve Cummins and other big manufacturers, including Indianapolis-based Hoosier Gasket Corp., have opened operations in China to produce parts for those big American manufacturers' Chinese plants and to satisfy local parts content regulations.
Facilities in Shanghai and in Zhejiang didn't replace manufacturing done at Hoosier Gaskets' new plant near Keystone Avenue and Interstate 70, said co-owner Ben Jackson. The Chinese operations were to help Hoosier Gasket generate additional income and preserve relationships with big American firms operating there.
But now, oddly enough, China is actually helping Hoosiers mitigate the slowing orders from automotive companies in the United States amid the recession, he said. "We didn't realize how important [China] was going to become."
One factor helping boost Indiana exports to China last year was the value of the Chinese currency relative to the dollar, Kelley said.
Overall, China remains a sore subject for some Indiana manufacturing workers—a poster child for jobs being sent offshore to lower-wage countries.
While manufacturing continues to decrease as a percentage of U.S. gross domestic product, the United States retains the lead in absolute volume of manufactured goods, said IU's Kennedy, a visiting scholar at Peking University School of International Studies.
The "vast majority" of the increase in China's manufacturing has come at the expense of manufacturing in Latin America, Southeast Asia, South Korea and Taiwan, Kennedy said.
"Although some factories have moved from Indiana to China, on balance China has been a net positive for the state's economy. As time passes, trade and investment opportunities will continue to grow for those who know how to take advantage of them."
Canada still reigns
Indiana's most important trading partner remains Canada, buying 10 times the value of Indiana goods as China. Indiana exports to Canada fell 3 percent in 2008, to $10.5 billion.
"While Canada might not be as big an export market as it was, you have to take that with a grain of salt. It's still over 40 percent," Cooper said.
Exports to second-largest destination Mexico fell 19 percent, to $2.1 billion. Combined, the NAFTA partners amounted to about half of total Indiana exports.
Much of the decrease in exports to the state's two largest partners was related to the slide in the transportation equipment sector, observers said—with sales in that top category falling 12 percent.
Even though the sector is under strain, "we're still an automotive-oriented state," Cooper said.
The downturn in transportation equipment was offset to some degree by increases in sales of chemical goods, machinery and primary metals.
Indiana is the United States' 14th-largest exporting state.
Efforts to grow exports sometimes pay unanticipated dividends.
Last December, Mayor Greg Ballard announced following his own trade mission to China that Goodtime Science & Technology Ltd. would open an Indianapolis distribution center for rubber and plastic products it sells to automakers.
It turned out that Indiana was no stranger to the owner of the Ningbo, China, company. In the late 1980s, the owner had met Kelley and former Gov. Robert Orr while the two were in China prospecting for trade partners. He showed Ballard photos of the three glad-handing 20 years earlier.
Kelley's Pacific World Trade has been tapped by state economic development officials to help recruit additional Chinese firms to Indiana.