The economic link between the Bay Area and China -- once a one-dimensional relationship of tech companies looking for cheap and efficient manufacturing -- is becoming a highly complex web of business interests stretching across the Pacific.

Giants like Apple (AAPL) now see China as their next big market for growth. Small companies are not only looking to the country for supplies but also new consumers. At the same time, wealthy Chinese and successful companies are aggressively looking to invest in the Bay Area.

The expanding middle class across Asia, and new technologies that enable seamless cross-border deals, are rewriting the rules of business, even for mom-and-pop operations.

Julie Degnan, who started Cakes And Kids out of her Concord home after getting laid off from her marketing job in 2010, is a symbol of this new economic world.

"I truly consider my business a global business, from my sourcing to whom I sell to," she said. Degnan began making sugar-paste cupcake toppings and expanded by selling party supplies. Degnan now mines China, Hong Kong and Taiwan for unusual colored paper cupcake liners, baking cups and tableware by using Chinese e-commerce giant Alibaba, whose platform enables the smallest of companies to conduct global transactions.


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Since 2008, Alibaba has enjoyed an annual growth rate of about 50 percent of registered users from the U.S., reaching 6.2 million at the end of last year. In 2012, the service added nearly 160,000 U.S.-based users a month.

"When I started, if someone told me I'd be sourcing from overseas and selling overseas, I'd say, 'Yeah, right,' " Degnan said. Now, she added, "I offer customized things you can't find anywhere else."

While the West Coast has long had deep economic connections to Asia, those relationships have grown tremendously. From 2001 to 2012, exports to China from California have soared from $4.7 billion to $14 billion, a 198 percent increase, though not adjusted for inflation, according to Beacon Economics.

And the economic currents are flowing both ways. Last year, foreign direct investment in the United States from China rose 41 percent to $6.5 billion, according to Thilo Hanemann, research director at the Rhodium Group who tracks Chinese investments. Just this month, Beijing-based Zarsion Holdings Group announced it is working with Signature Development Group in Oakland to fund a $1.5 billion Jack London Square project of homes, shops, open space and a marina.

"China is now our third most important trading partner," behind Mexico and Canada, said Christopher Thornberg, founding partner of Beacon Economics. "Look at Los Angeles International Airport and San Francisco International Airport -- how many flights are going back and forth between them and Beijing, Shanghai, Guangzhou. You would be amazed."

Apple's focus on China is well-known. CEO Tim Cook has said China could eventually become the company's largest market. During the company's first quarter, revenues for greater China, which includes mainland China, Hong Kong and Taiwan, jumped 67 percent from the year-ago period to $6.83 billion, Apple reported in January.

But it's not just Apple and its iconic products. For instance, San Jose-based analog chipmaker Maxim Integrated, which reported revenue of $2.4 billion for its most recent fiscal year, relies on Asia for nearly 60 percent of its business.

For tech companies, China is "a critical market," said Crawford Del Prete, IDC executive vice president of world research.

"Places like China and India will significantly outpace growth of the rest of the world," he said. "We expect to see well over 50 percent of the (growth in tech spending) going forward in what we call emerging markets."

In 2011, Chinese spent $104 billion on goods from the United States, a 441 percent jump from 2001, according to the U.S.-China Business Council.

"Ten years ago, the story was all about how the products were being designed and manufactured over there and consumed by the 'important economies' -- the U.S. and Europe," Del Prete said. "Now, the 'important economies' are everywhere."

The desire to connect to China and the broader Asian market was accelerated by the economic downturn in the United States as American companies looked to the swelling middle class across the Pacific for growth, said Annie Xu, the Santa Clara-based general manager of the U.S. operations of Alibaba.

"Even small businesses in the U.S. have spotted the trend," she said. "They are looking to get into the China market."

Though China can be tough to crack, companies with the right products can reap high rewards. A study in the fall by the Boston Consulting Group noted 60 percent of Chinese consumers said they are willing to pay more for products labeled "Made in USA" than those labeled "Made in China."

Susie Wang, who cofounded 100% Pure, a San Jose-based natural cosmetics company, has already discovered demand for her creams, soaps and makeup in that country -- without actually selling there. Chinese tourists fill up large suitcases of her products at her Santana Row store and haul them back home. Now Wang, who buys recycled packaging from suppliers in China, has plans to set up shop there.

"I am super-excited about China," said Ric Kostick, CEO of 100% Pure. "I hear the middle class will be 300 million people. That's the size of the entire United States. China is the future."

Alibaba: The Rise
Chinese e-commerce company Alibaba Group is larger than both eBay and Amazon combined when comparing gross merchandise volume, a measure about equal to gross sales. Alibaba is slated to eclipse Walmart in sales in five years.
The company has played a key role in the complex economic ties between China and the Bay Area, allowing U.S.-based businesses to tap into the Chinese market in much easier ways than were once possible.
On Nov. 11, the largest online shopping day in China, Alibaba's Tmall and Taobao Marketplace sites pulled in $3.06 billion in revenue, more than the sales generated online during Black Friday and Cyber Monday combined in the United States last year.
Taobao and Tmall has more than 500 million registered users.
Alibaba.com has 36.7 million registered users from more than 240 countries and regions. It has more than 2.8 million supplier online storefronts and more than 5,900 product categories.
Between 2008 and 2012, Alibaba.com's U.S. registered users grew from 1.3 million to 6.2 million.
Source: Alibaba Group