Firms from China have been investing significant amounts into California businesses according to a new study released by the Rhodium Group, a research group headquartered in New York.
The study shows that between 2000 and 2011 $1.3 billion was invested by the Chinese into California businesses with the majority of investments coming in the last few years of this period. Last year, a record $560 million was invested.
The Rhodium Group was commissioned by the Asia Society to conduct the research for the report. The report contains other indicators of interest by the Chinese in purchasing U.S. businesses and other assets.
California ranked fifth in total investment even though it had the most transactions. Across the U.S. the Chinese invested $16.4 billion. States ranking above California in Chinese investment were New York, Virginia, Texas, and Illinois.
The drive by the Chinese to grab U.S. based assets has been particularly strong since 2008 when the global recession created many bargain-priced assets that they have been quick to take advantage of.
Chinese investors are also looking to bring technology, expertise, and consumer products into their land that have typically not been available. For instance, Tencent Holdings Ltd, a Chinese Internet giant, purchased Santa Monica-based Riot Games, Inc. for $250 million. To bring California wine to China, Chinese investors bought the Napa Valley-based winery Silenus Vinters.
Experts still note that California could do better at drawing more investment by the Chinese. David Pierson and Ricardo Lopez of the Los Angeles Times both believe that there is room for improvement in California’s marketing efforts targeted at overseas investors. There is a lot of potential for California to be the prime target for Chinese investment with the state’s large Chinese immigrant population and location on the Pacific Rim.
Chinese investors seem to have a special liking for Southern California with a recorded 69 investment transactions that have taken place since 2000. This figure is double the amount of transactions that occurred in the second most populated area of the state, the San Francisco Bay area.
Part of what makes Southern California attractive is the fact that it has the largest representation of Chinese people in the state in addition to large manufacturing bases and seaports. Ferdinando Guerra, who is an economist with the Los Angeles County Economic Development Corporation and has done much research on foreign investments potential, comments that there is fierce competition among the investors for making deals in the region.
Estimates are that if California fine tunes their strategy at targeting foreign investors from China that it could realize as much as $60 billion in new investment by the year 2020. The authors of the report went on to say that the state has the potential to lead nation in investment from China.
Fine tuning China’s focus on foreign investment would require advertising its creative workforce and unique quality of life. Other states have been able to do this and it has worked well for them when it comes to their outreach initiatives to overseas buyers. California should also promote its diversity within its main economic centers of the San Francisco Bay area and Los Angeles.
There is one hurdle to overcome however. Many leaders in the United States have reservations about this growing rate of Chinese investment fearing that it will tip the scales in their favor when it comes to competitive strength in the economy.
The U.S. leadership also fears the threats of espionage and cyber threats on its technological advances by the Chinese. This became evident after an investigation reported by the U.S. federal government. The U.S. House Intelligence Committee report drew attention to the Chinese telecommunications companies ZTE Corporation and Huawei Technologies Company, both trying to expand operations in the U.S.
This report came after President Obama stopped a Chinese investor from investing in four Oregon wind farms. The location of these wind farms was the cause for concern by the U.S. because of a military base nearby.
The House Intelligence Committee report went on to point out how that such interest by the Chinese given the characteristics of their government and their policy toward foreign ownership does raise valid concerns. It furthermore stated how that these concerns must be exercised with caution and checked that they are not simply a subtle means to discourage foreign competition. Care must be exercised not to overreact for any reason.
The same report expressed the need to identify the risks that the different types of deals present and define the methods to carry out security checks that specifically address them. Otherwise the U.S. might miss out on the opportunities for new job creation, new products and services, and the injection of new sources of capital.
Confirming the House Intelligence Committee report, the Rhodium Group report also noted that five years ago Chinese firms only employed about 10,000 people in the U.S. whereas the figure is up around 27,000 today.
This promise of new opportunities on the horizon spawned the announcement by California officials to reopen its trade office in Shanghai. Its trade office has been closed because of budget constraints along with others since 2003.
Paul Oliva who is the deputy director for international affairs in the California governor’s office elaborated on the Shanghai office saying that it was built with the intention of showing investors in China what California is all about. He went further to comment on how Chinese investors are like anyone else. They are only looking for the best place for their businesses and getting the best return on their investments.