A new report from the Asia Society examines Chinese investment in California. Image: Asia Society

California: A Popular Destination for Chinese Investment


California has, by number, secured more Chinese investment deals than any other US state according to a new report released by the Asia Society entitled “Chinese Direct Investment in California.” Since 2000, Chinese firms have invested over $1.3billion into the state, ranking California the fifth largest recipient of Chinese investment dollars after New York, Texas, Illinois and Virginia. This is a reflection of the fact that California has not—unlike these four other states—attracted large-scale takeover deals.

The authors of the report, Daniel H. Rosen and Thilo Hanemann, estimate that “Chinese firms presently provide more than 25,000 jobs in the United States, or six times the latest official BEA figures.” Looking to the future, the authors estimate that the Golden State could attract an additional $10 billion to $60 billion of Chinese investment by 2020, a significant boost to that state’s economy through increased job creation, tax revenues and exports. Chinese investors are particularly attracted to California’s high-tech software and communications industries.

The report explains that Chinese investment into California is primarily from private companies as opposed to state-owned enterprises:

“The overwhelming majority of Chinese firms invested in California are privately owned, the share of greenfield investments is higher than usual, and investments are, on average, smaller in size than in the rest of the country.” In addition, the attraction of California for Chinese companies is long and comprehensive: “It [California] has the largest state market in the country, which offers Chinese firms a gateway to the rest of the US marketplace; it is the national leader in many of the high-technology industries that Chinese firms wish to invest in; it is a global leader in higher-value-added service sector activity, one of the weaknesses of Chinese firms; it has an experienced, creative, and multicultural pool of workers, which can help Chinese firms enrich their homogenous and inexperienced staff ; and it has an international reputation for its quality of life, which is attractive to both Chinese firms and individuals.”

The authors do acknowledge that “Concerns about greater national security risks result from China’s authoritarian political system, its intention to reshape the existing global and regional power balance, its history of sharing sensitive technologies with rogue regimes, and its record of commercial and political espionage. These concerns are legitimate, but they can be addressed through the existing policy framework for inward FDI in the United States.” Recent examples of concern for US legislators include the Chinese communication companies Huawei and ZTE. However, the report also lists the many positive aspects of Chinese foreign investment into the US, including capital for local economies and job creation. This point has been increasingly highlighted by Michael Bell, Mayor of Toledo, Ohio, who is actively promoting his city to Chinese investors as outlined in this story in The Economist. In a related Financial Times story, one of the report authors, Mr. Hanemann, predicted that “If the trend of expected investment continues, Chinese firms will employ 200,000 to 400,000 Americans by the end of the decade.”

Read the full report here: Chinese Direct Investment in California