In downtown Los Angeles, the cranes are signs of a boom in Chinese real estate investment that is poised to reshape the city’s skyline and market thousands of high-rise condos to wealthy buyers in Beijing and Shanghai.
Meanwhile, in Hollywood, China’s richest man, real estate tycoon Wang Jianlin, is digesting his recent $3 billion deal to buy Legendary Entertainment, part of a broader push by Chinese investors into the U.S. entertainment industry.
And in a shiny Orange County office park, another company from China just completed its $6 billion purchase of Irvine’s Ingram Micro, marking the largest Chinese takeover of an American tech company.
All of these deals – and thousands of other transactions that have reshaped Southern California’s economy – are part of a broader, long-term trend that has turned China into the region’s most important financial partner.
It’s also on the edge of grinding to a halt.
As President Donald Trump rolls out his economic agenda, the threat of a trade war could jeopardize the region’s deepening ties to China. That means the Chinese cash that has flowed into every crevice of Southern California’s economy – driving up real estate prices and filling ports, warehouses and kitchen cupboards with cheap Chinese imports – soon could dry up.
“There are a lot of concerns and uncertainty among international trading partners in Southern California, and particularly Los Angeles,” said Stephen Cheung, president of World Trade Center Los Angeles.
“Chinese investment has transformed entire sectors,” he added. “Any negative action on trade is going to have pretty dire consequences for those relationships.”
Attacks on China were a hallmark of Trump’s campaign; he cast Beijing as an economic enemy intent on stealing U.S. jobs through unfair trade practices. Likening the U.S. trade deficit with China to rape, Trump has threatened to label China a currency manipulator and floated the idea of putting a 45 percent tariff on Chinese imports.
Regional differences
The protectionist message has resonated with Trump supporters in the Midwest and South, who feel left behind by free trade policies and globalization. But it has rattled California investors and businesses that rely on Chinese goods and capital.
Chinese investors poured a record $16.4 billion into California last year, more than any other state and nearly double the amount invested over the previous 10 years, according to the Rhodium Group, which tracks Chinese foreign investment. The state also serves as the gateway for goods passing between the U.S. and Asia, including $143.6 billion in imports from China in 2015, the last year for which census data are available.
The high trade volume helps sustain more than 160,000 blue-collar jobs at the ports of Los Angeles and Long Beach, where about 44 percent of trade comes from China. And as those goods flow out of the ports, the trade has fueled job growth in distribution and warehousing, particularly in the Inland Empire, which added 56,000 logistics jobs between 2011 and 2016.
Should economic relations with China sour under Trump, nowhere would the disruption be felt more than in Southern California. Los Angeles County could see 175,502 jobs disappear, more than any other county in the U.S., according to a September forecast by the Peterson Institute for International Economics. Statewide, California could lose as many as 645,500 jobs, including 60,593 in Orange County, 22,796 in Riverside County and 21,056 in San Bernardino County.
“If Trump does what he says he’s going to do – and it certainly seems like he wants to pick a fight with China – the effect would be dramatic,” said John Husing, chief economist at the Inland Empire Economic Partnership. “Any tariff would raise the cost of imports, which would hurt demand for imports and hurt that job growth.”
Heightened tensions with China could also impact the stream of Chinese cash flowing into Southern California businesses and real estate. Already, Cheung said, Chinese interest in logistics sector investments has subsided, as companies wait for the Trump administration to articulate its trade policies.
“If there’s any trade conflict between China and the U.S., the entire distribution network will be disrupted and the cost structure will change,” he said.
Bargaining chips
Since taking office, Trump has repeatedly ruffled diplomatic feathers in Beijing, even suggesting that the U.S. would use sensitive issues like Taiwan’s independence and the South China Sea as bargaining chips to get China to change its trade policies.
On Tuesday, he renewed his claim that China is manipulating its currency. Trump told a gathering of pharmaceutical executives that China and other trading partners “take advantage of us with their money and their money supply and devaluation.”
“They play the money market, they play the devaluation market, and we sit there like a bunch of dummies,” he said.
Meanwhile, his trade advisers – including UC Irvine economist Peter Navarro, a strident China critic who serves as the president’s trade czar – have threatened publicly to impose punitive tariffs to reduce U.S. trade deficits.
Though no action has been taken, the remarks have put some Chinese investors and businesses in California on edge.
“People are in a wait-and-see type of mentality,” said Noor Menai, president of CTBC Bank in Los Angeles, which specializes in working with Chinese immigrant businesses. “Everybody knows that this won’t be good for the economy.”
Menai said he hasn’t witnessed a major shift in investor sentiment since Trump’s election. But “if the full measure of what Trump is proposing were to be carried out, there would be a significant impact. That should concern everybody,” he added.
Amid those concerns, some economists and investors remain hopeful that Trump will use his business expertise to push for better trade deals and force China to open its markets further to U.S. firms.
“China’s economy can’t sustain a trade war. So I think we’re going to see that China is much more willing to cooperate on negotiating new trade deals,” said William Yu, an economist at UCLA Anderson Forecast.
On the other hand, Yu said, escalating tensions could prompt China to pursue more protectionist policies, including putting new restrictions on Chinese foreign investment, and on U.S. companies working in China.
Ripple effects
A more adversarial U.S.-China relationship could have economic ripple effects across Southern California, given the region’s close cultural ties to China. Almost 1 million Chinese immigrants live in California, more than any other state in the country, including 265,000 in Los Angeles County, 53,000 in Orange County, 19,000 in San Bernardino County and 13,000 in Riverside County.
Their presence has fueled a home buying spree, concentrated mainly in the suburban ethnic enclaves of the San Gabriel Valley and Orange County. Nationwide, about 45 percent of foreign residential homebuyers last year were Chinese, accounting for $27 billion in property sales, about a third of which took place in California, according to the National Association of Realtors.
“International buyers have played an important role in pushing property values up,” said Ling Chow, a Pasadena real estate broker and former director of the West San Gabriel Valley Association of Realtors.
In some areas of Southern California, Chow said, up to 99 percent of available homes are marketed to Chinese buyers. “Especially in locations with good school districts, we’re seeing a lot of new construction going on in communities.”
The region, and Los Angeles in particular, is also a major destination for Chinese tourists, hitting a record 1 million visits last year, according to the L.A. Tourism and Convention Board.
With the highest spending rates of any international visitors – $1.3 billion in 2015 – Chinese visitors have driven employment growth in retail and hospitality.
Most major shopping and hotel destinations spend millions to attract Chinese visitors, catering to the market with lavish Lunar New Year celebrations and in-store Mandarin speakers.
“All of these folks – these tourists, students, Chinese people living here – they spend money, they travel back and forth,” said Chris Thornberg, director of the UC Riverside Center for Economic Forecasting.
“So obviously a significant worsening in relationships between the U.S. and China is going to have a negative impact economically when it comes to those interpersonal relationships,” Thornberg said.
Still, most economists and business leaders agree that Southern California’s brand is likely to withstand any escalation of U.S.-China tensions at the national level, at least for now.
“Chinese investors still want to put their money in California. They’re still interested in places like Orange County, L.A., San Francisco,” said Frank Wu, a Hastings law professor who chairs the Committee of 100, a leading Chinese American advocacy group.
“It’s an unusual time, and it’s certainly not business as usual,” Wu said. “But the biggest rewards will go to those who jump in while everyone is waiting.”
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