LOS ANGELES—Since embarking on its era of economic growth in 1979, China has become a major economic player and is now the world’s leading exporter and second-largest economy. California—as the world’s eighth-largest economy and the main gateway between the United States and China—has been a key beneficiary of this growth. Today, China is not only a major market for exports and source of imports for the state, but it has grown into one of California’s leading international investors. Foreign direct investment in the state has soared from less than $100 million in 2005 to more than $9 billion in 2015.
A new report from the Milken Institute’s California Center—“A Golden Opportunity with China: How California Can Become an Even Bigger Destination for Chinese Foreign Investment”—outlines the crucial economic sectors involved in this investment and how they can maximize the benefit to both California and China.
“China plays an increasingly important role in California’s economic future,” says report co-author Kevin Klowden, Executive Director of the California Center and Managing Economist at the Milken Institute. “Our report examines where the relationship is strongest, and we discuss how policy and business leaders can grow the relationship, bringing further investment and jobs into California.”
For much of the past three decades, Chinese investment abroad had focused on developing regions to satisfy China’s expanding demand for raw materials. Recently, the foreign investment focus has been toward technology, real estate, and agriculture in Europe and the United States. While the proportion of Chinese foreign direct investment in the United States is marginal, California’s share is not: The Golden State received more than 20 percent of Chinese FDI in the U.S. Although capital flows into residential properties from foreign sources are a concern since they affect already-high housing prices, foreign investment fuels jobs and overall growth. As of 2014, Chinese-affiliated firms in the U.S. employed more than 80,000 people, paying on average $85,000 in wages and benefits, far more than other foreign firms.
The report identifies sectors in California that should be supported in building economic ties with China.
Trade promotion and financing. As California exporters strive to reach China’s growing middle class, it will be essential to facilitate the growth of exports by small and medium-size businesses. Chinese as well as California leaders should promote the education of new potential exporters and connect them with mechanisms to reduce their risk through trade financing and insurance.
Infrastructure. California’s aging infrastructure needs capital investment. The modernization of Los Angeles International Airport, and public-private investments in the ports of Los Angeles, Long Beach, and Oakland, all provide promising opportunities for Chinese investment.
Renewable energy. China has become the largest manufacturer of solar panels and other renewable technologies; California is a key center for renewable-energy research as well as the application of innovations to energy and water efficiency. Collaboration between the two countries presents a significant opportunity.
The report was presented at the California-China Business Summit on May 11, which was part of this year’s ChinaWeek, an annual series of events designed to catalyze and celebrate the blossoming cultural and business relationship between California and China.
“A Golden Opportunity with China: How California Can Become an Even Bigger Destination for Chinese Foreign investment,” with research contributions by Jakob Wilhelmus and Matt Horton and policy recommendations by Kevin Klowden, can be found here.
About the Milken Institute
The Milken Institute is a nonprofit, nonpartisan think tank determined to increase global prosperity by advancing collaborative solutions that widen access to capital, create jobs and improve health. It does this through independent, data-driven research, action-oriented meetings and meaningful policy initiatives.