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Chinese firms choosing California for investments, M&A

Chinese firms are increasingly investing in the United States, with 2015 producing the largest ever outflow of money from Chinese investors into the U.S. at $15.7 billion. And while this investment is spread across the nation, the state of California is by far the most popular destination for Chinese mergers and acquisitions and other foreign direct investment in the U.S.. From culture to technology, there’s a strong California connection for Chinese overseas investors, who can reap many advantages from buying into the Golden State’s powerful marketplace.

 

What California offers Chinese investors

With a GDP of nearly $2 trillion and a population of 38 million, California is the world’s eighth largest economy. California offers Chinese firms several benefits and can serve as an ideal entry point in the U.S. economy. California is the largest market in the U.S. and the state is the national leader of the U.S. high technology sector.

The state also offers access to the world’s strongest higher-value-added service sector, which can help address a common weakness for many Chinese firms. California also offers a diverse workforce marketplace, where Chinese firms can find experienced and creative talent. The state also offers a multicultural pool of workers that can help enrich Chinese firms with domestic staff that has limited cultural experience or diversity.

 

California leading the way in Chinese FDI

In 2012, the Asia Society concluded that California, more than any other state, is poised to lead the U.S. in attracting Chinese investment. The group forecast that California could attract between $10 billion and $60 billion in Chinese FDI by 2020.  In terms of number of deals, the Golden State outpaces all other states, as Chinese firms have made a total of 350 mergers, acquisition or greenfield projects between 2000 and 2015. M&A deals account for the majority of investment dollars since 2008.

 

High tech, real estate leading Cali industries drawing Chinese FDI

Chinese FDI into California is spread over a range of industries, with the service sectors, along with the service components of manufacturing value chains, showing to be most attractive to investors.  In 2015, the information and communication sector led the Golden State in attracting Chinese FDI, with 23 deals and $1.2 billion in value. Real estate deals attracting $1 billion in Chinese investment, totaling 12 M&A deals and greenfield projects. The top five industries drawing Chinese investment are all service oriented, with R&D, distribution, branding and customer service being top targets.

One of the most important industries to attract investment from China is the high-tech sector, led  in both numbers and value by deals in the software and information technology space, reported the Asia Society. Other popular Chinese investment in California included several in what the group classified as manufacturing, including alternative energy, semiconductors, biotechnology and aerospace.

Real estate and hospitality is an industry that’s booming in California. According to the Rhodium Group, Chinese investment in California real estate deals more than doubled between 2013 and 2015, and the value rising from $735 million to $3.3 billion, leading all California industries.

 

San Francisco, Los Angeles lead sources of investment

Chinese investment in California is concentrated in the northern and southern metropolitan areas of the state, with the densest populations like Los Angeles, San Francisco and San Jose seeing the most activity. The thriving Chinese communities in these cities is one of the main factors behind the draw.

Internet retailer Alibaba is one of the top Chinese tech investors in California, with its U.S. operations located in Chico and subsidiary investments throughout the San Francisco Bay area. Through its California operations, the company has invested in a U.S.-based video game developer, messaging application, and smaller e-commerce companies. The Beijing Genomics Institute boosted China’s biotech investment in the Golden State when it acquired Mountain View-based Genomics.

Los Angeles has attracted significant real estate investment from China, which include Shenzhen New World Group purchasing both the Sheraton Universal Hotel and the Los Angeles Marriott, and Dalian Wanda’s purchase of the Beverly Hills’ site of the former Robinson-May department store.  The Rhodium Group noted opportunities for future Chinese investment opportunities in California, particularly in the areas outside of the northern and southern coastal hubs, as well as in industries like aerospace and entertainment.

 

How to break into the California market

To find the best opportunities for M&A activity or other investments in California, it’s crucial to have an experienced financial advisor who understands the details of the local marketplace. Vasari Capital offers foreign investors an independent approach for finding investment deals in the U.S. Our experience covers a wide-range of industries, including biotechnology, advanced manufacturing, robotics, artificial intelligence, technology, renewable energy, aerospace and real estate. And Vasari Capital is based in Irvine, Calif., giving us a local perspective that can give Chinese investors an advantage when it comes to finding investment opportunities in the Golden State.