California's leading cities, including Los Angeles, San Francisco, and San Diego, have seen a decline in foreign direct investments (FDI), impacted by global economic uncertainties, high taxes, and restrictions on Chinese outbound deals. The FT-Nikkei ranking revealed that Los Angeles dropped 10 places to become the 37th among the 91 largest US cities for attracting foreign businesses, securing only 51 investment projects by foreign-owned enterprises last year.
Despite significant deals such as ByteDance's new San Jose headquarters or Italvolt's gigafactory in southern California’s Imperial Valley, no major Californian city made it into the top 20 US hubs for foreign businesses. High living costs, tax rates, stringent regulatory environment, and certain social policies in California have been driving businesses to other states like Texas and Florida.
Investor sentiment remained negative towards some Californian cities with San Francisco dropping to the 31st most attractive city in the US for foreign investment. The wider Bay Area also saw a significant decline in FDI due to the COVID-19 pandemic. Additionally, Chinese capital flow restrictions and escalating geopolitical tensions with Washington led to a 14% drop in Chinese foreign-owned enterprises in California since 2021.
Los Angeles experienced a sharp decline in Asian and European investment following a decade-long economic boom. Chinese companies, major investors in LA's real estate over the past decade, faced loan defaults leading to halted developments and land sales. This situation has increased LA's reliance on Japanese investments as it prepares for events like the 2026 Fifa World Cup and the 2028 Summer Olympics. Smaller deals have been signed, such as Sichuan Xinglida Group buying the LA Airport Marriott hotel for $160 million in 2021. "The fluctuation in investment from China," was highlighted by Stephen Cheung, chief executive of the LA Economic Development Corporation.
Despite these challenges, California experienced a resurgence of FDI inflows statewide in 2022, adding 271 foreign-owned enterprises compared to a drop of 500 the previous year. These investments primarily originated from Japan, the UK, France, Canada, and Germany. A key deal involved German auto parts maker Bosch acquiring TSI Semiconductors' chipmaking facilities in Roseville and planning to invest $1.5 billion.
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