Foreign Direct Investment Woes Impact California’s Leading Cities: Los Angeles Falls to 37th in US Rankings
California’s most prominent cities, including Los Angeles, San Francisco, and San Diego, have experienced a decline in foreign direct investments (FDI). This decrease can be attributed to global economic uncertainties, high taxes, and restrictions on Chinese outbound deals. According to the FT-Nikkei ranking, Los Angeles dropped ten places to become the 37th most attractive city out of the 91 largest cities in the United States. The city only secured 51 investment projects by foreign-owned enterprises last year.
Despite some significant deals, such as ByteDance establishing its new headquarters in San Jose and Italvolt’s gigafactory in southern California’s Imperial Valley, no major Californian city made it into the top 20 US hubs for foreign businesses. The high cost of living, tax rates, stringent regulatory environment, and certain social policies in California have been driving businesses to other states like Texas and Florida.
Investor sentiment remains negative towards certain Californian cities, with San Francisco dropping to the 31st most attractive city in the US for foreign investment. The wider Bay Area also witnessed a significant decline in FDI due to the impact of the COVID-19 pandemic. Furthermore, Chinese capital flow restrictions and escalating geopolitical tensions with Washington led to a 14% drop in Chinese foreign-owned enterprises in California since 2021.
Following a decade-long economic boom, Los Angeles experienced a substantial decrease in Asian and European investment. Chinese companies, which were major investors in LA’s real estate over the past decade, faced loan defaults, resulting in halted developments and land sales. This situation has heightened LA’s reliance on Japanese investments as it prepares for upcoming events like the 2026 Fifa World Cup and the 2028 Summer Olympics. Some smaller deals have been signed, such as Sichuan Xinglida Group acquiring the LA Airport Marriott hotel for $160 million in 2021. Stephen Cheung, the chief executive of the LA Economic Development Corporation, highlighted the fluctuation in investment from China.
Despite these challenges, California experienced a resurgence of FDI inflows statewide in 2022, adding 271 foreign-owned enterprises, compared to a decline of 500 the previous year. These investments primarily originate from Japan, the UK, France, Canada, and Germany. Notably, German auto parts maker Bosch acquired TSI Semiconductors’ chipmaking facilities in Roseville and plans to invest $1.5 billion.
California’s leading cities face an uphill battle to regain their allure for foreign businesses. They must carefully address concerns regarding taxes, regulatory barriers, and a competitive business environment to attract more FDI in the future. Achieving this could help boost economic growth, create jobs, and solidify California’s position as a global business destination.
