Articles Posted in Outlook and Trends

11 November 2014

Click here for the latest articles on Chinese Investment or here on EB-5 Financing.

As the Chinese economy continues to become more important globally, we are seeing a shift in Asian investment in the United States, particularly in California. Chinese investors will become even more active and influential over the next 10 years, and will continue adapting to Western business practices while retaining a critical sensitivity to their Chinese roots and the demographics of the Chinese population in the United States.

The ineluctable demographics

China’s demographics are inescapable. It has the largest land mass in Asia and third largest in the world. It’s the most populous nation, with more than 1.3 billion people. And by some measures, China is on track to replace the U.S. as the largest economy in the world by December 2014.

As the Chinese economy has exploded, so has the number of individual Chinese millionaires, billionaires and state- and privately-owned companies with huge cash reserves to invest outside China. Additionally, a large rising middle class now finds itself with money to travel internationally. Over the past five years, Chinese tourism in the U.S. has tripled–and is expected to increase significantly in the next 10 years.

During this same period, Chinese foreign investment has expanded dramatically, with the U.S. as a favored target. We’ve written extensively about the popularity and success about the EB-5 program in China, but it represents only a drop in the bucket, both in terms of immigration–the EB-5 program provides less than 1% of total immigrant visas each year–and in investment. Chinese foreign direct investment in the U.S. since 2000 now totals approximately $40 billion, and it has grown from a mere $58 million in 2000 to about $14 billion in 2013.

The Chinese investors of today are much shrewder than only a year or two ago. Increasingly, they are the largest banks, construction companies, insurance companies and pension funds in the world, who have virtually unlimited resources–and who find U.S. real estate and technologies to be “cheap.” These investors have learned that the most experienced advisors are essential to avoid the mistakes some of their predecessors made.

This situation creates great opportunities for mutually beneficial relationships and profit opportunities, particularly in the hospitality industry. What are some of those opportunities? CONTINUE READING →

19 August 2014

Asians love California, particularly Southern California! They love it as a place to live, buy homes, invest, go to school, and run their businesses. In June, we talked about the close affinity between China and Los Angeles County as revealed by a new report. Now there is yet another report documenting how Asians love Orange County.

Why? The report does not tell us that, but certainly Asians are attracted to California for the same reasons they been settling here for more than a century: proximity, climate, opportunity, and the largest communities of Asians outside of Asia.

News about Asians in Orange County

Recently, Los Angeles Times reporters Anh Do and Christopher Goffard reported on a phenomenon which we at JMBM are well aware: Asians want to live, work, study and invest in Orange County, California.

JMBM has served Orange County’s Asian community for more than 30 years. From our office in Irvine, members of JMBM’s Chinese Investment Group® and Global Hospitality Group® are active participants in Orange County’s Asian business community where we represent Asian investors, developers, business owners, as well as new residents – primarily from China – seeking to invest in California businesses and buy luxury homes in Orange County’s prestigious neighborhoods.

New Study on Asians in Orange County

The Times article cites “A Community of Contrasts”, a study published by Asian Americans Advancing Justice, and reports the following key findings: CONTINUE READING →

July 9, 2014

LOS ANGELES—The Global Hospitality Group® and the Chinese Investment Group® at Jeffer Mangels Butler & Mitchell LLP are pleased to announce the launch of a Chinese-language version of the Hotel Law Blog. It is available as a new tab on www.HotelLawyer.com or it can be accessed directly at www.ChineseHotelLawBlog.com.

CONTINUE READING →

16 June 2014

The growth of outbound Chinese investment

Earlier this month we posted an article about the surge in Chinese investment as reported by Tiffany Hsu in the Los Angeles Times. See, “China and JMBM’s Chinese Investment Group® are in the news again!”

That article prominently featured the Sheraton Gateway LAX hotel, its 15% increase in Chinese travelers since the beginning of the year, and its purchase by our Shenzen Hazens Real Estate Group, and JMBM’s role as counsel to Shenzen Hazens.

Special Report Just Released: Growing Together — China and LA County Report – June 2014

Tiffany Hsu’s article also summarized some of the interesting data from a new report dated June 2014 by the Los Angeles County Economic Development Corp. (LACEDEC), entitled “Growing Together — China and Los Angeles County.” A full copy of LACEDEC’s Growing Together report (the “Growing Together Report” or simply the “Report”) can be downloaded by clicking the link at the end of this article.

But here are the “Key Findings” of the Report:

• Investment into Los Angeles County from China has doubled over the past 5 years, with China becoming one of Los Angeles County’s top investors
• China and Los Angeles County continue to increase business and commercial ties and the opportunities for Los Angeles
• Tourism has nearly quadrupled over the past four years alone, from 158,000 Chinese tourists in 2009 to 570,000 in 2013, making China the top overseas market for Los Angeles tourism
• Los Angeles is America’s top international trade gateway to China and China’s top gateway to the U.S., handling nearly 45% of trade between the two countries
• China is the Los Angeles Customs District’s (LACD’s) #1 partner in international trade, accounting for nearly 60% of all activity at the San Pedro Bay ports
• LACD exports to China have increased from $23 billion in 2009 to $35 billion in 2013 – less waste and scrap and more consumer and knowledge-intensive goods
• Los Angeles County has the largest Chinese population of any county in the nation, and has grown from 360,000 in 2008 to 413,000 in 2012
• Los Angeles County has the largest number of Chinese students of any county in the nation, increasing from roughly 3,000 Chinese students studying in local universities in 2009 to roughly 10,000 in 2013
• Strong cultural and network ties are the foundation of the relationship
• Future business prospects may be found in clean tech, entertainment, aerospace, e-commerce, real estate/property development, tourism, logistics and electronics.

CONTINUE READING →

15 June 2014

Concerns over a real estate bubble in China

For decades, China was referred to as the “sleeping giant.” This reference is to the great potential impact of the country, its vast population, and its economy, but also to the fact that this potential was largely unrealized for hundreds of years. Well, the sleeping giant is awake! And the world financial press is now full of analysts following China and the international ramifications of its every action on the world economy.

Recently, great concern has been raised by some over the impact of the stalling Chinese economy as it drops from double-digit growth in GDP to 7.5% or less. Alarm has been raised about the bubble in the Chine real estate markets, particularly the housing, and now commercial real estate as well. And most recently, financial analysts worry about the shadow banking system (financing and loans by non-banks) and Chinese real estate companies’ interest in purchasing banks or substantial interests in them.

Some suggest that Chinese construction companies’ investments in banks may be with a view to getting easier loans on more questionable deals, and that when real estate projects sour, they could take down both the construction companies and their banks. Is this reminiscent of the S&L crisis and the Japanese bubble of the 1980s?

Let’s separate the issues — real estate company investment in banks and shadow banking

To begin with, one must clearly define the activity being analyzed, who the players are, and the market in which the activity is taking place. For example, current reports detail investments by Chinese real estate development companies in banks located in mainland China, Hong Kong, Australia, the United States, and elsewhere. Some of these investments are modest. Some of them are significant. Some of them appear to be newly capitalized banks with IPOs financed largely by the real estate construction companies (taking the “p” out of “IPO”).

Each country has its unique set of government and regulatory controls. It is difficult to generalize the motivation of the Chinese real estate companies in making banking investments, whether and how they will attempt to deal with the banks they have invested in, and how regulators will respond in each affected jurisdiction as to particular investments and related activities.

Will this be like the Japanese investment bubble of the 1980s or the S&L crisis?

At least two situations may serve as case studies to provide some historical perspective on the new phenomenon of Chinese real estate companies investing in banks, and the shadow banking situation. One is the US real estate bubble of the 1980s followed by the Savings and Loan (S&L) and banking crisis with more bank failures than any time since the Great Depression. The other somewhat intertwined event is the Japanese investment (by banks and related Japanese construction companies) of up to $120 billion in United States real estate (primarily in Hawaii, California, and New York), and subsequently “disinvestment” in the collapse of the early 1990s. Many believe that the Japanese investment was made at what otherwise would have been the peak of the US real estate bubble (carried by loose S&L lending and tax-driven investments that made no economic sense). The Japanese investment propelled the U.S. real estate bubble even higher for several years until the it finally became unsustainable, and collapsed in a worse crash than might otherwise have resulted.

Both the S&L crisis and the Japanese investment phenomena displayed cozy relationships of real estate companies and lenders. The Japanese banks owned significant holdings in their borrower clients, and encouraged them to buy market share with below-market loans. When the real estate market soured, the Japanese banks were hit with the double whammy of huge loans on real estate now worth a fraction of its cost, and stock investments in companies with huge losses. The leverage increased the pain for everyone participating and the lost decade (or two) has followed for Japan.

CONTINUE READING →