China is becoming an increasingly important source of investment money for real estate development projects in Southern California, including golf courses in San Diego and shopping malls in El Centro, according to speakers at the 10th annual China Business Outlook held Thursday night by the San Diego World Trade Center.
At the same time, the growth of China's middle class is making it a more lucrative target for U.S. exporters, with increasing potential for U.S.-branded products ranging from craft beers to state-of-the-art medical devices.
"There is a lot of money in China," said Kam Li, a trade specialist with the San Diego law firm Procopio, Cory, Hargreaves & Savitch. "If we don't want to exploit that market, we can't blame anyone else."
One impetus for China's investment in the United States is that several wealthy Chinese individuals want to establish residences and shift their money here. Under the EB-5 visa program, foreign nationals can obtain green cards for themselves and their immediate family if they invest $500,000 in rural or "targeted employment" areas in the United States or $1 million in other areas.
Timothy Kelly, president and CEO of Imperial County’s EDC, said Chinese banks and wealthy individuals have become an increasingly important source of funding for the county, whose 22.5 percent jobless rate – one of the highest in the country – qualifies it at a "targeted employment" area.
Chinese investment has helped the funding of El Centro Town Center, where Chinese dollars helped attract the University of Phoenix, as well as the Alliance Regional Center in Imperial, which includes a Holiday Inn.
"Hotels are a very easy-to-explain market in China,” Kelly said.
Kelly added that initially, most of the Chinese investment money in Imperial Valley came from individuals "looking for ways of getting their money or their families out of China.”
But he said the county is now experiencing its greatest success with Chinese banks looking for a stable place to invest their cash reserves at a time when the Chinese domestic market is largely viewed as overpriced.
Li said that most Chinese funding in the region goes into real estate, which is deemed a "more traditional" investment vehicle. "They've invested in real estate development, hotels, motels, golf courses, a kindergarten, milk production, a medical diagnostic company and even a Hollywood movie — and then they buy homes in Rancho Santa Fe," he said.
Meanwhile, Li said, the China is becoming a stronger market for U.S. products, thanks to growing salary levels in China's major cities.
Li — who left China in 1988, when there were far more bicycles on the road than automobiles — said on one recent trip he felt overwhelmed when he took a pair of associates to a restaurant where a pound of lobster sold for $100. Fortunately for him, the restaurant did not accept his credit card, so he moved the meeting next door for a more reasonably priced meal of about $50 each.
Li said the biggest Chinese online shopping site, Taobao.com, now does more business than Amazon and eBay combined. In just one heavily promoted sales day last year, it did $5.7 billion worth of business, including $20 million in sales for one of Li's U.S. clients who makes electronic appliances.
Other clients that have been entering the Chinese market include companies specializing in health food, information technology, Internet gaming, exercise equipment and medical devices.
"If I was to sell anything to China, it would be medical devices," he said. He explained that because of China's aging population and its growing purchasing power, there is great demand for medical products in general.
But pharmaceuticals face a longer and more complex regulatory process than in the United States, while the process for medical devices is much quicker.
"The advantage of America is the American brand," Li said in an interview after the event. He said that Chinese are willing to pay a premium price because of the quality that is implied in U.S. products. "A craft beer that you pick up for $1 in Costco here could probably be sold for $3 or $4 in China," he said.
Stephanie Barry, international sales director WD-40 (Nasdaq: WDFC) said that intellectual property protection is still a major issue for companies doing business in China. She that several years ago, WD-40 found that its main competitor in China, with an almost equal market share, was a copycat company selling a fake version of the product.
But Barry added that WD-40 has since overcome many of the piracy problems, to the point that it no longer makes financial sense to track down all the pirates.
"It's the 'Caddyshack' syndrome," she said, referring to a comedy about groundskeeper Bill Murray unsuccessfully trying to stop a gopher from digging in a golf course. "If you spend all your time going after the gopher, you end up ruining the golf course."
In the meantime, she said, China has become a strong market for the company, with one of the world's highest sales growth rates.