Golden opportunities for California

The state, now fifth in the United States in the value of investment from China, aims to climb higher by tapping its intrinsic strengths

With China a top target for US municipalities and states seeking foreign investment, one destination can put a number on its potential appeal to Chinese capital: $60 billion.

By 2020, California could attract that amount from China, according to an October report from Rhodium Group, a consulting firm in New York that tracks Chinese outward investment.

California accounts for more than a quarter of all Chinese investments in the United States, having notched 156 deals between 2000 and 2011. That was more than the other four top recipients - New York, Texas, Illinois and Michigan - combined.

But in terms of total investment value, California ranks fifth in the nation, with $1.3 billion from deals over the past 12 years, according to the report.

Through 2008, Chinese direct investment in the US was typically below $1 billion a year. Since soaring to just under $2 billion in 2009, activity has been growing at an unprecedented clip. From January to September, Rhodium said in a separate report, the figure hit $6.3 billion - eclipsing even the full-year record of 2010.

California in particular is poised to benefit from this upward trend. But it will have to grab a bigger chunk of Chinese investment on these shores to reach the Rhodium report's $60 billion target in eight years. That will happen only "if the state and private sector do a better job working together to attract Chinese capital", the report said.

"California is a good target for Chinese investors because we are looking for infrastructural development such as hotels and a baseball stadium," said Jean Quan, mayor of Oakland in northern California.

Quan expects increased investment from China, particularly in property development, which is so important to her city. This will be due in large part, she says, to US Congress' recent extension through September 2015 of the EB-5 visa program.

Under EB-5, an applicant is given permanent US residency if his investment of at least $1 million leads to 10 full-time jobs within two years. The threshold is just $500,000 if the jobs created are in a rural or high unemployment area of the US.

"This can guarantee a steady rate of return for stimulating purchases of bonds (for publicly funded development projects), and people are able to immigrate because of EB-5, so you'll see more of this in California," Quan said.

Local officials in the US including Quan have said real estate investors from China's growing middle- and upper-income populations seem particularly interested in the visa program.

The 2008-09 financial crisis, spurred by the collapse of the US housing-market bubble, left banks and other lenders reluctant to finance residential or commercial developments, stalling projects including several in hard-hit California.

For municipal and state governments that slashed spending to deal with reduced tax revenue as property prices sank, foreign investors are increasingly sought as a financing source.

Oakland is an easy fit for Chinese investors, with hotels close to the city's predominantly Chinese-American neighborhoods and a large population of skilled, bilingual workers.

"There is a growing middle class and more tourism in China," Quan said. "Chinese understand exporting and importing, and there is more interest in import-export exchanges."

As an example, the mayor cited the deal for the Tribune Tower, a city landmark whose neon sign bears the name of Oakland's daily newspaper, a former tenant.

In late 2011 the 20-story, 8,175-square-meter building was bought in foreclosure for $8 million by a group of private investors assembled by businessman and Oakland native Tom Henderson. Henderson won't identify the investors by name, but he has said most are from China.

The Tribune Tower now houses CallSocket LLC, a call-center operator that Henderson co-founded, as well as another of his startups, San Francisco Regional Center LLC, which attempts to find prospective EB-5 immigrants who could help finance local development projects. The company - and Henderson - would take a stake in any deal and operate as a general partner on the project that's formed.

In addition, Henderson is investing $3 million to $4 million to renovate the building, helping to attract tenants, including a restaurant, for the rest of the building.

The businessman said that CallSocket, which so far has created 300 jobs in the city, could be a job-creation model through the immigrant-investor program.

"We are bringing in $100 million to Oakland alone. Over the next 18 months, we'll create 2,000 jobs in Oakland through the EB-5 program," said Henderson, who recently returned to California from China. The trip was his 19th to China since January 2011. He has offices in Shanghai, Beijing and Guangzhou.

Henderson's San Francisco Regional Center was established under the auspices of US Citizenship and Immigration Services, the government agency that created the EB-5 program in 1990.

About 95 percent of prospective EB-5 immigrants turn to regional centers to help navigate the visa-application process, a USCIS spokesman was quoted as telling The Wall Street Journal earlier this year.

There are 245 regional centers in the US, 61 of them in California, according to the USCIS website.

Mayor Quan said she's seeking EB-5 money from Chinese investors for either of two potential projects, Victory Court and Coliseum City, that would be home to Oakland's professional baseball, basketball and football teams.

Quan, Oakland's first woman mayor and the first Chinese-American to lead a major US city, headed a trade mission to China last year to spur investment in her largely working-class city across the bay from San Francisco.