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Foreign Investment Shifting to East Coast, Report Finds : Economy: Analysts say other countries' increased interest in high technology bodes well for California.


Foreign investment in the United States is increasingly shifting to the East Coast. And the Japanese, who spent big in California for a decade or so, are now spending most of their money at home or in other Asian countries.

But neither trend, highlighted in a recent report on foreign investment, is necessarily bad news for California, analysts say.

Another change, according to the report from International Business magazine and consulting firm Arthur Andersen, is increased foreign interest in high technology, which bodes well for California in the long term because the state is home to a strong technology industry, analysts say.

Declining investment from Japan is the major reason New York and Texas surpassed California to garner the larger share of the more than $26.2 billion foreigners spent in 1993 to buy into U.S. companies and real estate, the report says.

"When Japan sneezes, California kind of catches a cold," said Andrew Kane, a partner at Arthur Andersen. "Japan has gone through a downbeat time in the last 12 to 16 months, and the amount of capital available to invest has been less."

Analysts say Japan may gradually increase its U.S. investment but that it will probably never return to the level of the 1980s, when the California real estate market was flooded with yen. The level of Japanese direct investment in the United States fell to $1.85 billion in 1992 from $20 billion in 1990.

"Direct investment in the U.S. was powered by the bubble economy in Japan, and now the bubble has burst," said Clyde Prestowitz, president of the Economic Strategy Institute in Washington, D.C.

California, meanwhile, has suffered its own woes, chiefly a struggle to attract foreign investment in manufacturing. According to the report, foreigners last year invested 47% of their money in manufacturing, far more than all other industries.

British investors, who by the end of the year may dethrone the Japanese as the largest single source of foreign capital, can take credit for 113,000 jobs in California, Kane said. But the figures show Britain and other European countries seem to be attracted to East Coast cities such as New York.

Jack Kyser, chief economist with Economic Development Corp. of Los Angeles County, said California is suffering from an image problem.

"In practically every national report on California's recession, you hear the words riots or fires in the first sentence," he said.

Economists said, however, that California will not sustain irreparable damage from the lost revenue.

"California is definitely in a recovery mode," Kyser said. "As the word gets out, people are going to once again invest."

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