California Becoming a Favorite Chinese Investment

When Hong Kong returns to Chinese control this week, the West will be focusing on how China will integrate its wealthy new territory. But the issues associated with the transfer of the British colony--the future of Hong Kong's autonomy, democracy and civil liberties--have drawn attention to shifting patterns of Chinese investment worldwide. Increasingly, the Chinese, both on the mainland and across the diaspora, are gazing at America's Pacific shores.

The growing Chinese interest in the United States--and, in particular, Greater Los Angeles--has many sources, political and economic. "This is the safe haven in case they have to escape," says Henry Hwang, whose L.A.-based Far East National Bank was recently bought by Taipei's Bank Sino-pac.

Although the bulk of the investment goes through Hong Kong or Singapore, the two Chinese financial capitals, insiders report the latest surge in capital outflows did not originate with Hong Kong investors, who have had 13 years to find their "safe havens." Instead, the big money passing through intermediaries is coming from people who traditionally invested in places--Taiwan, Indonesia, Thailand and Mainland China--where political, even economic threats now jeopardize long-term prosperity.

Last year, for example, China's naval and air-force exercises in the Taiwan Strait sparked concern in Taiwan about the island's long-term viability; capital outflows subsequently increased. Indonesia's Chinese, though only 3% of the population, control 110 of that country's 140 leading business conglomerates.They have been watching nervously as the granite-like stability of Suharto's regime begins to crack. The rise of populist and Islamic sentiment, which appeal to the traditionally anti-Chinese pribumi majority, worries the Chinese community, which well remembers the pogroms that accompanied the archipelago's last political upheaval 30 years ago.

Economic forces, notably a slowdown in growth rates, albeit from high and possibly unsustainable levels, are also leading some Chinese capitalists to seek opportunities outside Asia. A rash of speculation has created office-building gluts in Bangkok, Jakarta, Beijing and Shanghai; as a result, many Chinese investors are holding properties burdened by rising vacancy rates or, in some cases, in risk of default. Thailand's economic growth rate is half what it was in 1995, partly because of sagging exports; the country's stock market has declined nearly 50% since January, and interest rates have soared to as high as 20%.