2015 CA Summit - Opening the Golden Gate: Strategies to Attract Foreign Direct Investment

Current FDI Status and Economic Impact

• California ranks as the #1 U.S. state for Foreign Direct Investment (FDI) inflows; in 2014, the state received $48.9 billion, surpassing New York ($35 billion) and Texas ($20 billion).
• Approximately 602,000 California workers are employed by foreign firm affiliates, with 182,000 jobs specifically created by FDI projects in 2012 alone.
• Since 2003, roughly 1,800 FDI projects have been established in the state, with 29% concentrated in software and IT sectors, while manufacturing remains a leading industry.
• In 2013, California created over 480,000 jobs compared to Texas's 105,000, highlighting strong economic growth despite higher costs.
• Visitor spending generated $118 billion in California annually, with foreign visitors contributing $24 billion—funding the Los Angeles city budget three times over.

Competitive Landscape and Strategic Challenges

• California faces increasing competition from other U.S. states, which are successfully courting foreign investors (e.g., South Korean firms) previously loyal to the LA area.
• Mexico-U.S. Investment Gap: Over 14 years (1999–2013), Mexico invested $15 billion in the U.S., but only $393 million (2.5%) went to California, despite significant trade volumes.
• Perception vs. Reality: Critics point to high taxes, regulations, and cost of living, yet the state leads in GDP and job creation; the primary challenge is mitigating these negative perceptions.
• Regulatory Friction: Developers note the Los Angeles entitlement process is "infamous" for being complex and slow, creating difficulties for foreign entities unfamiliar with local governance.

Sector-Specific Insights and Investment Opportunities

• Real Estate: Hazen's Group (China) has invested ~$1 billion in Los Angeles since 2013, focusing on large-scale mixed-use developments and hospitality, leveraging L.A.'s status as a gateway city similar to Shenzhen.
• Tech Sector: Venture capitalists emphasize that while Silicon Valley remains the global magnet for talent and capital, the state risks "exporting" its best talent due to restrictive student visa policies post-graduation.
• Startup Infrastructure: Foreign entrepreneurs face systemic hurdles in opening U.S. bank accounts and obtaining credit cards due to federal risk-averse banking rules, often requiring personal guarantees from U.S. board members.
• Tourism Synergy: Visit California promotes the state lifestyle to generate demand, acting as a "concierge" for business; international visitor growth directly correlates with business investment opportunities.

Proposed Solutions and Policy Recommendations

• Visa Reform: Panelists recommend federal changes to facilitate visas for skilled workers and entrepreneurs, noting that current processes discourage high-net-worth individuals from establishing U.S. operations.
• Public-Private Partnerships (P3): There is a call for P3 models to address infrastructure bottlenecks (e.g., the Otay Mesa 2 crossing) and improve transportation, as state resources alone are insufficient.
• CEQA Reform: Real estate developers advocate for reforming the California Environmental Quality Act (CEQA), arguing its 30-year-old regulations are misaligned with modern urban density and economic development goals.
• Regional Collaboration: State officials urge closer coordination between the state government, local Economic Development Agencies (EDAs), and regional entities (e.g., L.A. and Inland Empire) to present a unified front against competitors.
• Data Transparency: Industry leaders request more robust, real-time data on FDI sectors by region to improve due diligence and strategic planning for investors.

Forward-Looking Initiatives and Mexico-U.S. Relations

• Proyecta Cien Mil: Mexico and the U.S. aim to increase exchange students from 30,000 to 100,000 by 2018 to foster future investment opportunities and university campus exchanges.
• Manufacturing Relocation: Mexican companies are increasingly shifting manufacturing from Asia to the U.S.-Mexico border (e.g., Tecate, Mexicali) due to wage parity with Asia and proximity for quality assurance.
• EB-5 Visa Potential: Developers like Hazen's Group are exploring the EB-5 visa program for specific projects (e.g., San Gabriel Sheraton) to attract capital from foreign investors, though reliance on it is cautious due to regulatory complexity.
• Strategic MOUs: California maintains 12 Memoranda of Understanding with foreign entities (7 with China, 3 with Japan, 2 with Mexico, etc.); the focus is shifting toward implementation and project management methodology within these agreements.
• Identity and Branding: Mexican officials emphasized the need for Mexico to define its national identity clearly to better leverage its strategic relationship with California, moving beyond traditional trade perceptions.

Key Panelist Positions

• Brian (State of California): Stressed that the state must avoid complacency, improve internal coordination among local EDAs, and actively promote the "California brand" to counter negative perceptions.
• Juan Carlos (Mexico Trade Commissioner): Highlighted the need for better follow-through on MOUs and advocated for the Mexican government to define its economic identity to maximize investment ties with California.
• Sonit (Hazen's Group): Called for CEQA reform and a shift toward development-focused planning codes that prioritize economic goals, similar to models seen in Chinese city planning.
• John (Venture Capital): Identified human capital and visa accessibility as the "golden goose" for Silicon Valley; warned that losing top talent due to immigration policy would be detrimental to the innovation ecosystem.
• Carolyn (Visit California): Argued that tourism acts as the "product, people, and promotion" foundation for FDI, requiring a balanced public-private approach to maintain the state's allure.