Business Update with Mark Lacter

Chinese influence on the American economy

KPCC's business analyst Mark Lacter explains why a firm from China wants to buy AMC, and what effect homebuyers from China have on the U.S. housing market.

Steve Julian: Mark, a Chinese company has announced plans to buy the AMC movie chain. How important a move is this?

Mark Lacter: It’s a big deal, Steve, not only because it would be China's largest corporate takeover of a U.S. company, but because AMC is so tied to American consumers. Up until recently, the Chinese would buy U.S. companies that were in areas like transportation, heavy manufacturing, natural resources - businesses that don't get all that much notice. (You see that at the Port of Los Angeles, where a Chinese shipping company has a huge operation.) Movies, of course, are something else - and the Wanda Group, which bought AMC, has the largest theater chain in China.

Julian: Does China want to produce?

Lacter: Not so far, according to the chief executive of AMC, but this is a very large company and who knows what might be in the offing. What this deal does show is the apparent willingness of Chinese executives to think beyond the short term. AMC lost money in each of the last two years, and it's been under pressure to pay off several private equity firms that owned the company (and have been less than thrilled about investing in renovations that some of these theaters really need). But Wanda was willing to pay $2.6 billion for the chain, and appears ready to put more money into the operation. That includes everything from more comfortable seats to state-of-the-art projectors. And the head of Wanda says he wants to control 20 percent of the global theater market by 2020. So there’s a lot of ambition there.

Julian: Is this only about AMC?

Lacter: Not at all. What the AMC deal does is encourage other Chinese businesspeople to make purchases in the United States. So far, they own a very small percentage of global assets, but they certainly have the financing, and the Chinese government connections. And if all this sounds a bit familiar, Steve, just remember that in the late 80s Japanese companies invested heavily in the U.S. - mostly in real estate, but also in a couple of the Hollywood studios. Then when the economy hit a soft patch, they wound up selling many of those assets at a loss. So the question is whether the Chinese investors are really in this for the long haul - and what kinds of owners they turn out to be.

Julian: And how far of a reach they want to have around the world, I suppose...

Lacter: Well, yes - the Chinese are buying real estate, too - in some cases, really expensive real estate. The latest example is a Chinese couple who have purchased a 36,000-square-foot mansion in Beverly Hills for $34.5 million. Actually, they got a deal - the property was put on the market two years ago for $68.5 million. It sits on two acres, overlooks Sunset Boulevard, and features onyx marble, 24-karat gilding, and a double marble staircase. (Kind of like your house, Steve.) Now clearly, this is an unusually large property (and an unusually wealthy couple), but Chinese purchases of Southern California real estate have become quite common, especially since the recession. In fact, the Chinese are now the second-largest foreign buyers of U.S. homes, behind the Canadians.

Julian: The numbers of wealthy Chinese seem to be growing very quickly.

Lacter: You know, China has nearly one million people who are classified as millionaires - and most of the people who apply to live overseas choose the U.S. (and many of those are choosing Southern California). Many of these folks want to own property in the U.S., partly because Chinese government officials have restrictions on property purchases in their own country (most everything is leased instead of bought).

Julian: And aren't there quality of life issues?

Lacter: Yes, and that includes the chance for their kids to get an education at some of the well regarded public school systems, like San Marino or Beverly Hills. It's not much of a stretch to assume that as more Chinese businesspeople set up shop in the U.S., more of them will want to live here as well. It’s certainly not enough to make a huge dent in the housing market, but it definitely adds an important dimension to the local economy.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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