Business Update with Mark Lacter

China in the U.S. presidential election

KPCC's business analyst Mark Lacter discusses California's economic connections with China.

Steve Julian: Last night's Presidential debate included more attacks on China. We turn to business analyst Mark Lacter - what should we expect in the last couple weeks of the campaign?

Mark Lacter: Don't expect anything close to reality, Steve. There's been this underlying message in the campaign - that the U.S. will somehow be able to reverse many years of relying on low-wage manufacturing in China. Toys, steel, clothing, electronics, home furnishings - all of that stuff is exported to the U.S. because American consumers are looking for the cheapest price available, and that’s simply not going to change, no matter who gets elected. If Washington does drum up any sort of protectionist trade restrictions or tariff war, it's only going to result in higher prices, which means inflation, which means a lot of unhappy shoppers. Now Gov. Romney has promised that he would declare China a "currency manipulator" if he gets elected, which sounds impressive but in practical terms doesn't mean much of anything. President Obama has talked about how he imposed a duty on tires imported from China, a move that was widely criticized.

Julian: When it comes to things we import from China, is there much beyond consumer goods?

Lacter: Well, money - and we're talking about billions of dollars, much of it coming into California. The Chinese are investing in shopping centers, office buildings, small factories. Just as an example is construction of a Marriott Hotel downtown - it's a few steps from Staples Center and it received financing from more than 100 Chinese investors. Without that money, it's a good bet construction would have been delayed indefinitely (U.S. banks are still cautious about construction loans). Here's the thing: The Chinese economy is coming off a decade of massive growth and as a result China has almost one million millionaires and roughly 100 billionaires. And many
of these people are looking overseas to invest that money.

Julian: Is China considered a truly capitalist country?

Lacter: More like a quasi-capitalist country - the real power remains in the hands of the Communist government and that government can always change the rules of the game. That's why Chinese entrepreneurs and investors figure it's better to hedge their bets by sending their money overseas. The point is that despite all the tough talk you might be hearing on the campaign trail, U.S. and China are intermingled in all sorts of ways that you can't really undo.

Julian: How helpful is it to local economies that Chinese travel to the US?

Lacter: The numbers are huge Steve: more than 400,000 Chinese visited California in 2010 – that’s the latest year available, although the figure is certain to be higher in 2012. That's good news for the airlines that have routes to L.A. (the planes are usually packed) and it's good news for the local hotel business, where occupancy levels this summer were averaging around 85 percent, which is very high. As a group Chinese travelers are more likely to come here on business than other overseas visitors. They also tend to stay longer and spend more. Several of the big hotel chains have at least one Chinese-speaking employee on staff and they offer amenities like Chinese-language TV channels.

Julian: That must be a positive for the local economy.

Lacter: It is, but what's also interesting is the increasing number of people who want to set up residency in the L.A. area. Some of them are university students, some are very wealthy and have purchased pricey homes in Beverly Hills or San Marino, and some just want their kids to learn English and be educated in a U.S school. They make their move by either investing in a U.S. company or setting up an American office of a Chinese company - there are all sorts of ways to get in on a temporary
basis.

Julian: And L.A. has such a large population of Chinese Americans…

Lacter: That’s right – plus, Southern California has such a large manufacturing base and the ports are here. So what we're seeing is this gradual immigration movement from China that's happening in spite of the nasty political rhetoric from both candidates about the government of China. The politics needs to catch up to the reality.

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


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