Foreign Investment in State on the Rebound After Slump

Foreign investment in California, after slumping in the early 1980s, is on a strong upswing and has become an increasingly powerful force in the state’s economy, according to bank economists and a new state report.

A study being completed by the California Department of Commerce shows that foreign investment in California increased an average of 30.9% annually between 1977 and 1984, the latest year for which statistics are available. The value of property, plant and equipment owned in California by foreigners totaled $31.3 billion as of 1984, up 13.4% from 1983, when foreign investment rose only 10%.

Nationally, foreign investment rose 9.9% to $268.2 billion in 1984.

Economists say international investment has continued to rise since then, fueled in the past year by the weakening dollar and the threat of protectionism.

“Foreign investment was probably the highest it’s ever been during 1985 and 1986,” Steven A. Hess, vice president and senior international economist at First Interstate Bank in Los Angeles. He said California particularly benefited from sizable increases in Japanese investment.

The study, which is to be officially released at the end of this month, is the first government report to take U.S. Department of Commerce data and break out detailed state figures, according to Janet Turner, deputy director of economic research at the state Department of Commerce.

It found that businesses from five countries--Japan, Canada, the United Kingdom, West Germany and France--have accounted for 75% of foreign investment in California.

Foreign-owned businesses employed 280,000 Californians in 1984, up 9.1% from the year before. That compared to a 6.6% rise to 2.72 million jobs nationwide.

The region including Los Angeles along with Irvine, Tustin, Long Beach, Torrance, Corona and Ontario is capturing most of the foreign investment, followed by the Bay Area, she said.

Turner said foreign investment speeded up in the late 1970s and hit a peak in 1980 before slowing down because of the recession in the early 1980s. By the end of 1984, however, the overall volume of foreign investment had more than doubled from $15.1 billion in 1980.

As of 1984, the state’s leading foreign employers were Japan, accounting for 53,135 jobs, followed by the United Kingdom, with 47,267 jobs, and West Germany, with 43,591. The study shows that the Japanese generally provide employment in manufacturing, while employment by United Kingdom and West German business is diversified, including jobs in retailing, insurance and mining.

In dollars invested, Canadian businesses led with $5.2 billion in 1984, but employment totaled only 27,000 because most of the holdings were in real estate. The United Kingdom ranked second with $3.9 billion. Japan, which ranked third at $3.8 billion, showed the biggest year-to-year increase, up 31% from 1983’s $2.9 billion.

California, the study found, snared between 10% to 15% of all foreign investment in the United States and received 25% of all Japanese investment, according to Turner.

First Interstate’s Hess said California is in a good position to capture investment from Asian businesses because of its location. In addition, he said, “The structure of California industry is on the leading edge of competition.”

The state’s aerospace, high-tech and even agriculture industries are competitive worldwide, Hess said. “California has the new economy in the United States,” thus making it a natural recipient for foreign investment, he said.

In addition, Hess said, the state has a large population of Asians “who understand how to do business with Asians.”

A recent study by Wells Fargo Bank, projecting what will happen in the California economy until the year 2000, found that international business accounts for approximately 17%, or $85 billion, of the state’s annual business activity. “By the early part of the 21st Century, this share will rise to 25%, or to more than $200 billion,” the bank said.

Joseph Wahed, an economist with Wells Fargo Bank in San Francisco, said: “The message is very simple. California can no longer afford to ignore the international marketplace.”