A SPECIAL REPORT ON THE SOUTHERN CALIFORNIA ECONOMY : THE FINANCIAL CAPITAL OF THE WEST : THE PACIFIC BASIN : Flood of Money Is Southland's Latest 'Import' : Investors From Pacific Nations Buying Local Real Estate, Buildings, Factories

Times Staff Writer

A Singapore firm provides some venture capital for Advanced Matrix Technology, a Newbury Park company that produces color printers for computers. Sultan Muda Hassanal Bolkiah of Brunei purchases the Beverly Hills Hotel for a reported $185 million. Taiwanese visitors knock on doors in Temple City, offering to purchase homes for more than the sellers are asking.

These seemingly unrelated transactions have a common thread: Money is flowing into Southern California from across the Pacific. It is coming from Japan, Australia, Hong Kong, Taiwan, Singapore and other countries, from individuals and from companies.

As this capital flows, it marks a new chapter in Pacific trade, one that is expected to transform Los Angeles into a major world center of commerce and trade. Because of its proximity to Asia, Los Angeles became a favored port of entry for Pacific trade as first Japan and then others became industrial powers. But now, joining that flood of cars and stereos and cameras is money--lots of it.

"Capital from the Pacific 10 years ago was irrelevant," says Robert B. Paulson, director of the Los Angeles office of the consulting firm McKinsey & Co. "Within the next decade, it will be a driving force."

The Japanese have been been investing heavily in U.S. real estate for more than a year. Paulson points out, "Los Angeles land and buildings still look attractive to real estate investors in Japan because we have the world's largest market and a politically stable economy. They're spending 60 cents on the dollar (because of the yen's strong exchange rate) and can't buy Japanese real estate" because of skyrocketing prices.

'Money Center'

He sees more U.S. acquisitions and factory start-ups by foreign manufacturers. "In high technology, we'll see increasing number of partnerships, joint ventures, design groups, listening posts in U.S. technological markets," Paulson says.

Paul Gilbert at the Los Angeles office of the Kidder, Peabody & Co. investment firm, who is seeking out Hong Kong clients, says of the money flows: "We're not just a trans-shipment point any more. We're becoming a money center."

So far, these new investors have received a hospitable reception, especially in Southern California where many have purchased homes, businesses and investments. The rising protectionist sentiments on Capitol Hill have not significantly affected business in the West. In order not to attract much attention, many Asian investors have taken a deliberately low profile.

For years now, much of the world's industrial production has shifted to the developing countries of Asia that offer a cheap labor force. Garments sold in the United States now come from Hong Kong, Taiwan, Korea and Bangladesh. Cars, video cassette recorders, electric fans, refrigerators and other electronic gadgets come in from Japan and Korea. Computer chips arrive from Malaysia.

It is many of these foreign suppliers who now have the wealth to shop the United States for a variety of investments. Their wealth also has given rise to global securities markets in Tokyo and Hong Kong.

Jobs Related to Trade

Asian investors became painfully aware of the impact of U.S. securities trading on their markets last month. New York's October crash sent the Tokyo and Hong Kong stock markets into a tailspin. It was a painful, costly lesson of how interdependent the Asian and U.S. securities markets have become.

Meanwhile, economists are forecasting that U.S. trade will continue to grow with the biggest gains coming in goods crossing the Pacific, with most of them passing through Southern California ports.

"Today, one out of 10 jobs in the Southern California region is related to trade," says Mark Pisano, executive director at the Southern California Assn. of Governments, composed of city and county governments which work together to define common regional concerns.

"By year 2000, that will grow to one out of six jobs," Pisano says, adding that those numbers reflect workers involved only in the movement of exports and imports. It does not take into account service-related jobs, such as finance.

The Japanese--who first discovered the Southern California area as a vast, receptive market for their products in the 1960s--have been followed by other Asian trading partners.

"(Southern California) is a natural because of its physical location," Pisano says. "It's the intersection point between Asian countries and the United States."

He says the emergence of Los Angeles over San Francisco as the U.S. center of Pacific trade is due in part to major port facilities here that have provided easy, relatively inexpensive access to the huge Southern California consumer market.

In addition, Southern California has large immigrant populations from most of the major Asian nations, and that has given the area a natural advantage over other regions. "There is a willingness to deal . . . where there are communities with cultural ties," Pisano notes.

Maturing of Economies

The most successful of the foreign exporters--Japan, Hong Kong and Taiwan--now have enough accumulated wealth from their exports to invest here. And they are doing so with mind-boggling quickness. Japanese investors have purchased premium commercial and hotel properties in Los Angeles and other major U.S. cities. Wealthy Hong Kong investors have snapped up homes in the posh community of San Marino.

To many trade observers, this investment activity reflects the maturing of some Asian economies. For example, Japan must seek new growth areas in the wake of increased competition from Korea and other countries, which are becoming formidable suppliers of automobiles and electronics.

Investment, particularly in plants that produce jobs for U.S. workers, helps diffuse the threat of protectionism and criticism of the U.S. trade deficit. More importantly, increased investment reflects a psychological as well monetary commitment beyond a mere exchange of goods, notes James P. Miscoll, executive vice president of Bank of America.

Lawrence B. Krause, a professor at the Graduate School of International Relations and Pacific Studies at the UC San Diego, explains: "Trade and investment are now linked. Before, it was trade or investment (and) no one asked questions."

Increasing ties with the Pacific are occurring just as Southern California evolves into a more fragmented, specialized economy with a shift toward small- and medium-sized firms, according to Frank E. Hotchkiss, director of regional strategic planning at SCAG. He says such an environment will provide many entrepreneurial opportunities in trade-related businesses.

Many of those entrepreneurial businesses have been started by immigrants. "Probably some of the foreign business is related to our expanding immigrant population," Hotchkiss said.

Problems Discounted

However, some critics fear that the economic potential of the Pacific basin is being overstated and oversimplified.

Richard Kjeldsen, senior international economist at Security Pacific Bank, recently warned a gathering of shipping and port officials that the area is composed group of different countries of different cultures with different economies and different crosscurrents.

"But we treat them too much as a monolith . . . and it seems we discount some of the problems" such as unstable political situations in a few countries and the fact that few of the nations are economically self-sustaining.

Kjeldsen, who was one of the early advocates of the Pacific region, is now turning a little bearish on the area. "I've always been on the concerned side of the rim . . . as we move into the 1990s, the financial changes are so big." He points to the huge capital inflows from Japan; the question of whether Korea's banking and financing system can develop commensurate to the country; Singapore's economy and financial side not picking up as much was expected, and the fact that Thailand and Malaysia are trying to develop stock markets.

"I tell people 'be careful,' " says Kjeldsen, "I think there are opportunities in the rim but you've got to be more careful at looking at each country and the relations of that country with this country. I don't think you can look at the rim and say I want to play the rim. I want to throw darts and make lots of money . . . every country plays out in a different way."

Concerns About Infrastructure

Despite such concerns, Kjeldsen believes Southern California will fare well. "L.A. is a flex place. It's not tied to many things. There is whole lot of new dynamics from the ethnic diversity of the area. It's not by happenstance the Japanese come to talk to us here first. They understand us, they like L.A. As they establish operations in L.A., they move to other parts of the country. L.A. is becoming a financial center. We've talked and mused about it for 17 years here at the bank and we're just starting to see it happen."

A more immediate challenge for the Southern California area in facing this Pacific Basin growth, however, is whether its ports and infrastructure can grow fast enough to accommodate it. "We're coming up against our limit on airport capacity," Pisano says.

SCAG is forecasting that, by year 2010, 110 million passengers annually will pass through the area's airports in Los Angeles, Orange County, Burbank, Ontario, Long Beach and Palm Springs. Currently, the airports have a capacity for 70 million people.

Plans are now under way to expand the ports of Los Angeles and Long Beach. More cargo coming into the ports, however, will require more trucks and trains to transport the goods out of the area.

SCAG, for example, is projecting that the number of trains needed to service the ports will double between the years 2000 and 2010--a troubling prospect to some surrounding communities that already are voicing their objections and are attempting to limit train traffic.

Port advocates, however, maintain that Southern California must develop the necessary roads, transit and other traffic systems to keep the area competitive in worldwide trade. "We could lose as much $22 billion of revenue between 2000 and 2010." He warns, "There is no question in my mind, if we don't have the infrastructure to support trading activity, it will hurt (port) capacity in the long term."

"We have to do more for the growth that is occurring," Pisano says. "These economic forces--I won't call them inexorable but they can take on a life of their own. The investment flows, the job creations that are occurring--they are becoming very large forces that we can't turn off as we desire."

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