A LOS ANGELES TIMES - FINANCIAL...

The California economy produces more goods and services annually than Canada. And with each passing year, its prosperity becomes increasingly linked to its success in the global economy. As the state approaches a new millennium, it faces challenges that will help determine whether it will become an even bigger economic force in the world or whether it will fade amid mounting problems at home. Financial Times correspondents, based both here and in capitals abroad, give their impressions on the California economy through a special lens.

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Although California has attractive investment opportunities, British investors emphasize that they are in the business of seeking out companies with global interests. That many of these are situated in the Golden State is often incidental.

“A lot of companies may happen to be headquartered in California but are truly multinational,” says Chris Calleymore, head of the North American division at Henderson.

Duncan Byatt, who manages the Gartmore American Emerging Growth fund, sees this as a positive advantage, with California companies supplying the brainpower but subcontracting their manufacturing to cheaper places, often overseas.

However, as a place for doing business, London investors recognize that the state has had its problems.

“It is correctly perceived as a high-cost place to do business,” Calleymore says.

Others point out that many companies have left the state for cheaper (and safer) locations.

“California is still one of the world’s largest economies, but its economic performance over the past few years has not been great because of the defense and energy industries,” says Andrew Barker, who is responsible for Foreign & Colonial’s North American investments. “The state is still obviously a leading area, but other regions of the U.S.--such as the Midwest and the Rockies--have caught up.”

Indeed, the perception that California is special seems to be evaporating. Investors not only see the state as two separate areas--with distinct economic patterns in the north and south--but also as part of a wider Western region, which includes the Seattle area, home of Microsoft Corp.

“California is now much more in sync with the rest of the national economy than it used to be,” Calleymore says.