The Chinese stock market has lately been about as predictable as a Macau casino’s roulette wheel, but despite all the money lost in the market’s recent tumble, China watchers say the turbulence won’t keep Chinese investors from placing bets in Los Angeles.
In fact, the flow of Chinese cash that’s already behind new downtown L.A. developments and a booming real estate market in Arcadia could be recharged by the reminder that it’s less stressful to place their money here than on the Shanghai Stock Exchange.
While some of L.A.’s China insiders note that stock market losses in China could have some local downsides – luxury condo sales could take a hit, for instance – they think the net effect will be more money heading from East to West.
Pin Tai, president of Chinatown’s Cathay Bank, said the explosive run-up in the Shanghai Stock Exchange, which saw its index soar about 150 percent between last July and early June, made L.A. real estate investing look less enticing, prompting a dip in investment here.
“Because of the stock market appreciation, there was a tendency for investors to keep money in China,” Tai said. “We’ve sensed some slowdown in real estate investment in the last three months.”
But with the market dropping about 30 percent over a few days last month – after rising by nearly 60 percent since the beginning of the year – he said Chinese investors got a painful reminder of why they’d been pumping money into the United States in the first place.
“Now, there are more and more reasons for the Chinese investor who still has money to come to Los Angeles and invest,” he said.
Tai did say that any correction of that magnitude will have some effect – and acknowledged that Cathay is taking a second look at some projects it’s financing that rely on money from China – but nevertheless believes the dip will end up being a net positive for Chinese investment here.
To date, that’s been what Stephen Cheung, president of World Trade Center Los Angeles, an organization that promotes foreign direct investment in Los Angeles, has seen among Chinese investors he knows.
“I thought that they might hunker down, but that’s not the case,” he said. “This actually proves the point why Chinese investors are investing abroad – for the stability.”
One potential trouble spot for Los Angeles are the Chinese-built luxury condominium projects that are rising all over town, such as a development being built by the Dalian Wanda Group adjacent to the Beverly Hilton in Beverly Hills. Developers are counting on lots of Chinese buyers, and the stock market downturn could push some would-be buyers out of the market.
“Most of those condos have maybe 30 percent of their buyers from China,” Tai said. “We have to wait and see whether those buyers are affected by the market crash.”
Tai also said that some construction loans Cathay has recently underwritten are for projects relying on an influx of money from China, and the bank is already performing an internal study to determine how many of those projects could be impacted. But he said it’s mostly a precautionary measure, and doesn’t believe many Chinese real estate investors involved in L.A. projects have the type of exposure to Chinese stocks that would prevent their projects from going forward.
“Most of our customers are businessmen and they put their money in their business or invest it in real estate,” he said. “I don’t see a lot involved in the Chinese stock market.”
Noor Menai, chief executive of downtown L.A.’s CTBC Bank Corp. (USA), which is a subsidiary of a large Taiwanese bank, said some of the smallest investors who are bringing money here as part of the EB-5 program – which grants legal U.S. residency in exchange for an investment of as little as $500,000 – might be affected, but that shouldn’t impact the larger economy.
“Maybe the really small retail investors on the EB-5 program,” he said. “But that’s a very small (portion) of the Chinese investment in Los Angeles.”
Frank Yuan, chief executive of ASAP International Holdings Inc. in downtown Los Angeles, which connects Chinese investors with real estate investment opportunities in California, agrees.
“Commercial real estate is a very large ticket item now,” he said. “The small investors can’t really do it.”
Yuan said massive firms like Shanghai’s Greenland Group – which is building a mixed-use project in downtown Los Angeles – have plenty of cash to invest and aren’t materially affected by the machinations of the stock market.
While Tai acknowledged any significant correction of this magnitude is going to have some impact, he pointed out that the market did more than double over the past 12 months before the recent dip, so Chinese stockholders are hardly desperate. The Shanghai Stock Exchange Composite Index remains up 17 percent this year through July 15. (By comparison, the S&P 500 is up just 2.4 percent since Jan. 1.)
Still, Tai said the volatility is a good selling point to investors who have California dreams – but maybe not a Hollywood appetite for drama.
Menai, whose bank has financed several projects funded by Chinese investment, isn’t losing much sleep over the ups and downs of the Shanghai exchange and he doesn’t think others should, either.
“It’s too early to tell, but we’re not seeing any panicked ‘Take my house out of escrow’ moves,” he said.
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