Why Chinese Money Is Flooding American Markets
(Please visit link as end of post to view several graphs)
Dina Gusovsky | Wednesday, 17 Sep 2014 | 9:56 AM ETCNBC.com
United States of China? Over the past few years, there’s been an influx of Chinese money being brought into the United States; from around $58 million in 2000 to about $14 billion in 2013.
Some say all this Chinese investment is pricing Americans out of the market, while others believe the flood of Chinese money coming into the U.S. can actually create jobs here. CNBC’s Dina Gusovsky reports.
Over the past few years, there's been an influx of Chinese money into the U.S., increasing from about $58 million in 2000 to $14 billion in 2013.
STR | AFP | Getty Images Chinese Yuan notes
Experts use terms such as "safe haven" and "stash pad" to refer to Chinese acquisitions and investments in the United States. Including last year's $14 billion and money coming to the U.S. so far this year, Chinese foreign direct investment in the U.S. since 2000 now totals nearly $40 billion, according to the Rhodium Group.
"There is much more trust (felt for) the United States and the U.S. government that those assets will be protected by the government, compared to the assets here in China, which could be taken away tomorrow," said Michael Godin, vice president of Real Estate Global Partners, who pairs Chinese investors with brokers in the U.S.
But the money is safe only if it actually makes it to the United States. Because Chinese law prohibits any more than $50,000 U.S. dollars leaving the country per person per year, Chinese investors and companies are getting increasingly creative when it comes to getting their money out of China and into the United States.
Though the rule is not heavily enforced, it is pushing some investors to resort to methods such as going to the Chinese city of Shenzhen, which is on the border of Hong Kong, and transferring money in the millions from China to Hong Kong.
Because Hong Kong does not have the same outbound currency limits in China, investors can then take that Chinese money from Hong Kong to the U.S. In fact, Chinese yen deposits in Hong Kong have increased significantly in the last four years.
Some companies use international banks that have branches in both China and the U.S. They deposit assets in China and then take out a loan in the U.S. branch.
The Chinese also represent more than 85 percent of investors who have applied for EB5 Visas, mostly putting their money into the asset they consider to be the safest: U.S. real estate.
Juwai Limited, a company that helps Chinese investors find properties in 58 countries, says it has helped to facilitate the sale of about 2.5 million properties, sending brokers leads of over $2.5 billion.
Juwai co-founder and CEO Simon Henry told CNBC that the U.S. is the top market for his clients. New York and California represent the first big phase of Chinese investment in U.S. real estate; however, Juwai's statistics show significant interest in Michigan, Florida, Texas and Washington, as well.
"Chinese buyers spend more than twice the market average. The Chinese spend an average of $590,826 per property, while the average price in the U.S. market overall is $247,417," Henry said.
The president of the U.S. China Real Estate Association, Bill Seto, said there is a fear that the Chinese are pricing the middle class and even some wealthy Americans out of certain markets, especially when it comes to housing.
"They don't like to haggle. Reputation is very important; they like to pay high prices so they could outbid the other competitor, and that's the way it is."
Wealthy Chinese who are putting their money into America come from all walks of life, from multibillionaires to the upper and middle class to the Chinese workers who toil in mines.
"A person that's working all their life…and all of a sudden, they're multimillionaires," Seto told CNBC.
Steve Orlins, president of the National Committee U.S.-China Relations, said that all this Chinese interest and investment in the U.S. could benefit American workers.
"The relationship between the United States and China, even though it goes through all this kind of turmoil, will become stronger because of the Chinese investment in the United States," he said.
Orlins said the U.S.-China Council estimates that China has created about 75,000 jobs through its investment in the U.S..
"As this investment really begins to ratchet up, we'll see that go from 75,000 to hundreds of thousands…. They have about a billion dollars in contracts, and less than 10 percent of their workers are Chinese. More than 90 percent of their workers are American. If you go to the Wanxiang plants, the other plants around the United States, they're substantially employing Americans," Orlins told CNBC.
Why this is happening now
"A lot of Chinese people are not trusting, neither the government nor businesses. So, whenever they consider an investment opportunity, they are looking at the fastest way possible to get out," said Godin of Global Real Estate Partners.
There's also a crackdown on corruption by Chinese President Xi Jinping, with some calling it the most extensive effort to root out ill-gotten gains.
"I think that is one of the drivers of investment in real estate in the United States, that people have become concerned about: Is the anti-corruption going to reach them? And they are worried about political instability," Orlins told CNBC.
"They think a diversification of assets in the form of investing in real estate in the United States is a great idea…. So some of that flow is based upon the anti-corruption effort."
Chinese tourists arrive in droves -- Over the past five years, there’s been a tripling of Chinese tourist arrivals in the U.S. According to experts CNBC spoke with, that number is projected to increase significantly in the next ten years. So how can American investors benefit from the influx of Chinese money and people? CNBC’s Dina Gusovsky reports.
CNBC put in several interview requests with Chinese businessmen, particularly from the multibillion dollar conglomerates like Fosun.
Experts told CNBC that most Chinese refuse to speak out because they are afraid of the backlash that may ensue from the government back home.
How to profit
So how can American investors benefit from the influx of Chinese money and people?
Jing Gussin, co-founder of Silver Bridge Capital, which is focused on Chinese cross-border investments, is betting on Chinese tourism to the United States.
Her fund, Silver Bridge Capital along with China Travel Service Holdings, are planning to raise $1 billion to build hotels globally that will specifically accommodate the Chinese population.
She and other investors are convinced that huge capital flowing from the Chinese tourism sector could benefit everyone, from hotel developers to service industry workers to real estate agents.
It may be a safe bet considering the number of Chinese visitors to the United States has increased over 460 percent in the past seven years, according to the U.S. Dept. of Commerce.
"To me, I think this is just the beginning. ... Anything you buy here, they feel that it's better than China," Gussin told CNBC.
The Chinese are sending their kids to U.S. schools, coming here to visit and betting on American property and companies.
As for the future?
"I can see from numbers and I can see it from my eyes, that the interest in going to the United States—if it's for traveling or for investment, for business or education—is rapidly increasing. This is definitely going to be continuing over the next couple of years," Godin said.
—By CNBC's Dina Gusovsky. CNBC's Evelyn Cheng contributed to this report
The luxury hotel entrepreneur, who owns the Louis XIII hotel in Macau, ordered a fleet of 30 Rolls-Royce Phantoms, the largest single order ever for the luxury car, according to the company.
Hung will use his 30 Bespoke Extended-Wheelbase Phantoms to chauffeur guests of the hotel back and forth to their destinations.
Neither company would give the price for the order, but Bespoke Extended-Wheelbase Phantoms typically start at around $475,000. However, the order also includes the two most expensive Rolls-Royce Phantoms ever commissioned, complete with gold-plated accents on the inside and out.
The other cars include several custom elements and "bespoke clocks designed and created by Graff Luxury Watches," according to Rolls-Royce.
"The Louis XIII fleet of Phantoms promises to be one of most impressive sights ever seen in Macau when they arrive at the Louis XIII hotel in 2016," said Torsten Mueller-Oetvoes, CEO of Rolls-Royce Motor Cars.
And don't worry about parking spaces. Rolls-Royce helped design the parking and driveways to house the cars, and will provide training for the chauffeurs and valets.