The Cost of Competition: What We Lose When We Lose Sight of Shared Goals
The decline in economic interaction between Los Angeles and China illustrates the benefits of compartmentalization in bilateral relationships.
By Ben Makarechian
Economic engagement with China was supposed to be Los Angeles’s path to international prominence. During the peak economic exchange between the U.S. and China in the mid-2010s, the city was optimistic about how it would be transformed as the two countries deepened their relationship. In a 2016 article, now-former Pacific Council President Jerrold D. Green touted Los Angeles’s mutually beneficial collaboration with China as a framework for the whole country, citing the city’s Chinese capital-fueled real estate boom and the increasing engagement between entertainment firms from LA and China as positive advancements. In 2017, then-Mayor Eric Garcetti spoke of the dawn of a “Pacific Century” in which LA would have the opportunity to assert itself as an international political hub as the Los Angeles-to-China trade corridor grew in importance.
Less than a decade later, the economic climate in LA is unrecognizable from the one described by Green and Garcetti. Foreign direct investment (FDI) from China decreased markedly, LA’s entertainment industry largely turned away from China despite it being the world’s largest entertainment market by box office revenue in 2021, and public perceptions of China are at an all-time low—only 15% of Americans view China favorably, according to a 2023 Gallup poll.
The increasingly clear authoritarian trajectory of the Chinese Communist Party (CCP)’s governance and its willingness to assert itself on the world stage have left the future of U.S.-China relations uncertain. The bipartisan consensus in Congress with regard to combatting the CCP only furthered the “pan-securitization” of China policy, as lawmakers are pushed to be combative towards China across the board politically. While some national security concerns raised in discussions about economic engagement between the U.S. and China have merit, politicians cannot let contentious issues destroy the productive relationship the world’s two largest economies have enjoyed for decades. The disappearance of the economic optimism of the mid-2010s illustrates the opportunities that Los Angeles misses out on when shared interests and areas of disagreement are not compartmentalized in geopolitical relationships.
The Engagement Heyday
In the early 2000s, Los Angeles’s real estate market underwent a profound transformation. A 2017 study found that between 2000 and 2016, California attracted $26 billion in Chinese FDI, 96% of which was concentrated in Greater Los Angeles and the San Francisco Bay Area. A wave of investment from both Chinese companies looking to establish operations in the U.S. and wealthy Chinese nationals looking to move money offshore spurred new developments that transformed LA’s downtown area and fueled growth in the luxury housing market, drawing comparisons to the influx of Japanese investment that rocked the U.S. in the 70s and 80s.
Stephen Cheung, president of both the Los Angeles County Economic Development Corporation and World Trade Center Los Angeles, two groups that facilitate economic development in LA by providing expertise and assistance to businesses looking to expand their access to domestic and foreign markets, spoke of Chinese FDI’s “heyday” around 2016, musing that “the LA skyline looks completely different now” thanks to the slew of fresh capital from Chinese investors that funded commercial and residential development projects during that time, driving up property value and sales.
Cheung also mentioned benefits extending to other sectors of LA’s economy, like e-commerce, but hinted at one of the many concerns that make U.S. businesses and policymakers wary of economic interaction with China:
“Alibaba, Kaola, and NetEase—all these e-commerce companies opened up major distribution centers and operations here. This influx supported the growth of that sector, but whether it's beneficial or not depends on consumer preferences. On one hand, you have access to cheap Chinese imported products; on the other hand, the labor practices of these firms are not well regulated…it's hard to define whether those operations are good for our economy.”
Tensions Arise
In 2017, to reduce the country’s large-scale capital outflows, the CCP under Xi Jinping brought China's capital account under stricter government scrutiny by restricting so-called “irrational outbound investments,” decreasing Chinese capital worldwide. According to Cheung, this was the beginning of the end for LA’s beneficial economic relationship with China:
“Too much money flew out of China, and [the government was] actually cash-strapped …that was really the beginning of the change…I attribute most of the decline in FDI to that point.”
Across the Pacific, the election of Donald Trump represented a similar shift in the U.S. While Cheung says tariffs implemented during President Trump’s trade war had little concrete effect on the U.S.-China import-export relationship, he mentions that Trump's rhetoric caused business leaders to reevaluate the long-term feasibility of operating in China and further decreased economic engagement.
Los Angeles’s notorious Oceanwide Plaza development has come to symbolize how decreased engagement with China affected LA. The development, announced in 2015 by Chinese company Oceanwide Holdings, was intended to be the jewel of downtown LA. By 2019, construction on the plaza stopped, leading Oceanwide Holdings to file for bankruptcy shortly afterward. Today, the plaza stands unfinished and covered with graffiti.
To Cheung, it shows how “Chinese investments have literally changed our landscape [for the better], but the lack of Chinese investments to finish this project has blighted our landscape as well.”
In striking a balance between combating aspects of Chinese policy it deems unacceptable and finding common ground, the U.S. must keep in mind the power Asian capital has to fuel select sectors of its economy. In China, the CCP must recall that it owes part of its economic miracle to the conciliatory foreign policy towards the West it adopted under Deng. Just as the Oceanwide Plaza stains downtown LA, the breakdown in cooperation between the U.S. and China is an affront to their shared economic achievements. In working through valid U.S. concerns about national security and unfair economic practices, both countries must work to keep trade conflict concentrated in a few critical sectors while maintaining economic connections in others. Los Angeles can still become the economic, financial, and political hub politicians and scholars envisioned in the mid-2010s. However, it needs to maintain a connection with the world’s most important consumer market across the Pacific to reach its full potential.
Ben Makarechian is a 4th-year undergraduate student at the University of Virginia’s Batten School of Leadership and Public Policy, majoring in public policy and international economics and minoring in Chinese. He is currently a Junior Fellow at the Pacific Council for International Policy. Originally from Los Gatos, California, his interest in US-China relations stems from the five years he spent living in Singapore and was deepened during the two months he studied Chinese in Beijing during the Summer of 2024. His writing about China has been published in UVA’s Virginia Journal of International Affairs.
The views and opinions expressed here are those of the author(s) and do not necessarily reflect the official policy or position of the Pacific Council.
