Chinese investors are betting on Tacoma’s future

Chinese investors are betting on Tacoma’s future

William McGuire, assistant professor of economics, University of Washington Tacoma 

When you first heard Chinese President Xi Jinping was coming to Tacoma, you might have wondered “why?”

This visit was no accident; it reflects decades of work by political, academic and business leaders to bring China and Tacoma closer together. It also helped Xi reaffirm his credentials as a friend of the common folk, as he did when he visited a small town in Iowa earlier this year.

We can also credit Tacoma’s strengthening economic ties with China.

China is our most important trading partner, with more than $11 billion in total trade with China through the Port of Tacoma so far this year. Chinese investors also have several major projects planned for our city.

One Shanghai-based firm is planning a combination hotel-residential-retail development next to the convention center. Another Wuhan-based developer is planning a similar mixed-use development for the Brewery District. Finally, NW Innovation Works (owned by a Shanghai-based chemical and technology firm) is set to build a multibillion-dollar methanol plant on the Tideflats.

But, why Tacoma? What draws Chinese investors here?

Part of the answer is that Tacoma is growing. The city’s downtown revitalization strategy has been a huge success, and just about every economic indicator (home values, unemployment, personal income, etc.) shows that our region has been growing steadily since the 2008 recession. Chinese investors are betting that growth will continue, and bring with it growing demand for downtown housing and retail.

Another part of the answer is smart policy. The convention center and Brewery District projects are being funded through the US EB-5 program, also known as the Immigrant Investor Program. EB-5 allows foreign investors to apply for permanent residence in the United States if they make a substantial investment in a new commercial enterprise and create or preserve 10 full time jobs.9

We should also ask, why not Shanghai or Wuhan? We’ve all heard about China’s phenomenal economic growth, so why aren’t these firms investing at home?

The truth is that business ventures in China can get wrapped up in miles of red tape that create headaches for Chinese and American investors alike. The World Bank ranks China 90th out of 189 countries in terms of the ease of doing business. Problems range from difficulty obtaining construction permits to weak protections for minority investors.

The business climate is made even worse by the continued strong presence of the government in real estate and financial markets. Thanks to weak property rights protections, local governments in China can seize land from rural households for vague “public interest” reasons and profit by selling it to developers. This encourages local governments to hoard land as an asset, contributing to the country’s exorbitantly high real estate prices.

At the same time, strict regulations ensure government control over the financial system, which tends to funnel money to large state-owned enterprises at the expense of more dynamic and productive private enterprises. With that kind of economic environment at home, it’s no surprise that Chinese investors are looking for opportunities in Tacoma.

We should certainly welcome the international attention Xi’s visit will bring to Tacoma. I hope the Grit City provided him with a good counterpoint to the glitz and glam of Seattle, but more importantly, I hope he took note of how smart government can use policy to create opportunity.


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