California’s major cities, including Los Angeles and San Francisco, have experienced a significant decline in their appeal to foreign direct investors, as indicated by the annual FT-Nikkei ranking. This drop in attractiveness is attributed to a combination of factors, including global economic uncertainty, high taxes, and Chinese restrictions on outbound deals. According to the ranking, Los Angeles has fallen to the 37th position out of the 91 largest U.S. cities for foreign businesses. This decline is mainly due to a decrease in the number of foreign-owned enterprises engaging in investment projects in the city, with only 51 such projects recorded in the past year, marking the lowest figure in five years.
Despite California’s status as the world’s fifth-largest economy, none of its major cities managed to secure a spot among the top 20 U.S. hubs for foreign business investments in the FT-Nikkei listing. The state’s high cost of living, tax rates, demanding regulatory environment, and social policies have pushed businesses to seek opportunities in other states like Texas and Florida. Nevertheless, California has managed to regain some of its foreign direct investment that was affected by the pandemic in 2022, with 271 foreign-owned enterprises establishing a presence in the state.
German companies have also shown a keen interest in California, with Bosch, a German auto parts manufacturer, acquiring chipmaking facilities in Roseville and planning a substantial $1.5 billion investment in the site. In contrast, investor sentiment has soured for certain Californian cities, with San Francisco slipping to the 31st most attractive city for foreign investment, and San Diego dropping to the 29th position in the ranking.
The decline in investment from Chinese companies in California can be attributed to China’s restrictions on capital outflows and growing tensions between Washington and Beijing. The number of Chinese foreign-owned enterprises in the state has fallen by 14% since 2021. Chinese property developers, who were once significant investors in Los Angeles, faced financial difficulties that resulted in halted developments and land sales.
Despite these challenges, California continues to draw foreign investment, albeit at reduced values. The state has become increasingly reliant on investment from Japan, particularly in the areas of connectivity and smart cities technology, as it prepares for major upcoming events such as the 2026 FIFA World Cup and the 2028 Summer Olympics.