Negative Consequences of Chinese Immigration and Property Investment in the United States - Report Example

Assessing the Negative Consequences of Chinese Immigration and Property Investment in the United s Introduction Inthe spirit of globalization, the United States has adopted a free market enterprise economy characterized essentially by market liberalization, upward social mobility, and equal business opportunity (Bertrand 1). Market forces determine prices by reconciling demand and supply in the Keynesian economic model. On the other hand, China has a communist economy in which the government regulates market prices and controls various market forces. China’s market constraints have forced emergent wealthy businessmen to invest in the US where the government protects property rights. In the bigger picture, it makes sense to say that growing Chinese investment is vital for the American economy. Equally, the underlying principle of the free market is to allow people to engage freely in the economy through business. Emerging concerns indicate that Chinese newfound love for property acquisition and real estate development could prove detrimental to the economy of the United States, and the ripple effect could potentially trigger another housing crisis. They create a speculative rise in demand for real estate and property making life that much hard for local residents. The Chinese investors are willing to pay high prices with the prospects that the price of houses will keep rising, which leads to more profit every quarter (Street 2). In their quest for business, Chinese investors have found their place in the United States. Their continuing immigration into the US has had both negative and positive effects on the federal government and the society at large. The influx of genuine foreign direct investment benefits the Treasury. Likewise, foreign direct investment is the essence of the free market. As mentioned earlier, however, the goal of this study is to discuss the negative influences associated with the newfound Chinese immigration to the native residents and local societies in America. Research Questions There are a number of questions that need to be examined in order for a clear understanding of the subject to be achieved. These include queries such as the reason such investors would prefer the United states market as compared to China and whether the issue of citizenship plays a role in their decision or are the living environments more preferable to other alternatives. The main differences between China and the United States with regard to matters such as health, education and economy is also a matter that is brought to question. The United States government and their actions towards their citizens bring out the real outlook of what those wishing to attain this citizenship are aiming for. These basic questions will support my main claim which is the population of new Chinese immigrants in America is increasing rapidly, accompany with the incoming new Chinese immigrants including some of them are extremely wealthy, the societies markets, housing markets, retail store markets are changing. Free Market Enterprise in the United States As the leader of the free world, the United States emerges as a model global economy under the auspices of the free market enterprise. America’s free enterprise attracts billion dollar foreign direct investment from virtually every part of the world. Following the end of communism in the East, Anglo-American capitalism took over paving way for free market enterprise. In the spirit of building a model welfare state, the founding fathers envisioned the American Dream. In a nation born of immigration, they came to terms with the fact that everyone is free to pursue their American Dream of upward social mobility and free enterprise. Currently, millions of people have left their homeland in pursuit of the American Dream as President Obama’s father did back in the 1960s. As the Wall Street Journal reports, immigrant labor makes for a significant fraction of the United States workforce. This is to say that immigrants’ human capital contributes to the American economy in form of labor, capital, and consumption (Bertrand 1). As it appertains to foreign direct investments, Chinese money is increasingly growing fond of the American free market enterprise as witnessed in the billions of dollars annual influx. Presently, a money trail of Chinese investment traces back to both residential and commercial real estate, especially in California suburbs. With an enormous purchasing power, young Chinese millionaires comprising mostly the business elite and technical innovators prefer the American free market enterprise since back home the government imposes tight regulatory measures as part of the communist economy. In California, wealth Chinese investorshave put their money in commercialand domestic real estate for short term returns. Forbes Magazine reported earlier in 2015 that Chinese developers are purchasing property at a record rate in California seeing it as a lucrative venture. Chinese investors have also grown fond of acquisitions of property under the protection of the free market enterprise (Street). As the Los Angeles Times reports, Arcadia is currently remaking itself to systematically attract wealthy Chinese real estate developers; over 90 houses have found the market for over $ 25 million in a city whose population is 57,000 just outside of San Gabriel Mountains. House prices have registered an unprecedented 39 % rise since the peak of the US Housing Bubble in 2007 just ahead of the housing turmoil. With over 60 % of the population comprising Chinese Asians, house prices in Arcadia have surpassed those in the Calabasas the home of the Kardashians and Justin Bieber. This is to say that even in the face of American consumerism Chinese realtors appear to be beating the United States property developers at their own game. Arcadia is presently loosely referred to as the Chinese Beverly Hills (Katz and Christie). Experts observe that the present Chinese immigration is gradually transforming Southern California. Information retrieved from an article published in the Business Insider indicates that Chinese investors have become subtle and unscrupulous in their ability to exploit the loopholes of the American free market enterprise. Unlike back home, they can flaunt their wealth and protect their business interests in the United States with impunity under the auspices of the principles of upward social mobility and free market enterprise. In the bigger picture, one would say that increased Chinese investment is beneficial to the US economy, as a whole. Likewise, in the spirit of free market, people ought to be able engage freely in the economy through business. Scholars have recommended globalization and market liberalization to foster regional integration and other essential contact between nations. In the specific case study of California, the influx of Chinese immigration as well as direct foreign investment has raised various concerns for the native residents and local societies. CNBC reports that the low-income earning segments of the California population will experience certain difficulties coping with the new economy. With housing prices expected to soar more by 2016, there is an impending threat of recession. Chinese immigrants are bringing lots of money to America in order to buy houses as investments and private properties, since the increasing market demands and the limited market supplies, only the high pay consumers can bid and afford the houses with higher prices. As such, the native residents may not be able to afford the higher prices or may have to spend more money in the same properties than before. As the same reasons as the housing problems, the other markets such as retail markets, shopping malls, and catering industry, would increase their products’ price in order to get more profit, and rationally they would more care about the types of consumers who pay the higher prices. Thus, this would also cause harmful issue of native residents and local societies (Hawthorne 1). Even as Chinese investment in real estate continues to contribute to the economy, observers express various concerns regarding the present rate of Chinese immigration and business practices in California. To begin with, with enormous financial resources, wealthy Chinese investors are willing to meet high housing costs. Chinese realtors have the means to keep procuring houses regardless of soaring prices as long as the prices will keep increasing allowing them to get the profit in the short term purchasing activities (Taibbi). This is projected to cause a continued rise in housing prices. If history is anything to go by, in the period immediately preceding 2007, the US hosing/ real estate industry registered unprecedented growth. At the peak of the real estate and property bubble, mortgage prices soared to a record high yet. Information published in The Business Insider indicates shows how the Case-Sheller home price index rose remarkably before undergoing a significant slump in 2008 amid creeping inflation. As housing prices soared, they reached the elastic limit and Wall Street began to experience a huge increase in home foreclosure rates and equally high subprime mortgage delinquencies. Subsequently, securities backed by mortgages declined significantly. The steep decline made refinancing very difficult. Subprime mortgages lost their value. The investors willing and able to purchase mortgage-backed debt reduced dramatically (Koller 12). For the most part, Chinese investment, especially in Arcadia is particularly worrying. The fact that they are willing to meet higher prices only sets a domino effect, which could see rising inflation in this economic sector. This is likely to bring about an unprecedented rise of foreclosure rates among American homeowners in terms of mortgages, credit, collateralized debt obligation (CDO), Alt-A, , foreign bank, subprime, and hedge fund markets(Hawthorne 1). A repeat of the 2008 liquidity crisis could be a major blow not only on thecommercial and domestic real estate mortgage markets, but also on mortgages and property valuations. Such a scenario would in turn welcomerising concerns as buyers continue to speculate on the most probable impact of the declining mortgageand housing markets and the possibility of recession on the state and national levels (Foldvary). A section of Chinese immigrants comprising a network of corrupt developers, families, and kinship ties purchases high value properties to clean up their dirty money. Money laundering has become synonymous with Chinese real estate investment in upstate California. Most of the millions invested in property acquisition are drawn from illegal business practices in the United States as well as back home in China. Once they purchase real estate, they clean their laundered money so that the proceeds seem legitimate business earnings. Laundered money is a blow to the US taxpayer since it does not come from the appropriate channels; the federal government does not get to levy taxes on such foreign direct investments.Since they are carrying too much dirty money, they would like to purchase the most expensive houses, they do not care about the prices, and thus, the house pricing would keep increasing by the pushing from the great amount of incoming money (Hawthorne 1). An undercover video footage exposes illegal money laundering deals made between Bank of China and a prominent Chinese real estate developer. The developer, a top executive paid an unquantified fee as a bribe to allow him exceed the specified $ 50,000 legal limit on foreign direct investment. Further investigations reveals that the Bank of China has been allowing Chinese clients get their dirty money out of the country. The 20 minutes dossier records a top executive advising a client that it is not the business of the bank to care where the funds come from; their dedication is to serve the interests of the clients (Street). The Bank of China is reportedly laundering client’s money with impunity. The bank conspires with immigration agencies to make it look like the ‘send funds overseas’ is from genuine investment. Some of the so-called Chinese relators in Arcadia and the rest of California are colluding with other stakeholders to engage in questionable business practices involving laundered money. Following an audit report conducted by a court-appointed financial examiner, it surfaced that top officials admitted to being privy of certain financial engineering gimmicks to help clientscreate a materially misleading financial image. Bank of China accounting gimmick also allowed for clients to procure company securities under a signed obligation to re-buythe stocks after a while at a higher price. By offering advice on how to launder dirty money through securitization, structuring of transactions, tax avoidance schemes, aggressive tax planning, and formation of special purpose vehicles, Chinese black market makes its way into the United States mainstream economy (Moore). The parties with vested interests get to clean their dirty money and cause creeping inflation. As it turns out, the Bank also helped clients undervalue their assets in the balance sheets. As Forbes Magazine reports, properties and other assets worth millions of dollars in estimated value magically disappeared from bank balance sheets. Conclusion The United States has over the years grown to a model global economy under the support of the free market enterprise. As a result, the USA attracts billion dollar foreign direct investment from various investors globally. Chinese investors in search for business have ventured into the United States (Krieger). Their continuing immigration into the US has had both negative and positive effects on the federal government and the society at large. CNBC reports that Chinese foreign direct invest had risen from $ 58 million in 2000 to an estimated $ 14 billion as at 2013. As beneficial as it is for the economy, ripple effect continues to affect the local residents adversely. At the present, with the growing need for the Chinese to acquire property and real estate development could be unfavorable for the economy of the United States, and the results could lead to another housing crisis. Works Cited Bertrand, Natasha. “This California suburb has become a haven for wealthy Chinese residents.”The Business Insider. 2 February 2015. Foldvary, Fred E. The Depression of 2008. Berkeley: The Gutenberg Press. 2009 Hawthorne, Christopher. “How Arcadia Is Remaking Itself As A Magnet For Chinese Money”. Los Angeles Times.December 3 2014. Katz, Irene and Christie, Rich “Geithner Called Housing Giants Biggest ‘Moral Hazard.’” Bloomberg. 2011 Koller, Cynthia White Collar Crime in Housing: Mortgage Fraud in the United States. El Paso, TX. 2012 Krieger, Michael. “Chinese Purchases of U.S. Real Estate Jump 72% as The Bank of China Facilitates Money Laundering.”CNBC. 9 July 2014. Moore, Malcolm. “China’s Communist party cadres launch property fire sale.”The Telegraph. January 21 2013. Street, Chris. “China Cracking Down On Money Laundering To Buy Real Estate in California”Breitbart News Network 18 July 2014. Taibbi, Michael. "Wall Streets Naked Swindle". Rolling Stone2012 pp. 50–59 Read More