Chipotle Mexican Grill is an American fast-food chain that was opened in 1993 by current-CEO, Steve Ells. The company is known for its commitment to serving Food with Integrity, claiming that Chipotle understands the importance of how food is raised and prepared in order to produce quality taste. For this reason, Chipotle is one of the few fast-food chains that serves simple, fresh food without artificial flavors or GMOs. In fact, Chipotle was actually the first national restaurant chain to voluntarily disclose the presence of GMOs in their food until 2015, when they transitioned to only serve food made from non-GMO ingredients (Chipotle, 2015).

This dedication to serving the best food they can find is one of the reasons why Chipotle has found so much success. However, in the last five years, Chipotle has encountered two main problems that have significantly hindered their success. The most detrimental is the E. coli and norovirus outbreaks that hit a number of stores in 2015. The other is trying to manage the rising costs of Chipotle’s core ingredients, while still maintaining the high quality of food they adhere to. Chipotle is a chain that promised something different to their customers. Then, Chipotle discovered that it was much more difficult to manage its success than anticipated. Therefore, the way that Chipotle reacts in times of difficult decision-making and crisis is essential to understanding the core characteristics and values that the company holds.

In its 2015 annual report, Chipotle announced that it had its most challenging year in history, mainly as a result of undergoing the repercussions of their widespread E. coli and norovirus outbreaks. From July to December of 2015, Chipotle’s E. coli scandal, which was traced back to issues with supplier produce, sickened around 500 customers in the United States. The food health predicament initially came as a shock as 43 stores across Washington and Oregon were closed and deep cleaned after more than 40 cases were tied to the states. As cases continued to surface throughout the country, Chipotle had to take the same precautions to ensure that this would not occur in the future. However, the damage had already been done and had detrimental effects on Chipotle’s business and its reputation among customers.

These measures had serious economic implications on the company. In 2014, it was estimated that per year, each Chipotle store generates $2,300,000 in sales. Taking into account the 49 stores nationwide that were closed for up to 10 days due to the outbreaks, it can be estimated that more than $3,000,000 in sales were lost in that short period of time. There are also a number of costs that cannot be calculated, but had a lasting affect on the company’s bank account. For example, Chipotle had to conduct more than 2,500 tests for E. coli during the outbreak, in addition to deep cleaning and sanitizing all of the infected locations, and upping the costs of food testing for health and safety purposes.

Besides the significant monetary losses Chipotle endured in this period, the greater loss the company suffered from was the damage made to their brand image. By comparing Chipotle’s earning statements from September 30, 2015 to that of 2016, revenues decreased by 14.8%, which is $1.2 billion in 2015 to $997.5 million in 2016. The number of restaurant transactions also decreased by 15.2% in 2016, meaning that there were less customers eating at Chipotle in the year after the E. coli and norovirus scandals. Even more shocking is that, in the year following the outbreaks, Chipotle’s net income was $7.8 million, a decrease from $144.9 million in 2015. This dramatic decrease in net income is a clear sign that Chipotle has significantly suffered from a lack of consumer traffic to their stores. Therefore, in an attempt to repair the damages caused by the outbreaks, Chipotle has spent millions of dollars on increased advertising, customer reward programs, and better food health and safety procedures, in order to prove that they are willing to endure profit losses if it means regaining their customers trust back.

In addition to the detrimental effects the outbreak had on customer loyalty, the returns for its long-term shareholders were also greatly affected as the value of Chipotle’s stock plummeted. In the last year, shares lost as much as half of their value, mostly due to Chipotle’s first-quarter sales of 2016 that showed a decrease of nearly 30% because customers still feared that the restaurant chain did not resolve the causes of the outbreaks. In September of 2015, Chipotle’s diluted earnings per share was $4.29. One year later, the diluted earnings per share came out to be $0.27. Since the value of stocks is based on shareholder’s confidence in a company’s future, the dramatic decrease in the stock’s value proves that earning their customers trust back should be Chipotle’s main priority in order to ensure a more promising financial future.

To address these issues of customer and shareholder satisfaction, Chipotle stated that 2015 was a year of reinvestment in addition to a deep commitment to regaining the trust of their customers. If executed correctly, this will recover sales and once again create long-term shareholder value. One of the most significant consequences of the outbreak was the resulting contrast between practices put forth based on their slogan, “Food with Integrity,” and what was truly served to customers. Therefore, as a way of salvaging what they have left of their brand, Chipotle is standing by their vision to change the way people think about and eat fast food. However, this time around, it will be with a renewed focus based on serving a product that is safe by means of incorporating responsibly raised ingredients. Chipotle’s commitment to prioritizing their relationship with their customers, above making profits, is a strategic way of reestablishing the food chain as one of the quick, risk-free alternatives to fast food.

Chipotle’s brand is one of the key reasons for their success. However, pledging to serve their customers food made from the highest quality ingredients has made it hard for Chipotle to keep up with demand. Most of the ingredients that Chipotle uses tend to be more expensive because of their high quality standards. Certain economic conditions, seasonal fluctuations, weather conditions, global demand, food safety concerns, product recalls and changing government regulations also have a dramatic affect on food costs (2015 Annual Report). As a result, Chipotle has to make difficult pricing and purchasing decisions to maintain the desired level of quality they want to serve to their customers, while also generating a profit.

Chipotle has dealt with the rising cost of ingredients for decades. However, in 2011, the company introduced its first increase to its menu prices. As the prices of ingredients became too high to overlook, the only way that Chipotle could continue to provide customers with the same quality of food they expect was to raise the price of their meals. Chipotle had to do this again in 2014 due to a drop in margins by 40 basis points attributed to higher food costs for beef, avocados and cheese.

These three ingredients have caused Chipotle the most trouble over the last few years. In 2016, Chipotle’s food costs were 35.1% of revenue, an increase of 210 basis points from 2015, claiming that the increase was driven by higher waste costs and avocado prices (2015 Annual Report).

The rising cost of avocados has taken a toll on Chipotle’s production process. Guacamole is one of Chipotle’s most popular add-ons, but the high demand has been met with difficulties because of the scarce amount of avocados on the market. According to Chipotle, each batch of guacamole contains about 60 avocados. Due to the high demand, with all of their stores combined, Chipotle goes through more than 97,000 pounds of avocados every day. It takes 74 gallons of water to produce one pound of avocados, which means that Chipotle needs around 7 million gallons of water per day to produce the amount of guacamole to meet demand. However, California produces 95% of the avocados grown in the U.S. and with California entering its sixth year of drought, the price of avocados has spiked as a result of the state’s low water supply. With such high demand and little inventory, Chipotle must charge their customers an extra $1.80 for guacamole. While many customers are currently willing to accept this extra cost, if Chipotle continues to increase the price of their menu items, in addition to charging extra for guacamole, the chain could begin to lose customers.

Since 2013, Chipotle has also dealt with rising global cost of meat. In February of 2015, beef prices climbed by 19% since 2014 and were expected to climb by 5-6% throughout the year (Eller, 2015). Much of this increase can be attributed to droughts that have hit parts of the US in 2014 and 2015. By looking at Chipotle’s 2015 income statement, the company spent around $82 million more on food, beverage and packaging than they did in 2014. This increase was not solely due to the rises in meat products, but it definitely hindered the company’s success.

Not only did the spikes in meat costs affect Chipotle’s operations, but the high quality standards they set for themselves also created issues for the company. Between January and November of 2015, a number of Chipotle restaurants were unable to serve carnitas due to a pork shortage. The shortage was a result of one of Chipotle’s suppliers violating some of the company’s core animal welfare standards. As a result, Chipotle immediately suspended all purchases from the supplier and was unable to provide carnitas to about one-third of their 2,010 stores. This was a difficult decision for Chipotle to make. Removing a core menu item for more than eleven months could have posed an eminent threat to Chipotle’s revenues and customer’s satisfaction. However, Chipotle decided that standing by their mission statement was of the upmost importance. Therefore, the consequences that they endured from suspending the sale of carnitas was necessary in order to promote long term growth and brand loyalty.

Since the cost changes for Chipotle’s menu items were not significant enough, Chipotle did not lose much of its consumer base. However, as the E. coli and norovirus outbreaks plagued Chipotles throughout the nation, customers now had a legitimate reason to stop eating at the fast-food chain. Not only did the outbreaks cause customers to temporarily stop eating at the restaurant, but they also permanently damaged Chipotle’s brand image. When a business’ core value is to serve food made from the highest quality ingredients and then it sickens almost 500 customers around the nation, the company is going to lose a lot of its credibility. Therefore, it has been difficult for Chipotle to earn back the trust of their customers who have lost a lot faith in the company’s claims.

It is such a fragile time for Chipotle. In an effort to recover from what has happened in the past, Chipotle commits to fixing their damaged brand by showing customers the significant value they hold within the company. To jumpstart this plan, Chipotle created a rewards program, Chiptopia, to give loyal customers an incentive to return to the chain. Another strategy they employed was introducing new menu items, such as sofritas and chorizo, to boost interest in their stores. Even through the disease outbreaks, Chipotle has continued to open new locations with the hopes of expanding to new and more popular markets.

Although these are well thought-out strategies to boost consumer interest and bring customers back into their stores, Chipotle’s stock is still lower than it was in July of 2013, meaning that they have not even come close to making up any of their incurred losses. There are a number of steps that Chipotle should take in order to turn the company around. First, Chipotle should reinvent their relationships with their current and potential stakeholders and investors in order to foster trusting and attentive relationships by clearly outlining Chipotle’s plan for future earnings. In terms of their customers, Chipotle should utilize external channels and mediums to promote new levels of transparency, insight, and easier access to available information. It would also be helpful to re-emphasize the freshness and locally grown aspects of Chipotle’s suppliers, confirming that Chipotle knows where their food comes from. Chipotle is confident in their financial future and believe that there is a great chance that they can bounce back and produce all-time highs. Chipotle’s commitment to their company, brand, and customers is an indicator that the chain will find a way to come back out on top.

 

As November comes to a close, people are getting excited about what they have to look forward to in the coming month. Thanksgiving is quickly approaching, which means that Hanukkah and Christmas are right around the corner. Although the holidays are an exciting time for most, businesses are even more excited about the influx of cash they are going to make. Black Friday, the Friday after Thanksgiving, is one of the most important retail days of the year for most businesses, with around 30% of annual retail sales occurring between Black Friday and Christmas. Therefore, it is important for businesses to strategically plan how they are going to approach the Black Friday holiday in order to maximize sales and further stimulate the economy.

In the U.S., Black Friday has been regarded as the beginning of the Christmas shopping season since 1932. It is referred to as Black Friday because many retailers usually make enough sales on that day to put them in the black for the year, meaning that they will begin to turn a profit. In 2015, 74.2 million people shopped on Black Friday alone, which is lower than the number in past years ranging anywhere from 85 million in 2011 to 92 million in 2013. Although the number of consumers have decreased in recent years, 74.2 million shoppers still means large profits for these corporations.

Black Friday is known for kicking off holiday spending, however, the three-day Black Friday weekend is where businesses truly make their money. In 2014, 133.7 million people shopped over the weekend. Each one of these 133 million spent, on average, $380.95, which totals out to be around $51 billion dollars of consumer money that was poured into the economy. Investors examine Black Friday sales in order to examine the health of the retail industry. Since many economists believe that spending drives economic growth and activity, they will imply that if Black Friday spending is low the health of the economy is too.

As investors analyze the signals that Black Friday has on the direction of the market for the rest of the year, they tend to tailor their trades to reflect what they believe will be the future of Black Friday sales for that year. Whether the retail performance on Black Friday is good or bad, the results signal consumer confidence in the economy. According to research conducted by the National Retail Federation, 2016 holiday sales have the potential to increase by 3.6% and shoppers plan to spend approximately $655.8 billion.

To prepare for the three busiest retail days of the year, businesses are rearranging their stores, stocking up on merchandise, and hiring between 640,000 and 690,000 workers nationwide. This planning is necessary in order to compete with big-box retailers, like Wal-Mart, who brings in around $8.4 billion on Black Friday. Not only do this week’s upcoming sales have a powerful effect on the future of many businesses but more importantly, the sales should be thoroughly analyzed because the results are an accurate indicator of the health of our nation’s economy.

Sources:

http://www.investopedia.com/ask/answers/102714/how-stock-market-affected-thanksgiving-and-black-friday.asp

https://www.thebalance.com/what-is-black-friday-3305710

http://www.tradingacademy.com/lessons/article/does-black-friday-have-an-impact-on-the-stock-market/

 

This year’s presidential election has been classified as everything but gratifying. Hillary Clinton and Donald Trump have haphazardly disagreed on almost every national issue that has come up in debate. However, one issue they both agree on is to not implement the Trans-Pacific Partnership.

This trade agreement, referred to as the TPP, aims to promote economic growth, creation of jobs, enhance innovation and productivity, raise living standards, reduce poverty, and promote transparency, good governance, and enhanced labor across the 12 Pacific Rim countries, not including China (USTR). The creators of the TPP believe that they will achieve these goals by creating measures that lower non-tariff and tariff barriers to trade.

This trade agreement was proposed as an expansion of the Trans-Pacific Strategic Economic Partnership Agreement in 2005 (USTR). The U.S. signed in agreement with the trade proposal in 2008 and was one of the 12 countries included in the finalized agreement that was completed in February of this year. Implementing the TPP has been one of the trade agenda goals of the Obama administration (USTR). However, now that a new president is coming into power, the smooth implementation of this trade agreement will be affected, which could have detrimental effects on the U.S. economy.

The U.S. International Trade Commission estimates that the TTP will create 128,000 new jobs, increase annual U.S. income by 0.23% and raise our real GDP by 0.15% (USTR). Obama believes it will do this by opening up foreign markets for exporting goods and bettering standards for working conditions in 11 other nations. However, Clinton and Trump are not convinced.

The 2016 presidential candidates believe that the deal will actually hurt American workers (BallotPedia 2016). Trump declared, “I am going to withdraw the United States from the Trans-Pacific Partnership, which has not yet been ratified” (BallotPedia, 2016).

He also claimed, “we will move manufacturing jobs back to the U.S. and we will Make America Great Again” (BallotPedia, 2016). Hillary, on the other hand, was suspected of being in support of the TPP agreement when working under the Obama Administration. However, in May of 2016, she said, “I oppose the TPP agreement – and that means before and after the election.” She made another comment about the issue in March, when she claimed that one of the reasons she opposed the TPP is because the final proposal has too many loopholes, which will allow countries and citizens to be taken advantage of (BallotPedia, 2016).

Providing jobs to American citizens is one of the most essential aspects of a country’s economic success. The TTP encourages free trade, which supports the idea of importing goods from other countries on a large scale. As a result, this trade agreement will actually decrease the amount of jobs in America by encouraging cheap production and manufacturing overseas. If the country’s new president decides to remove the U.S. from the TPP agreement, it would wipe out years of Obama’s hard work in promoting economic growth through trade. However, it might be necessary, if America wants to promote production and innovation within our country’s borders.

Works Cited:

https://ballotpedia.org/2016_presidential_candidates_on_the_Trans-Pacific_Partnership_trade_deal

https://ustr.gov/tpp/

 

Since the beginning of this century, China’s economy has grown at a notable rate, reporting double-digit GDP growth each year. As a result, there have been massive levels of wealth and a new population of Chinese billionaires. However, in the last five years, the Chinese immigrant population in the United States has increased by about 400,000 people, with about 25,000 of them being millionaires (China File, 2015). This causes economists to examine why so many wealthy Chinese are moving to the United States and how their movement is affecting the U.S. economy.

Although China has one of the world’s largest economies by measure of GDP, with consumption making up 71% and a debt exceeding 250% of their GDP, China’s economy proves to be anything but stable (The Hindu, 2016). Much of this instability is backed by the fact that the Chinese government has been inflating their GDP data through massive rates of increased spending. It also has to do with the fact that there is decreasing momentum in the service sector and a steep decline in the manufacturing sector. Since these sectors make up the largest part of China’s economy, it has made millionaires desperate to get their money overseas because they are unsure of the value that their fortunes will hold in years to come.

Another reason why Chinese millionaires are wary is because of the massive crackdown on corruption that was started in 2013, when President Xi Jinping came into power. This decision was intended to boost citizen morale by reducing the harsh divide between ordinary Chinese and party officials (Williams-Grut, 2016). However, since this crackdown, about 300,000 government officials have been punished for “allegations of bribery, abuse of power or other corrupt practices,” causing many of them to worry about the fate of their fortunes (BBC, 2016). Therefore, in order to protect themselves, many officials are trying to hide the money they earned illegally by investing it abroad.

Karen Weise, a reporter from Bloomberg, found that Chinese nationals hold around $660 billion in personal wealth offshore, with $22 billion of that being spent on homes. This movement of Chinese money, especially in the housing market, is present all over the United States and shows no signs of slowing down. These Chinese invest in American real estate because it is a safe market and many cities offer benefits like great neighborhoods and schooling. Therefore, in response, real estate has had to cater to the incoming Chinese millionaires by changing city landscapes, which, in turn, has affected many cities existing demographics.

As of 2015, it was reported that 64% of China’s 1.3 million millionaires have emigrated or have plans to move to the United States in the next five years (China File, 2015). These immigrants are moving all over the country; however, one of the most concentrated examples of a city adapting to wealthy Chinese immigration can be seen in Arcadia, CA.

Arcadia is a city 20 miles northeast of Downtown Los Angeles that has become a haven for wealthy Chinese residents. In 2016, it was reported that 59% of Arcadia’s 56,000 residents were Asian. This compares to 2000, when Asian’s only made up 45% of the population, 34% of that percentage being Chinese (U.S. Consensus). Over the last 16 years, Arcadia has attracted tens-of-thousands of Chinese millionaires by offering a first-class schooling system, large homes to live in, a nice neighborhood to raise children, and a pre-existing Asian population. These services have not only transformed the city’s landscape, but have also created great changes in Arcadia’s real estate sector.

As Chinese immigrants started to immigrate to California, realtors saw this as the perfect opportunity for financial gain. Therefore, to attract this specific Chinese market, architects and developers changed Arcadia’s landscape by building similar styled mansions ranging anywhere from $2 million to $7 million all over the city. Most of the homes reflect the Chinese philosophy of feng shui and face the south, which are two important aspects of Chinese culture (Hawthorne, 2014). Chinese culture is deeply rooted in tradition; therefore, Chinese immigrants are often more attracted to the mansions that honor their culture. Real estate developers also try to attract Chinese millionaires by creating mansions that include wine cellars, theaters, double-height entry halls, elevators, many master bedrooms, and a separate wok kitchen (Hawthorne, 2014). Architects and developers make a conscious effort to build these Arcadia mansions to appeal to wealthy Chinese immigrants in the hopes of earning a large profit.

Just in 2013, one Arcadia realtor, Peggy Fong Chen, sold over $71 million worth of homes in Arcadia (The Chinese Beverly Hills, 2014). According to Jue Wang, Chinese millionaires have been moving to America because they feel uneasy about their real estate investments in China’s unstable real estate market. Also, because of the income and wealth disparities in China, rich people have come to feel unsafe, causing homes in America to look even more attractive. However, for the most part, she said that these large Mc-mansions are in high demand because it gives millionaires a place to store their money.

While many of the mansions in Arcadia have semi-circular driveways lined with Range Rover’s and Porches, when getting a closer look, many of the homes actually appear to be unoccupied. A member of The Arcadia Homeowner’s Association estimated that 20% of these new mansions sit empty (Weise, 2014). This confirms that many Chinese are using these homes as a place to store their money. Realtor, Peggy Fong Chen, said that many of the million dollar homes she sells are paid for in cash. By paying in cash, Chinese millionaires are making it almost impossible for the Chinese government to trace the money that is being invested overseas.

Although this is an issue for the Chinese government and their economy, the U.S. has truly benefitted from the billions of dollars that Chinese foreigners have spent on American soil. For example, in 2014, Arcadia brought in a record revenue of $7.9 million just from fees for building permits and developments, which is a 72% increase from the previous year (Weise, 2014). Wealthy Chinese immigrants also helped the U.S. economy during the recession of 2009. During this time, China’s elites were affected but held on to the bulk of their wealth. Therefore, as America was facing a time of dramatic economic downturn, Chinese millionaires continued to move to the U.S., bringing millions of dollars with them. This money was then used to hire workers, pay for goods and services, and to help keep businesses afloat.

The United States government understands the influence that wealthy Chinese immigrants can have on the American economy. Therefore, in the hopes of sparking American investment, the U.S. government created a program to attract wealthy foreigners in 1990. The program states that if wealthy foreigners invest at least $500,000 in an American business and employ at least 10 American workers, they are eligible to apply for a green card known as the EB-5 Visa. As of 2014, Chinese nationals received 85% of the 10,000 American visas offered. Therefore, through this plan, the U.S. was able to generate at least $4,250,000,000 in investments, not including the money Chinese immigrants spent once they were in the U.S.

As much as this influx of wealthy Chinese immigrants can be beneficial to a city, it can also create problems throughout society. One problem is with long-term residents who feel like their cities are being commercialized solely for the purpose of financial gain. For example, people who have grown up in Arcadia have watched their hometown turn into a “Chinese Beverly Hills” lined with mansions that are not even occupied. As stated before, since 2000, Arcadia has experienced a 14% increase in their Asian population. This means that 14% of the former, mostly white, residents have moved out of Arcadia, many of them moving because developers have offered high prices to flip their average homes into Mc-mansions. In this case, it is clear that the wealthy Chinese immigrant population contributes to the gentrification of Arcadia by replacing the homes of it’s former citizens with giant mansions that better meet the needs of the new Asian millionaires. This not only promotes sentiments of elitism, but it also angers residents who feel like their city is being commercialized for the sole purpose of financial gain.

Another potential problem to be considered is that Arcadia is experiencing growth at an extremely fast rate that does not seem to be sustainable. Developers must be conscious because the amount of money that is being poured into these projects could be contributing to a real estate bubble. For example, on Zillow, there was a one-story home that was purchased in 2012 for $980,000. Then in 2013, a 5-bed room, 6-bath home popped up at the same address for $3,438,000, showing that developers are buying cheap homes and then replacing them with multi-million dollar to please the incoming Asian population.

Another example is just a few blocks away at a 3 bedroom, 2-bath house that was sold for $428,000 in 2012. Just this month, the same house was listed for about $2 million. This shows that because of multi-million dollar mansions that popping up throughout the city, the prices of the smaller homes are starting to rise as well. If developers continue building mansions we will eventually end up running out of resources or buyers. Therefore, developers must make a cautious effort to only create supply when there is demand, to avoid a real estate bubble.

Works Cited:

“Arcadia Population and Demographics (Arcadia, CA).” Arcadia Population and Demographics

(Arcadia, CA). Web. 22 Oct. 2016.

Bertrand, Natasha. “This California Suburb Has Become a Haven for Wealthy Chinese

Residents.” Business Insider. Business Insider, Inc, 02 Feb. 2015. Web. 6 Oct. 2016.

Hawthorne, Christopher. “How Arcadia Is Remarking Itself As A Magnet for Chinese Money.”

Los Angeles Times. Los Angeles Times, 3 Dec. 2014. Web. 9 Oct. 2016.

Hooper, Kate, and Jeanne Batalova. “Chinese Immigrants in the United States.”

Migrationpolicy.org. 05 Feb. 2015. Web. 18 Oct. 2016.

Scutt, David. “China’s Economy Is ‘still Weak and Unstable'” Business Insider. Business Insider,

Inc, 02 Mar. 2016. Web. 12 Oct. 2016.

VocativVideo. “The California Town Where Chinese Millionaires House Their Kids-and

Mistresses.” YouTube. YouTube, 05 Dec. 2014. Web. 2 Oct. 2016.

Wang, Jue. “Chinese Homebuyers Heat up LA’s Real Estate Market.” US-China Today. 4 Apr.

2013. Web. 10 Oct. 2016.

“Wealthy Chinese Are Fleeing the Country Like Mad.” ChinaFile. 3 Feb. 2015. Web. 10 Oct.

2016.

Wei, Lingling. “China Challenged to Keep Yuan Stable as Dollar Rises.” WSJ. Wsj.com, 16 May

2016. Web. 10 Oct. 2016.

Weise, Karen. “Why Are Chinese Millionaires Buying Mansions in an L.A. Suburb?”

Bloomberg.com. Bloomberg, 14 Oct. 2015. Web. 11 Oct. 2016.

Williams-Grut, Oscar. “China’s Corruption Crackdown Is so Strict That Even 2,400 Anti-bribery

Officials Were Probed.” Business Insider. Business Insider, Inc, 25 Jan. 2016. Web. 16 Oct. 2016.

In the last five years there has been a measurable increase in the amount of wealthy Chinese that have immigrated to the United States. The instability of the Chinese currency and increase in government regulation has caused some of the wealthiest Chinese citizens to worry about the fate of their fortunes. Therefore, since money is not a problem for many of these individuals, a large number of Chinese invest in American real estate to ensure that their money will be protected under the more stable U.S. dollar. Chinese immigrants have been settling all over United States; however, California is the clear winner when it comes to who has the highest number of wealthy Chinese immigrants. As a Pasadena native, I have been able to see the increasing number of Chinese immigrants in surrounding cities, which is why I will be discussing the growing Asian population in Arcadia, CA.

China is known for being the country with the largest population, being a global leader in trade, production and manufacturing, and housing hundreds of billion-dollar companies that directly compete with, and often dominate, international markets. So why have 2/3 of China’s millionaires emigrated or have plans to move to the U.S. in the next 5 years (Weise, 2014)?

One reason is because of the increased amount of government regulation in China. In recent years, the Chinese government has started to crack down on corrupt Chinese business practices. Knowing this, many wealthy Chinese citizens who earned their fortunes illegally have been trying to hide their money in foreign assets and investments, so they do not get caught.

According to Christopher Hawthorne from the Los Angeles Times, questionable business practices in China are motivating people to move to the U.S. [which, includes] stashing their money overseas and in mansions and other assets. This creates a problem for the Chinese government because with so many citizens moving large amounts of cash overseas, at a rapid pace, the government is not able to keep track of where all of the money is going.

Another reason why many Chinese elites are investing their money in American assets is because China’s currency is relatively weak compared to the dollar. In the beginning of the year, the dollar was not as strong as it usually is, which gave China the opportunity to try and stabilize the yuan (Wei, 2016). However, Lingling Wei from the Wall Street Journal reported that in April of this 2016, the yuan actually depreciated 0.6% against the dollar, causing the Chinese government, along with wealthy Chinese citizens, to panic. These feelings of panic have been occurring for years, causing wealthy Chinese businesspersons to think about where they can move their money to make sure that it retains its value.

Their solution: investing their millions into real estate in the U.S. Karen Weise, a reporter from Bloomberg, found that Chinese nationals hold around $660 billion in personal wealth offshore, with $22 billion of that being spent on homes. For the past 10 years, real estate has catered to wealthy Chinese populations all over the country, with the most concentrated example being in Arcadia, CA.

Arcadia is a city 20 miles northeast of Downtown Los Angeles that has become a haven for wealthy Chinese residents. Residents are attracted to Arcadia because of its first-class schooling, nice neighborhood, large homes, lenient building codes, and a pre-existing Asian population. As a result to an influx of Chinese millionaires, Arcadia has become a city categorized by new mansions that cost anywhere from $2 million to $7 million. You would think these ridiculous asking prices would discourage Chinese citizens from emigrating. However, it has done the complete opposite.

Just in 2013, one realtor, Peggy Fong Chen, sold over $71 million worth of homes in Arcadia (The Chinese Beverly Hills, 2014). For the most part, these large Arcadian mansions are in high demand because it gives millionaires a place to store their money. Because of China’s shifting real estate policies and the social instability caused by income and wealth inequality in China, rich people have come to feel unsafe, said reporter Jue Wang (2014). For this reason, these Chinese immigrants often pay for their million dollar homes in cash in order to shorten the money trail, with the hopes of hiding their money more effectively from the Chinese government.

When driving through the streets of Arcadia, you are able to large mansions with semi-circular driveways, lined with Range Rovers and Porches. However, when examining the houses closely many seem like they are unoccupied. A member of Arcadia’s homeowner’s association estimated that 20% of these new homes sit empty (Weise, 2014). The main reasoning behind this is that the Chinese are just using these homes to store cash. However, other reasons can be because the mansions are being used as vacation homes, or because many homes are purchased for millionaire’s children, parents, or mistresses, or because language barriers have actually caused Chinese residents to move back to Asia or elsewhere.

The fact that Chinese immigrants are leaving Arcadia because of a language barrier proves that, certain cities and amenities do not appeal to all Chinese elites. However, people are highly aware of the potential profits these immigrants could generate. Therefore, people have had to come up with specific ways to attract wealthy Chinese immigrants.

To attract this specific Chinese market, architects and developers have been building and crafting million-dollar mansions with similar styles, which has drastically changed Arcadia’s city landscape. Most of the homes architects create reflect the Chinese philosophy of feng shui and face the south, which are two important aspects of Chinese culture (Hawthorne, 2014). Chinese culture is deeply rooted in tradition, therefore, Chinese citizens are often more attracted to homes that represent and honor their culture. Arcadian architects also try to attract Chinese millionaires by creating mansions that include: wine cellars, theaters, double-height entry halls, elevators, many master bedrooms, and a separate wok kitchen (Hawthorne, 2014). Architects and developers make a conscious effort to build these Arcadia mansions to appeal to wealthy Chinese immigrants, in the hopes of earning a large profit.

Architects and developers are not the only ones trying to bring Chinese millionaires to America. The U.S. government recognizes the money that wealthy foreigners have, and wants them to spend it on American soil. Therefore, in 1990 the U.S. government created a program to attract foreign investments, in the hopes of sparking investment. It requires that if wealthy foreigners invest at least $500,000 in an American business, they are eligible to apply for a green card known as the EB-5 Visa. As of this year, Chinese nationals allocated 85% of the 10,000 visas offered. Therefore, through this plan, the U.S. was able to generate $4,250,000,000 in investments; in addition to the money foreigners spent once they came to the U.S.

The influx of wealthy Chinese immigrants has brought a lot of business, investment, and money to the United States. For example, in 2014, Arcadia brought in a record revenue of $7.9 million just from fees for building permits and developments, which is a 72% increase from the previous year (Weise, 2014). Wealthy Chinese immigrants also helped with the U.S. economy during the recession of 2009. During this time, China elites were slightly affected but still stayed wealthy. Therefore, as America was facing a time of dramatic economic downturn, Chinese millionaires continued to move to the U.S., bringing millions of dollars with them. This money was then used to hire workers, pay for goods and services, and to help keep businesses afloat.

As much as this influx of wealthy Chinese immigrants can be beneficial it can also create problems in society. One problem is with long-term residents who feel like their cities are being commercialized solely for the purpose of financial gain. For example, people that have grown up in Arcadia have watched their hometown turn into a “Chinese Beverly Hill” with mansions that are not even occupied. As of 2010, it was reported that than 44% of Arcadia’s residents were Chinese (Bertrand, 2015). This report just shows how the Chinese population is starting to take over cities, which could further upset city natives. Therefore, it is evident that the thousands of wealthy Chinese immigrants that have settled in the U.S. have disrupted cities by attracting commercial development and expunging any remnants of a city’s history.

Another potential problem that should be considered is that the growth that Arcadia is experiencing is not normal. The building of mansions has grown at a rate that does not seem to be sustainable. Therefore, we want to be conscious about how much money we are pouring into these projects, so that we can avoid any real estate bubbles in the future. If we continue building mansions we will either run out of resources or run out of buyers. Therefore, we must make a cautious effort to focus on only creating supply when there is demand.

As you can see, there are pros and cons surrounding the immigration of Chinese millionaires. Regardless, it is important to recognize the impact they have on the U.S. economy and society, in the hopes of finding a harmonious balance between the two. Immigration is a great way to encourage diversity and change; however, we do not want to promote too much diversity in a way that will drive out the people who inhabited an area first. Therefore, this balance is essential to creating a world where everyone can prosper

Works Cited:

Bertrand, Natasha. “This California Suburb Has Become a Haven for Wealthy Chinese

Residents.” Business Insider. Business Insider, Inc, 02 Feb. 2015. Web. 6 Oct. 2016.

Hawthorne, Christopher. “How Arcadia Is Remarking Itself As A Magnet for Chinese Money.”

Los Angeles Times. Los Angeles Times, 3 Dec. 2014. Web. 9 Oct. 2016.

VocativVideo. “The California Town Where Chinese Millionaires House Their Kids-and

Mistresses.” YouTube. YouTube, 05 Dec. 2014. Web. 2 Oct. 2016.

Wang, Jue. “Chinese Homebuyers Heat up LA’s Real Estate Market.” US-China Today. 4 Apr.

2013. Web. 10 Oct. 2016.

Wei, Lingling. “China Challenged to Keep Yuan Stable as Dollar Rises.” WSJ. Wsj.com, 16 May

2016. Web. 10 Oct. 2016.

Weise, Karen. “Why Are Chinese Millionaires Buying Mansions in an L.A. Suburb?”

Bloomberg.com. Bloomberg, 14 Oct. 2015. Web. 11 Oct. 2016.

Breaking news hit this weekend regarding five attempted bombings that threatened New York and New Jersey. As citizens fear for their safety and officers are on high alert, there is also another group of people that are scrambling for resources. In order to bounce back from the tragedy, the federal government must pour money into heightened security and begin to finance city repairs. Although the safety of the American people holds a much higher significance than the money that is use to ensure that safety, it is still an aspect of the government that must be considered.

In the last year, the number of terrorist attacks has been at an all time high.
These attacks have taken far too many lives and often leave parts of the city
destroyed. Although it is often not considered, these tragic results have an enormous effect on the economy in two ways. One way is that, it largely affects consumption and consumer spending. The other way is that the actual costs of repairs and increased security takes a large toll on the economy.

When attacks occur, people tend to stay inside due to a lacking sense of safety. By doing this, they avoid spending on leisure, goods and travel.
In addition, during times of crisis
businesses often decide to close, public services, like subways, temporarily shut down and cell phone towers even stop working because of the chaos. Although these factors may not seem like they would have a considerable impact on the economy, they actually cause a major disrution in every day life and impacts the economy on a global scale.

The economic impact of global terrorism has been rising since 2010. This can be seen on the graph below, which was created by the Institute of Economics and Peace. The graph shows that over $52 billion was spent globally on terrorism in 2014. However, this number only includes direct, short-term costs, excluding economic impact, war funding, future veteran’s care and increased national security. Therefore, the actual cost of funding after terrorist attacks ends up being much more. For example, the 9/11 attacks were initially estimated to cost $27.2 billion, but after factoring the effect that it had on the economy long-term, it came out to be around $3.3 trillion.

In addition to cuts in consumer spending, a majority of the costs incurred by terrorist attacks come from increasing military and security measures. After terrorist attacks the costs of special equipment, repair and deploying thousands of officers around the clock really adds up. In New York City’s metropolitan area annual protection usually comes out to be $1 billion according to Michael Paddock, CEO of Grants Office LLC, which tracks federal spending. However, this price does not include the costs acquired when there are actual attacks. CNN Money reported that The Emergency Service Unit, which includes 500 elite counter-terrorism officers is always deployed during times of crisis and attack, and not at a cheap price. These officers usually carry Cold AR-15 weapons, which cost about $700 each with an additional $500 Glock 19 on their belt. These officers also wear an increased amount of armor, which includes $200 bullet-resistant vests and $1,000 helmets.

When all these prices add up, New York City is looking at a bill for about $540 million on anti-terrorism efforts by the ESU, police and fire departments. Thankfully, the federal government pays for $400 million of that and taxpayers come up with the rest. However, this is a small price to pay to ensure protection and safety through the United States.

Sources:

http://money.cnn.com/2016/09/19/news/nyc-terrorism-cost/index.html?iid=hp-toplead-dom

http://fortune.com/2015/11/17/terrorism-global-economic-cost/

http://www.cnn.com/2016/09/19/us/new-york-explosion-investigation/

http://pix11.com/2016/09/17/subway-service-after-chelsea-explosion/

http://www.nytimes.com/interactive/2011/09/08/us/sept-11-reckoning/cost-graphic.html

Every two years a country from anywhere in the world is strategically chosen to host the Olympics. I say strategically because being given the honor to host the Olympics greatly effects a country’s reputation, residents, and, most importantly, its economy. Therefore, to account for this major event, economists at Bespoke Investment Group came up with the Olympic Indicator to measure the state of the economy during this exciting time.

The Olympic Indicator shows that markets tend to prosper during the Olympic games. Bespoke Investment Group explains this by saying that the excitement of the games distracts investors from problematic economic data and headlines. Bespoke confirmed this notion by tracking the Dow Jones performance during the Summer Olympics between the opening and closing ceremonies since 1900. Their results; positive returns in 18 of the last 26 games.

This summer in Rio de Janeiro marked the 31^st Summer Olympics. However, there were a lot of concerns leading up to the games on whether Rio could afford the Olympics, issues with their government and city safety, the presence of the Zika Virus, issues with severe water pollution and if the Olympic buildings were even going to be finished on time.

However, with all these problems, the U.S. economy still seemed to benefit from the games. By looking at the chart below it is evident that the Dow Jones Average spiked from 18.352.05 on August 4 to 18.543.53 on August 5, which was the day of the Opening Ceremonies in Rio. Although the average fluctuated during the Olympics, ever since August 21, the date of the Closing Ceremonies, the average is almost back at where it started on August 4.

Although the Dow Jones Average shows that the American stock market did improve during the 3 weeks of the Olympics, the Olympic Indicator does not actually prove that the games distract investors. Therefore, the economic growth that occurs during the Olympics can also be explained by looking at the money that is entering markets around the world. For example, NBC Universal paid $1.2 billion for the right to broadcast the Olympics in Rio, which is chump change to Rio’s estimated $12-20 billion they spent on hosting the games. All of this money promotes consumer spending and puts money into the economy that was not there before, which in turn, betters the economy.

Sources:

http://www.marketplace.org/2016/08/05/world/let-s-do-numbers-what-has-been-spent-rio-olympics

http://www.usatoday.com/story/sports/olympics/rio-2016/2016/05/12/impeachment-trial-set-rio-olympics/84275984/

http://www.marketplace.org/2016/08/05/world/let-s-do-numbers-what-has-been-spent-rio-olympics