The Coming China Wave

It could take three to seven years, but the world’s next superpower will play a much bigger role in local tourism, real estate, energy, schools and exports

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The hotel owner waited patiently to chat with Hawaii Gov. Linda Lingle in the steel-and-glass enclosed lobby of the Kai Wah Plaza International Hotel in Kunming, China.

When they met, Chau Lai Kai thanked Lingle for staying at her property and then surprised the governor by announcing she was very interested in buying Hawaii hotels.

Lingle and her aides recount the story about the June encounter to underscore their belief that China’s growing wealth could soon play a big role in Hawaii’s economy.

“The potential is tremendous,” agrees Jeff Lau, a Honolulu attorney who is president of the Chinese Chamber of Commerce of Hawaii. “It’s only starting right now.”

Local executives, government leaders and educators all hope China sends more tourists, students, investments and overall business to Hawaii. They have good reason for optimism: China passed Japan in August as the world’s second-largest economy and the Beijing government is urging Chinese companies to invest overseas as part of its “zou chu qu” or “go abroad” strategy.

“If Hawaii places itself well, there’s quite an opportunity for Chinese money to come in,” says Christopher McNally, an East-West Center political economist and a leading expert on China. “Hawaii has very good name recognition in China.”

But others say large Chinese investments and tourists will only happen after a concerted effort by government and local business.

“We need a China plan,” says K.L. Leu, a former Hawaii attorney now based in Beijing. Leaders of Hawaii’s public and private sectors must “come together to say we need to have a plan that makes sense,” he says.

Already there’s been a smattering of Chinese-Hawaii investments – a Chinese-backed group reportedly bought the Kapolei Golf Course in September and Tianwei New Energy Holdings holds a controlling stake in Hoku Corp. – but nothing to compare to the Japanese investment wave of the late 1980s.

At the state’s Department of Business, Economic Development and Tourism, there is no question about pursuing economic ties with China. The agency has sought to strengthen relations through an office in Beijing and multiple trips to China, including four by Lingle herself.

“The question is: ‘Can Hawaii afford not to engage and benefit from China?’ ” says DBEDT Director Ted Liu, who sees China as an economic force that can’t be ignored over the next decades.

DBEDT’s strategy involves concentrating on what Liu calls “our natural strengths and advantages.” Four of those areas are tourism, education and training, energy and export products.

     Gov. Linda Lingle has made four trips to China to promote tourism
     and other relationships with the People’s Republic.  Lingle is
     hosted at a reception dinner by Shao Qiwei, director of the
     China National Tourism Association.


Tourists: A half-million a year?

The Chinese are one of the brightest prospects for Hawaii’s tourism industry, with arrivals from China growing faster than arrivals from every major market except South Korea. Visitors from the People’s Republic are expected to spend an astounding $322.70 per person per day in Hawaii this year – the most of any tourist group.

The market is in its early stages, with the Hawaii Tourism Authority projecting 63,340 Chinese visitors this year and 85,000 next. “It’s similar to where we were in the early days of Japanese travel to the U.S.,” says Marsha Wienert, state tourism liaison.

But more dramatic growth depends on making the U.S. visa process for Chinese easier and more predictable, and establishing direct flights from Beijing or another major city in mainland China.

Lingle met with U.S. Ambassador Jon Huntsman Jr. in Beijing in June on the visa issue. Wienert says U.S. officials have made the process and its required interview more predictable for applicants. Meanwhile, Hawaii has worked with Chinese travel agents about educating their clients and helping them fill out the visa applications.

“It’s only been a short period of time that they’ve actually been allowed to travel for leisure,” explains Wienert. “That market is just beginning here.”

Hawaii is well-known in China, she says. Part of that is historic: Sun Yat-sen, the founder of modern China, spent four years at Iolani School, graduated in 1882, and then spent a semester at Punahou. And many modern Chinese leaders have spent time at University of Hawaii or the East-West Center.

     Lingle and Ted Liu, director of the state Department of Business,
     Economic Development and Tourism, are interviewed by a
     reporter for the Nanfang Daily in Guangzhou, which was
     planning a special supplement on Hawaii.

Wienert believes direct air service to Hawaii will happen once Hainan Airlines (approved for three weekly Beijing-Honolulu flights) or other carriers resolve some concerns, including the visa issue, getting tour operators to buy more seats and selling air cargo space on backhaul flights.

“We don’t want 10 million Chinese visitors,” Liu says, noting he’d settle for just half a million high-spending Chinese.

But first, he acknowledges, Hawaii must be prepared with more Chinese-speaking employees in hotels and other businesses catering to the visitors.


Real Estate: Looking for bargains, not trophies

Real estate executives say there’s a correlation between tourism and property purchases. As tourist arrivals grow, purchases of hotels, resort condominiums and second homes follow.

That connection has happened with U.S. West Coast and Japanese visitors, and, to a lesser extent, with the growing number of South Korean tourists.

As more Chinese vacation here, the same phenomenon is expected to occur. So far, it hasn’t happened in great numbers, though there are stories circulating around Hawaii, like the one about Chau Lai Kai, the owner of the hotel in Kunming.

Mark Bratton, vice president of investment properties at Colliers Monroe Friedlander, say representatives put in three separate hotel bids for groups out of Beijing and Hong Kong. While the investors – two family groups and one backed by a corporation – weren’t successful, Bratton believes there will be more bids.

“I think it’s a slow wave,” he says. “Over the next five years you can expect it to increase.”

     Lingle speaks at the “Invest in Hawaii” forum at the Westin
     Hotel Guangzhou. At far right, she exchanges gifts with
     Huang Huahua, governor of Guangdong province.

That’s a typical view. Many people see Chinese investment as being in the early stages, with more significant activity coming in three to seven years as China’s economy continues to grow and incomes increase.

Bratton believes the people he represented were ahead of the investment curve and saw hotel ownership here as an extension of their Chinese tourist business. That hotel prices fell during the downturn also was attractive to them.

But the investors, like others coming from China, are hard-nose bidders. Residential Realtors say the same of Chinese buyers with whom they’ve dealt: The Chinese look for a good return on investments.

That’s led to some talk that Chinese might prefer markets such as Las Vegas, where prices are lower and they can get more for their money. Or that the money will stay home where there’s potential for double-digit returns in fast-growing real estate markets.

“It’s a different client,” says Dan Tabori, executive vice president of Prudential Locations.
Tabori says there are Chinese clients in the market, but not in great numbers. During the first half of 2010, he 
says, the Chinese represented only 
about 1 percent of luxury home transactions – a market that’s indicative of overall offshore buying. That’s opposed to more than 10 percent coming from Japan.

“It’s a developing story,” Tabori adds.

More transactions could soon occur. Brenda Foster, former director of the state’s Office of International Relations and now president of the American Chamber of Commerce in Shanghai, says she knows of Realtors specializing in high-end Hawaii properties who are marketing in China.

In the commercial market, Bratton expects the Chinese to go after tourism-related real estate first and then move to other types of properties. But don’t expect them to seek trophy properties like the Japanese did, he says.

“The Chinese are very, very tough bargainers,” agrees the East-West Center’s McNally. “They want to get a bottom price.”

Hawaii Business magazine invites you to comment on our articles and the issues they raise. Comments are moderated for offensive language, commercial messages and off-topic posts and may be deleted. Some comments may be chosen for inclusion in the magazine on the Feedback page.

Old to new | New to old
Nov 3, 2010 08:23 am
 Posted by  johnsonwkchoi

This seems to be the 8 years old story updated to the current form & call it current story. There were a lot of talk and few action by Hawaii for the past decade. If we wait long enough, the Chinese and Chinese investors will come. Many of the people interviewed here are lacking the the understanding of Asian business. Those that understood used Hawaii resources to profit from it for personal gains at the expenses of taxpayers as there is NO anti-corruption rules in place in Hawaii.

This has been flagged
Nov 8, 2011 10:20 pm
 Posted by  CLEARWORLD

Interesting point.

As Visa's get easier and easier to obtain, and flights are starting to go directly to Honolulu, there still are many obstacles for the Chinese visitor to overcome during their stay on the islands.
I hope HTA will use some of their budget to help Hawaii companies develop local support for the incoming Chinese.
Our company is educating Chinese FITs, and the response is overwhelming. . . in many ways.
It is time for Hawaii to get ready for a new style of visitor. . . Mingbai?

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