Building Bridges to China

Chinese companies and individuals are investing tens of billions of dollars in America. Here’s how Hawaii businesses and nonprofits are creating relationships with their Chinese counterparts and working to get a share of those

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Real Estate

Big Dreams and a Smaller Reality

One type of investment that is commonly assumed to already be attracting Chinese money to Hawaii is real estate. Indeed, many in the real estate sector are busily trying to capitalize on the expected glut of money from Chinese buyers. On the residential side, most major brokerages have Chinese-language websites and have hired Chinese-speaking agents. That strategy dovetails with stories in the national media about heavy Chinese investment in depressed housing markets like Orange County, Calif., or Henderson County, Nev. In fact, according to reports from the National Association of Realtors, China is the second-largest source of foreign buyers in the U.S., accounting for a quarter of all international sales.

But the idea that there’s a rush of Chinese buying homes in Hawaii is overblown. “It really is,” says Mike Pietsch, CEO of Title Guaranty. “For all the publicity it’s gotten, it’s fairly low. The Japanese and Canadian markets are still much larger.”

Pietsch points to the number of transactions recorded at the Bureau of Conveyances over the last several years. Among foreign buyers in 2012, Chinese were a distant third. Japanese buyers accounted for 228 transactions worth nearly $175 million. Canadians purchased 349 properties worth a whopping $311 million. By contrast, Chinese and Hong Kong buyers together only racked up 29 purchases worth $19 million – a drop in the real estate ocean.

Pietsch says the numbers also mitigate against the idea that the China market is suddenly growing. “If you’re forecasting out the full year for 2013,” he says, “it’s up to 20 sales for China versus 16 last year. But Hong Kong is down a bit.” In contrast, Japanese and Canadian sales are projected to reach 290 and 366 transactions, respectively. In other words, there’s hardly a groundswell of Chinese buyers for Hawaii real estate.

Pietsch acknowledges that these numbers may not tell the full story. It’s possible, for example, that the rash of towers going up in Kakaako and Waikiki temporarily hides a spike in Chinese investment. That’s because the typical Chinese buyer isn’t looking for a single-family home, but for a modest investment property. “My gut is that a lot of it is time-share and condo sales,” Pietsch says. “Stuff that’s easily managed. So these condo projects in Kakaako could be very appealing to foreign buyers, as we saw with Hokua and Nauru towers. The Ritz-Carlton is sold out; the Symphony is almost sold out. I’m sure some of that makeup is foreign buyers.” These are still pre-sales, though; they don’t show up yet in the Bureau of Conveyances numbers. 

It’s also possible that some of those Canadian and mainland buyers are actually naturalized citizens originally from China or Hong Kong, and possibly still living there. These kinds of phantom buyers may cloud the size of Chinese investment in Hawaii. In any case, most real estate agents believe the China market is growing. “Our international clients are still mainly Japanese,” says Graham Ting, a China specialist with the high-end brokerage Sachi Hawaii. “But the rate of growth for the Chinese market is much, much faster. It’s true, investment from China may not be statistically there yet, but some of that money may be coming from Canada or the mainland.”

Education Connected to Real Estate

But, most savvy local real estate agents have figured out the limits of the Chinese market. Mei Pang, a Shanghai-born agent with Prudential Advantage, says, “The number of Chinese people who are going to buy real estate here in Hawaii will always be fewer than in mainland cities, especially those along the East Coast and West Coast.” The reason, she says, is largely because of the schools.

Indeed, almost everyone familiar with the mindset of Chinese investors points out that they often invest in the U.S. to help their children get into high-end American schools. “The schools in their mind are Ivy League schools or places like MIT or Stanford,” Pang says. “And, because they have those schools in their mind for their children, or even their grandchildren, they will always look to the mainland, not Hawaii.”

Pang also notes cultural differences between Japanese and Chinese buyers. “The Japanese have been wealthy for a while,” she says, “so they’ve pretty much toured the whole world, then decided Hawaii is a great place, so they come here year after year. The Chinese mentality is different. The Chinese only started to get wealthy and travel abroad about 20 or 30 years ago. If you asked them to come here every year, they would feel it’s such a small place. They want to go to the mainland. They want to see the world.” In short, Hawaii isn’t the same paradise for Chinese buyers that it is for the Japanese.

Still, brokers can’t ignore a country with as much cash as China. For example, Ting’s brokerage collaborates with a real estate company that has an office in Shanghai. For a fee, the Shanghai company refers potential Chinese buyers to Sachi Hawaii. That’s a concrete investment in the China market.

Chinese-speaking agents like Ting are also strategic investments for the real estate companies. Prudential Advantage has “several Chinese-speaking agents, like myself,” Pang says. She also points to the steady increase in direct flights from Chinese cities to Hawaii as a sign the market will grow. But she still doesn’t think local brokers can afford to put too many resources into China. “Right now, we’re still kind of focused on the local marketplace. On the side, we’re kind of in the planning stages of looking into the China market.”

That same tentativeness applies to the agents themselves. Ting, for example, has limited his personal investment in the China market. “I went to fairs and conventions,” he says, “but there were a lot of exhibitors there. Too many of them. I don’t think it’s effective, and it’s very expensive to set up a booth.” In the end, he concluded it wasn’t worth the investment.
Pang concurs. “I was thinking about going to China to market myself,” she says. “But that would have involved a large capital investment. Last year, I decided not to and to basically anchor my business with the local market.”

Education

Local Schools Face Recruiting Challenges in China

Given China’s obsession with Ivy League educations, Hawaii’s colleges face a challenge in attracting more Chinese students. Last year, an alliance was formed by UH (including its community colleges), Hawaii Pacific University, Chaminade and a few private prep schools in the state. The aim of the Study Hawaii Educational Consortium is to promote the state as a destination for international students, particularly in the lucrative China market.

However, if UH wants to compete for lucrative Chinese students, it must make changes. For example, it may have to start paying agents in China to promote the school. “UH is probably one of the only state universities that doesn’t have brokers working for them in China,” says David Wilson of the Hawaii Islands Regional Center. “My daughter goes to Boston University and they have a huge presence in Shanghai, in Beijing and in Guangzhou. We went to her orientation and they probably had 120 Chinese kids enrolled in her university – and, as foreign students, they’re paying twice as much. A lot of the Chinese we talk to don’t even know there is a university in Hawaii.”

These educational consultants are one of the primary ways of reaching Chinese families, says Becky George, director of international programs at Leeward Community College and president of the Study Hawaii Educational Consortium. “These are basically companies that provide guidance to students and their parents about where to study outside China. Many of them are full-service companies. They have partners outside China and are sort of like what we would think of as travel agents.” For Chinese parents thinking of sending their children abroad, their advice is crucial.

The Hawaii Preparatory Academy on Hawaii Island draws its diverse student body from the Hawaiian Islands, 17 other states and U.S. territories, and 18 foreign countries, including China. Left above, several HPA students from China gather for a photo on campus. Front row, left to right, are Xin’ge “Mikki” Li, Xingjie “Alex” Li, Di “Judy” Zhu and Chao “Mickey” Lin.  In the back row are Jingyi “Chloe” Xiang and Antonia Tsui.

Photo: Hawaii Preparatory Academy

Interestingly, the UH Outreach College can pay recruiters because it’s a nondegree program. Judy Ensing, director of international programs for the college, hopes that will provide a back door for university recruitment in China.

“We’re starting a brand-new program targeting Chinese students,” Ensing says. “We call it the University Preparatory Program. The goal is to work with agents in China that target students who are almost eligible to be accepted into U.S. universities, but need a little help.” The idea is to bring those students to the Outreach College as a prelude to matriculating into a degree program. “It will be a two-semester program,” Ensing says. “During the first semester, we’ll give them intensive English classes. In the second semester, they’ll start to take a couple of credit courses to make sure they’re really on track and ready to go into university. Hopefully, I’ll be boosting China enrollment into UH and producing a steady stream of Chinese students.”

According to Ensing, the preparatory program is patterned after successful programs at mainland universities. “It was proposed to us by Guangzhou Shi Jin Sheng Consulting, a recruiting agent in China, because it has been doing this with specific schools on the mainland, notably U.C. Irvine.”

There are other challenges. First, Chinese parents have to be convinced this is a good place to send their children. “Hawaii is a little bit of a hard sell,” Ensing says. “It’s hard for them to wrap their heads around the idea that this can be a study destination. We actually have to downplay the beauty and scenery to kind of make it look more serious and convince the parents that, yes, their kids can study here.”

Alex talks with friends: Janelle Laros of Kona, Chyna Hanano of Kauai, Lana Poljak of Croatia and Kanoa Chobany from Hakalau on Hawaii Island.

Photo: Hawaii Preparatory Academy

There are also visa issues. “It’s fairly easy for Chinese to get a visa if they’re coming for a degree program,” Ensing says.

“But it’s different for nondegree programs, like those at the Outreach College. We’ve had Chinese students who’ve had their visa applications rejected.” Nevertheless, some Chinese students manage these obstacles: UH had 148 students from China and another 13 from Hong Kong in fall 2011.

Boarding Schools

Many of Hawaii’s private secondary schools are also eager to add to their cadre of high-paying international students, none more so than the Hawaii Preparatory Academy on Hawaii Island. That’s largely because HPA is the last of the traditional boarding schools in Hawaii. Nearly half of its 400 or so students are boarders, including 60 to 70 international students.

And, although Japanese students outnumber Chinese, the school is actively recruiting in China, according to admissions director Josh Clark.

“We were probably in the first wave of boarding schools getting high school students from China,” Clark says. “Within one or two years, we went from two Chinese students to 15. When other boarding schools saw the numbers that were coming out of China, they became more interested. Now, a lot of educational institutes are looking to China for students.”

Clark is almost constantly traveling the world to recruit for the school, including nearly annual visits to cities in China. He limits himself to places where there are plenty of people who can pay HPA’s prices. For tuition, room and board, and other fees, it is more than $50,000 a year.

Other local private schools, like Mid-Pacific Institute, also recruit Chinese students, though they rely on family stays rather than boarding. That’s a cheaper option for the students and their families, but the smaller payoff for the school means it can’t afford to send representatives to China to recruit students.

Josh Clark is a recruiter for Hawaii Preparatory Academy, which means he is a very frequent flyer. His schedule this school year will take him to all the places marked in red plus stops on the U.S. mainland and a few more international destinations that are not yet finalized.

“They’re charging a day rate,” Clark explains. “I’m charging a boarding rate.”

HPA’s experience sums up the “China Lesson” for all Hawaii organizations. To really succeed in the China market, you have to be there. But being present is often too costly for individuals or small operations. That’s why organizations such as the U.S.-China Legal Network and the Study Hawaii Educational Consortium are so important. Support from government would also help, but that is currently anemic: DBEDT maintains a one-man office in Shanghai; HTA simply contracts with a marketing agent.

It would be a shame if Hawaii missed out on the China boom. In the words of an old Chinese proverb: Fortune does not come twice; misfortune does not come alone.

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.

Oct 15, 2013 11:50 am
 Posted by  johnsonwkchoi

Of the 4 items mentioned: the law, EB-5 investments, real estate and education - Hawaii offer NO real advantages to compete with other States going after the Chinese dollar.

Hawaii does appeal to the very rich for our weather, simple life style and disconnected with most part of the world for added comfort and privacy.

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