Asia woes likely
to hit Hawaii hard

Local analysts and business people
say the effects will be felt
in various markets

By Susan Kreifels
Star-Bulletin

Asia's currency crisis means tougher times in Hawaii for at least two or three years, economic analysts and business people say, with vibrations traveling beyond tourism to areas like real estate and local products.

"The crisis in Asia certainly will affect Hawaii more than any other state because we are located in the region and a lot of our economy is Asian-based," said John Reed, chairman of Pacific retail development at DFS Group.

But businesses catering to niche markets should fair the storm better, and when the Asian tigers bounce back, they'll be roaring louder than ever, analysts say.

For people in Asian countries like South Korea that have been hard hit by the currency plunge in recent weeks, Hawaii prices have jumped 20 to 40 percent. That will likely scare off some tourists and investors.

Japan has seen a more gradual decrease in yen power, but analysts expect harder times ahead as it not only deals with its own domestic financial crisis but the region's as well.

That's bad news for Hawaii, a state that relies on the region to fuel an already stale economy.

"The real problem for Hawaii is that everything went up in price," said Robert Lees, secretary general for the Pacific Basin Economic Council in Hawaii. "Condo prices just went up 20 to 40 percent relative to currencies."

The impact on tourism is obvious -- cheaper prices in Asian destinations will prove tough competition for Hawaii, especially among already tighter-spending Japanese.

But analysts are looking beyond the visitor industry. "Hawaii could be a little slow to pick up on the impacts, but there are all kinds of effects," said Leroy Laney, chief economist at First Hawaiian Bank.

Laney said that while tourism is the major worry, other areas could be hard hit. He said he expects more Japanese banks to go bust, and that could hurt investment and real estate.

"What would happen if there was further unloading of Japanese real estate and they had to find buyers quickly? That could cause downward pressure on property," Laney said, adding that many of the "bottom fishers" picking up such bargains came from other Asian countries.

"There's less chance they will be coming out of countries like that . . . They almost have to come from the United States," Laney said.

At the same time, overbuilding in Southeast Asian countries like Indonesia, Malaysia and Thailand will provide bargains for investors, Laney said. "They're going to invest in assets there," Laney said.

But Patricia Choi of Patricia Choi Realty has seen increased interest in high-end houses from buyers in Japan, Hong Kong and Taiwan in addition to California buyers. A property worth $5.5 million recently raised five bids: four from Japan and one from Hong Kong, she said.

Also, sellers of expensive property have more cushion to drop prices and match falling currencies.

But Choi doesn't see much interest in investment property and condos yet. "A lot are buying second homes, not investments," she said. "Commercial property is still tight. The condo market is flooded."

Local products could also suffer as Asian goods will be cheaper -- like Thai and Malaysian orchids, which could underprice Hawaii-grown ones, Lees said.

"Anything that comes out of here to those countries will be that much more expensive," Reed said. He added, however, that Hawaii exports are a small part of the state's economy.

Lees said that niche markets -- health care for Asians, convention business, software and technology, ecotourism, and specialized Hawaii products going to Asia -- should still fare well. And now is the time to search out and develop those niches.

This is also the time to work on Hawaii's image to investors.

"We've got to change the mindset that our government and bureaucracy creates," said Lees, whose membership represents 1,200 companies in the region. "We have to be facilitators and not controllers, not (focus on) how many roadblocks we can throw up."

Once the Asian economies bounce back, they'll be strong again, so Hawaii needs to focus on attracting investors from the region, Lees and others said.

"Asian are absolutely resilient and they recover much faster," Reed said. "They take hits and move on . . . We need Asia."

Lees just returned from the Vancouver summit of the Asia-Pacific Economic Cooperation and said he was heartened by what he saw there. Leaders focused on the economic crisis in Asia. "This was the first one where there was an issue that really brought leaders together," he said. "They're redoubling efforts on opening markets, trade and financial services."

Japan was targeted by members as the country that must lead the way in Asia's recovery, Lees said. "They lined up to say it's time for Japan to do a heck of a lot more than it's done. Domestic politics be damned. They (Japanese) have a higher calling."

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Despite troubles,
isles hold great allure
for Hong Kong

But an analyst says direct flights
are needed to tap the market

By Susan Kreifels
Star-Bulletin

News photos of Chinese President Jiang Zemin frolicking on Waikiki beaches may have done more to promote Hawaii in Hong Kong and China than any state tourism or investment campaign, says one regional economic expert.

Robert Lees, secretary general of the Honolulu-based Pacific Basin Economic Council, was traveling in Asia during Jiang's Oahu stop en route to a meeting with President Clinton. Lees said the visit played big in Asian media.

And at the Vancouver summit of Asia-Pacific Economic Cooperation forum earlier this week, "the ministers were talking about Honolulu and Waikiki and how the president so enjoyed himself.

"We couldn't pay for the exposure we got. We don't want to let that go and not build on it," said Lees, who just returned from the APEC summit.

And considering the Hong Kong dollar and Chinese currency are more stable than most in Asia, this may be the time for Hawaii to make a big push there for investors, he said.

Since the Hong Kong dollar is pegged to the American buck, its value hasn't changed here. Other Asian currencies have dropped significantly. And the Chinese currency may even appreciate in value, analysts said.

Leroy Laney, chief economist at First Hawaiian Bank, said he's still cautiously watching Hong Kong, which was handed back to China last July. But "it's the only place where the exchange rate is working for us." And Realtor Patricia Choi said Hong Kong investors continue to buy upscale homes in Hawaii.

To tap more Hong Kong and Chinese investors, Lees said Hawaii must get direct flights there. "That's a top, top priority. We should do whatever it takes to get Hong Kong people here because of their powerful currency."