China a long march for global hopefuls
By Emily Pettafor
March 11, 2004
CHINA and profits may be synonymous in the eyes of many Western companies but the road to delivery is long and hard.
Britain's InterContinental Hotels Group was among the first of the international hoteliers to set up shop there – 20 years ago. Patrick Imbardelli, the chain's Asia Pacific managing director, said it took "at least 10 years" to turn a profit.
"If you start off with the premise that there's money in the streets and you have to do very little to make it . . . you're not very wise."
But perseverance eventually pays off.
The chain did some research among Chinese customers of its Holiday Inn brand: "70 per cent thought it was a Chinese brand that had gone offshore (actually it started in the US in the 1950s)," he said. "We never planned it that way."
Why is China so important?
Its outbound travellers will number the fourth-largest group in the world by 2020, according to the World Travel and Tourism Council. By then, it will also be the most visited country in the world.
Not surprisingly, hoteliers are clambering for a foothold.
Accor Asia Pacific, which entered China in 1988, has cranked up development of its budget hotels to complement its 18 five-star and mid-market properties.
Last month, the French-backed company opened a three-star Ibis hotel in the industrial heartland of Tianjin outside Beijing. Two more, in Chengdu and Qingdao, are slated to open next year.
The Tianjin property is selling rooms for an initial 148RMB ($US18) on weekdays and 128RMB on weekends – the lowest rate for an internationally branded hotel in China, according to Accor Asia Pacific's managing director Michael Issenberg.
Shangri-La Hotels and Resorts, which opened its first Chinese hotel in 1984, has also been building its stable. Some 8000 rooms – about 40 per cent of the chain's room-count – are in China, with eight more hotels in the pipeline.
Beijing, which will host the Olympics in 2008, is understandably the focus for much of the nation's tourism development.
The number of hotels in the capital city is tipped to grow from 407 (84,000 rooms) in 1995 to 900 – spanning 170,000 rooms – by 2008, according to WTTC figures.
During the games period, Beijing's hotel occupancy is forecast to hit 80 per cent to 88 per cent, with an average room rate of $US100 to $US114 a night.
But, as with Sydney, those highs will be short-lived. "Everyone's getting hung up on 2008," Mr Imbardelli said. "But you know what happened after 2000 in Sydney."
A rash of new developments built to cater for the Olympics boom left Sydney's hotel market oversupplied and room rates have still not recovered.
"We'll have 16 hotels in Beijing by 2008 but I can tell you it has nothing to do with the Olympics," Mr Imbardelli said.
And, as with all hotel markets, China is far from trouble-free.
Agency Jones Lang LaSalle Hotels, in a FocusOn China report last year, identified some issues that "somewhat temper investor enthusiasm".
These included: the potential for chronic oversupply, lack of market transparency, tenure and concerns over earnings repatriation.
A WTTC report on China's tourism potential, published late last year, noted two other flashpoints: the very effective handbrake on outbound business and the fact that domestic tourism is over-regulated.
The Chinese Government tightly controls who leaves the country, and where they go, with its "approved destination status" (which Australia has).
Most industry observers expect China to dismantle this policy within the decade but it has political and economic ramifications that will complicate the issue.
The Government has also heavily promoted domestic tourism, with its "Golden Week" policy that gives all workers three week-long public holidays coinciding with the Lunar New Year, Labour Day and National Day.
The national holidays, during which about 50 million people trek across the country, have strained existing tourism resources to the limit.
In recent years, newspapers have carried reports of gridlocked tourist attractions, including 25,000 thronging to the Great Wall at Badaling outside of Beijing on one day, and queues of tour buses stretching for kilometres.
If it gets much worse, WTTC said some local tourists may spurn the holidays and spend their discretionary income elsewhere.
Nevertheless, these issues are beyond the control of the hotel chains who are concentrating on building their portfolios.
InterContinental boasts the largest development pipeline of its international rivals. It has 41 existing hotels and 47 in the pipeline, including nine that will open this year.
Mr Imbardelli said one in every two hotels signed up comes from an existing relationship, so the chain has been careful about who it does business with. "There's no use marrying someone you don't want to grow old with."
And his advice to others looking to do the same thing?
"If you're serious about China, take a long-term view. There are those who come in and brag about the opportunity to make heaps of money quickly . . . but you see them leaving at the airport."
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