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Influenced by the financial crisis and European debt crisis, the western hotel and resort market ended with a great depression. Foreign hotel owners lay their hope in China, which has a great demand for the high-end hotels.
Foreign hotel groups boast about the potential of China’s hotel market. When they are creating a “bubble” in China, they rely on the operating pattern featured with charging without investment and enjoying commercial dividends and brand premium. For this, some experts pointed out that the international hotel groups, driven by profits, betted on China and they were supported by local governments, which were eager to improve the commercial environment of their places. The cooperation led to the virtue prosperity of the Chinese hotel market. Another widely held viewpoint meant that the saying about “bubbles” in China’s hotel market is nonsense because the main consumer group of this market consists of local talents.
On March 19, InterContinental Hotels Group launched its first brand that is tailor made for China – Hualuxe Hotels & Resorts. InterContinental Hotels Group said that Hualuxe would be established in over one hundred cities in China in the next 10 or 15 years. In ad- dition, about a quarter of the new hotels of this company will be established in China in the next five years.
At the end of February, Francebased Accor Hotels, the first international hotel management company that had tailored brand for China, added a new brand in its “Chinese product line”. The new brand is called Grand Mercure. Accor Hotels plans to increase the number of hotels in China to 400 by 2015 and 65 of them are Grand Mercure hotels in the first-, second- and third-tier cities of China.
It is worthwhile to mention that Accor and InterContinental that increase their investment in China and bet on the future.
Marriott plans to open 130 new hotels outside North America in the next four years, half of which will be established in China, India and the UAE. Hilton Group will increase its number of hotels in China fourfold to 100 by 2014. Another luxury hotel brand Ritz Carlton Hotel plans to increase the proportion of China in the global business from the present-day 10% to 25% in the next 10 years. Starwood Hotels, which own St. Regis, Sheraton, Westin and other brands, also has the plan of doubling the number of hotels in China by 2012. By then, Starwood Hotels will have 100 hotels in China, making this countries exceed the United States and become its largest overseas market.
A report said that more than half of the new high-end hotels opened last November belonged to international groups. In addition, a survey institution predicts that the number of rooms of famous international hotels will have a 52% increase in 2013 after the 62% growth in the past five years.
However, when the international brands are aggressive in China, some experts said that the high-end hotel market in China actually could no longer maintain its prosperity.
Some reports said that “the presentday Shanghai no longer hosted the binge like before the World Expo and the winter of hotel industry in this country had lasted one year.” After the World Expo, the occupation rate of local hotels dropped to 54%. In September 2009, the average occupation rate of hotels in China was only 61%, lower than the 80% level in Hong Kong and Singapore.
But why InterContinetal and other hotel companies still maintain or increase their expansion rate in China despite the low occupation rate in China? Some experts pointed out that the international hotel groups were driven by the profits and they worked together with local governments to create the “bubbles” or the virtual prosperity of domestic hotels. The other popular viewpoint considers that main consumption group of China’s hotel market consists of local people and therefore there cannot be “bubbles” in this market.
Low Risk and High Income Lead to the “Bubbles”
Ya Yi, a hotel management expert, points out the foreign hotel groups are not scared off by the depressive market in China as a result of the public voice and policy environment in China.
Presently, the international hotel management groups usually participate in the management of hotels in China with the pattern of simple management. They only charge for management but do not invest in the hotels. Therefore the operating risk is low (In western countries, the hotel management groups usually need to rent the hotels for their management and thus the operating risk is high). Generally speaking, the management fees charged by international hotel management companies could account for over 10% of the hotels’income. Such a low risk and high in- come drive international hotel groups to expand crazily in China. Reversely, the crazy expansion makes others think that these international hotel management groups are quite successful. These factors are the cause and effect of each other, which leads to the Matthew Effect.
Secondly, local governments of different places want to earn a good appraisal of their political performances by improving the said “investment environment” of their administrative areas. In order to achieve this goal, some local governments even required that the land slot for the high-end hotels could only be available if the management right might be given to an international hotel management company. This somewhat stopped the development of Chinese domestic hotel management companies.
An international hotel analyst said that “the local government of every Chinese city, or even county, hopes to have a five-star hotel in their place to promote the business activities or even have their names shown in the map along with the hotel”.
Wei Xiao’an, director of the Academic Association of the China Tourism Institute, agreed that “bubbles” had been formed in China’s hotel market.“The foreign groups are not with a clear mind and they are developing blindly because they are engaged in the business that the profits are guaranteed. Among the foreign hotel management companies, only Shangri-La Hotel Group both invest in and manage hotels in China while the others seem to only “sell their brands” and send some executives,” he said. “The foreign hotel management companies know well about the situation in China and the preference of local governments in China.” Foreign hotel companies know that the government hold the capital and play the leading role in the development of local economy. In addition, many developers that invest in hotels are mine owners whose money “is easy to be raised”. They need the support from the government and do not consider the hotel as their main business; instead, they attach importance to the land taken by the hotel and supporting projects, which means great deal in China. “The frenzy in investing high-end hotels is a result of the government regulation system and the foreign companies should not be fully blamed,” Wei Xiao’an said.“The land for hotels in major cities of China has been almost run out. The foreign hotel management companies are extending their arms to the second or even third-tier cities of this country. I am not surprised if they set up hotels in towns or counties.”
A Chinese hotel manager told that the Chinese hotels run by foreign companies seem to earn a lot of money but quite a small amount will be left when the management fees and human resource cost are deduced. He thought that the Chinese investors are willing to invest in hotels despite the tiny profits or even the loss because they aim at the“added value”, which is a result from the increasing value of property.
There is certainly another situation: the hotel is not seen as a main business and no profits are expected from it. The hotels are only the places for treating the employees or clients of the investors. For example, state-owned enterprises like CNPC have their own hotels. Long-term Prospect for Hotels
Foreign investors have their own reasons for their frantic expansion in China.
When Accor launched the new brand Grand Mercure, Grégoire Champetier, chief marketing officer of Accor, said that Accor launched Grand Mercure based on its 27 years’ operating experiences in China and its profound understanding of the Chinese market. It intensifies its investment in China not due to the speculation. “We did it because of long-term strategic consideration. China is likely to replace the U.S. as the biggest overseas market for Accor by 2020,” said Michael Issenberg, board chairman and CEO of Accor Asian & Pacific Area. He quoted the data from China’s tourism administration department, which confirmed that 90% of the travelers taking rooms in high-end hotels in China were foreigners 20 years ago, but the proportion dropped to 50% in today’s society. He believes that 90% of the inhabitants are locals ten years later.
InterContinental said that one of its every four chain hotels will be established in China in the next five years. “Short-term bubbles might exist in the property market, but we held optimistic viewpoints for the long term,”an insider from InterContinental said. The Chinese market includes great business opportunities and the number of inbound tourists in China reached 3.3 billion and the annual growth rate in the Chinese market is expected to reach 5% to 8% by 2030.
The latest Hotel Pricing Index said that each Chinese consumer spent 1065 yuan on each hotel room every night, ranked at No. 6 globally. More and more foreign hotel management companies began to design products for the Chinese consumers.
A Chinese hotel analyst did not agree with the said “bubble theory” and he was bullish on the potential of Chinese hotel industry in the future.
In his opinion, the development trend of the hotel industry is directly related with the macroeconomic development of China. The international financial crisis cast a shadow over the hotel industry of China – the investment drops along with the operating profits. As the macro adjustment and control were fully started in 2011, the Chinese hotel market welcomed a positive opportunity in spite of the still haunting hurdle of consumption market. The changes of the market consumption power and structure will provide longterm momentum for the development of the hotel industry of China.
Gu Yujia, a fellow in the catering industry of China Investment Consulting, is a supporter for this viewpoint. He thought that the potential in China’s hotel market would be developed in 2012 and the industrial integration was likely to happen. These two market changes lay a solid foundation for the industrial benefits. The five-star hotels have been emerging since 2011 and different hotel management hotels have formed milestone business strategies, which can consolidate their current position in China, but also facilitate them in expanding their presence in the second- or third-tier cities.
Foreign hotel groups boast about the potential of China’s hotel market. When they are creating a “bubble” in China, they rely on the operating pattern featured with charging without investment and enjoying commercial dividends and brand premium. For this, some experts pointed out that the international hotel groups, driven by profits, betted on China and they were supported by local governments, which were eager to improve the commercial environment of their places. The cooperation led to the virtue prosperity of the Chinese hotel market. Another widely held viewpoint meant that the saying about “bubbles” in China’s hotel market is nonsense because the main consumer group of this market consists of local talents.
On March 19, InterContinental Hotels Group launched its first brand that is tailor made for China – Hualuxe Hotels & Resorts. InterContinental Hotels Group said that Hualuxe would be established in over one hundred cities in China in the next 10 or 15 years. In ad- dition, about a quarter of the new hotels of this company will be established in China in the next five years.
At the end of February, Francebased Accor Hotels, the first international hotel management company that had tailored brand for China, added a new brand in its “Chinese product line”. The new brand is called Grand Mercure. Accor Hotels plans to increase the number of hotels in China to 400 by 2015 and 65 of them are Grand Mercure hotels in the first-, second- and third-tier cities of China.
It is worthwhile to mention that Accor and InterContinental that increase their investment in China and bet on the future.
Marriott plans to open 130 new hotels outside North America in the next four years, half of which will be established in China, India and the UAE. Hilton Group will increase its number of hotels in China fourfold to 100 by 2014. Another luxury hotel brand Ritz Carlton Hotel plans to increase the proportion of China in the global business from the present-day 10% to 25% in the next 10 years. Starwood Hotels, which own St. Regis, Sheraton, Westin and other brands, also has the plan of doubling the number of hotels in China by 2012. By then, Starwood Hotels will have 100 hotels in China, making this countries exceed the United States and become its largest overseas market.
A report said that more than half of the new high-end hotels opened last November belonged to international groups. In addition, a survey institution predicts that the number of rooms of famous international hotels will have a 52% increase in 2013 after the 62% growth in the past five years.
However, when the international brands are aggressive in China, some experts said that the high-end hotel market in China actually could no longer maintain its prosperity.
Some reports said that “the presentday Shanghai no longer hosted the binge like before the World Expo and the winter of hotel industry in this country had lasted one year.” After the World Expo, the occupation rate of local hotels dropped to 54%. In September 2009, the average occupation rate of hotels in China was only 61%, lower than the 80% level in Hong Kong and Singapore.
But why InterContinetal and other hotel companies still maintain or increase their expansion rate in China despite the low occupation rate in China? Some experts pointed out that the international hotel groups were driven by the profits and they worked together with local governments to create the “bubbles” or the virtual prosperity of domestic hotels. The other popular viewpoint considers that main consumption group of China’s hotel market consists of local people and therefore there cannot be “bubbles” in this market.
Low Risk and High Income Lead to the “Bubbles”
Ya Yi, a hotel management expert, points out the foreign hotel groups are not scared off by the depressive market in China as a result of the public voice and policy environment in China.
Presently, the international hotel management groups usually participate in the management of hotels in China with the pattern of simple management. They only charge for management but do not invest in the hotels. Therefore the operating risk is low (In western countries, the hotel management groups usually need to rent the hotels for their management and thus the operating risk is high). Generally speaking, the management fees charged by international hotel management companies could account for over 10% of the hotels’income. Such a low risk and high in- come drive international hotel groups to expand crazily in China. Reversely, the crazy expansion makes others think that these international hotel management groups are quite successful. These factors are the cause and effect of each other, which leads to the Matthew Effect.
Secondly, local governments of different places want to earn a good appraisal of their political performances by improving the said “investment environment” of their administrative areas. In order to achieve this goal, some local governments even required that the land slot for the high-end hotels could only be available if the management right might be given to an international hotel management company. This somewhat stopped the development of Chinese domestic hotel management companies.
An international hotel analyst said that “the local government of every Chinese city, or even county, hopes to have a five-star hotel in their place to promote the business activities or even have their names shown in the map along with the hotel”.
Wei Xiao’an, director of the Academic Association of the China Tourism Institute, agreed that “bubbles” had been formed in China’s hotel market.“The foreign groups are not with a clear mind and they are developing blindly because they are engaged in the business that the profits are guaranteed. Among the foreign hotel management companies, only Shangri-La Hotel Group both invest in and manage hotels in China while the others seem to only “sell their brands” and send some executives,” he said. “The foreign hotel management companies know well about the situation in China and the preference of local governments in China.” Foreign hotel companies know that the government hold the capital and play the leading role in the development of local economy. In addition, many developers that invest in hotels are mine owners whose money “is easy to be raised”. They need the support from the government and do not consider the hotel as their main business; instead, they attach importance to the land taken by the hotel and supporting projects, which means great deal in China. “The frenzy in investing high-end hotels is a result of the government regulation system and the foreign companies should not be fully blamed,” Wei Xiao’an said.“The land for hotels in major cities of China has been almost run out. The foreign hotel management companies are extending their arms to the second or even third-tier cities of this country. I am not surprised if they set up hotels in towns or counties.”
A Chinese hotel manager told that the Chinese hotels run by foreign companies seem to earn a lot of money but quite a small amount will be left when the management fees and human resource cost are deduced. He thought that the Chinese investors are willing to invest in hotels despite the tiny profits or even the loss because they aim at the“added value”, which is a result from the increasing value of property.
There is certainly another situation: the hotel is not seen as a main business and no profits are expected from it. The hotels are only the places for treating the employees or clients of the investors. For example, state-owned enterprises like CNPC have their own hotels. Long-term Prospect for Hotels
Foreign investors have their own reasons for their frantic expansion in China.
When Accor launched the new brand Grand Mercure, Grégoire Champetier, chief marketing officer of Accor, said that Accor launched Grand Mercure based on its 27 years’ operating experiences in China and its profound understanding of the Chinese market. It intensifies its investment in China not due to the speculation. “We did it because of long-term strategic consideration. China is likely to replace the U.S. as the biggest overseas market for Accor by 2020,” said Michael Issenberg, board chairman and CEO of Accor Asian & Pacific Area. He quoted the data from China’s tourism administration department, which confirmed that 90% of the travelers taking rooms in high-end hotels in China were foreigners 20 years ago, but the proportion dropped to 50% in today’s society. He believes that 90% of the inhabitants are locals ten years later.
InterContinental said that one of its every four chain hotels will be established in China in the next five years. “Short-term bubbles might exist in the property market, but we held optimistic viewpoints for the long term,”an insider from InterContinental said. The Chinese market includes great business opportunities and the number of inbound tourists in China reached 3.3 billion and the annual growth rate in the Chinese market is expected to reach 5% to 8% by 2030.
The latest Hotel Pricing Index said that each Chinese consumer spent 1065 yuan on each hotel room every night, ranked at No. 6 globally. More and more foreign hotel management companies began to design products for the Chinese consumers.
A Chinese hotel analyst did not agree with the said “bubble theory” and he was bullish on the potential of Chinese hotel industry in the future.
In his opinion, the development trend of the hotel industry is directly related with the macroeconomic development of China. The international financial crisis cast a shadow over the hotel industry of China – the investment drops along with the operating profits. As the macro adjustment and control were fully started in 2011, the Chinese hotel market welcomed a positive opportunity in spite of the still haunting hurdle of consumption market. The changes of the market consumption power and structure will provide longterm momentum for the development of the hotel industry of China.
Gu Yujia, a fellow in the catering industry of China Investment Consulting, is a supporter for this viewpoint. He thought that the potential in China’s hotel market would be developed in 2012 and the industrial integration was likely to happen. These two market changes lay a solid foundation for the industrial benefits. The five-star hotels have been emerging since 2011 and different hotel management hotels have formed milestone business strategies, which can consolidate their current position in China, but also facilitate them in expanding their presence in the second- or third-tier cities.