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Hotel Giants to Expand China Networks
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International hotel giants are aggressively expanding their networks on the Chinese mainland with increased investment, according to an August 18 China News Service report.


The report quoted an article from the latest issue of Time Express, a Taiwan-based magazine, which says that China is expected to replace the US by 2020 as the world's most popular tourist destination.


Attractive travel destination


China's booming hotel industry is one of the fastest-growing in the world. Foreign investment in China's newest hotel properties is surprising. "It is hot to the highest point," said Patrick Ford, CEO of US hotel industry research group, Lodging Econometric. "For hotel operators, China is one of the most attractive places in the world. Therefore, the funds are being invested in an endless stream and major international hotel brands are vying to get in."


Ford said that 188 new hotels are being built in China, 145 of them four- or five-star hotels each with at least 200 rooms. Even if the project, estimated to cost about US$8 billion, isn't completed, this wave of construction boom can still provide as many as 30,000 new rooms.


Local hotels at a disadvantage


Many foreign investors seem to be confident about making huge profits in China. A major reason for this assuredness is that local hotels have poor brand recognition compared with their overseas rivals and cannot match international standards in terms of price and services.


"Prada or Mont Blanc (products) can be imitated, but it is impossible to counterfeit luxury services," the Ritz-Carlton Hotel manager Gong Borui said. "The living experience cannot be imitated."


Ford is of the same view: "None of the Chinese brands can match the Marriott, Hyatt, Hilton, Westinghouse and other big names."


Which is why domestic hotel operators are working toward alliances with the international big wigs. In such alliances, the local partner is typically responsible for funding the construction of the hotel, while the foreign partner takes on the management and operation of the business. In this way, the foreign brands, with their professional experiences, would ensure that designs, concepts, technical and service standards satisfy international criteria.


Top tourist destination by 2020, surpassing US


Fuelling increased investment in China's hotel industry are healthy forecasts for the inbound tourism sector. According to the World Tourism Association, China is currently the fourth most popular tourist destination in the world, and could reach the number two spot in 10 years. More significant is that China could become the world's most visited country by 2020, surpassing the US, which welcomes 130 million visitors annually.


China's burgeoning domestic tourism market is also one of the drivers of the rapidly growing hotel industry. By 2010, there will be an estimated 1.8 billion domestic tourists traveling the country, up from the current 1.2 billion.


Other factors contributing to the domestic tourism boom include increased car sales and a national highway network, which makes traveling more practical and more attractive. China currently has some 34,000 kilometers of road and this is expected to double by 2020.


"Roads connecting Inner Mongolia's major cities are more convenient than the roads between Sydney and Melbourne," said Bruce McKenzie, regional vice president of InterContinental Hotels Group's China operations. The group operates 54 hotels in China, most of which belong to the Holiday Inn brand. The group has plans to increase the number of its properties three-fold by the end of 2008.


Holiday Inn hotels rose to fame in post-World War II America that was undergoing the same heady development that China is now experiencing. Holiday Inn hotels capitalized on the expansive national road network to grow from just four hotels in Memphis, Tennessee in 1952, to some 1,000 hotels by 1968.


"We see a repeat of the US opportunity," McKenzie said.


Stiff competition in major cities


Because of increasingly stiff competition in major cities such as Beijing and Shanghai, hotel operators are moving out to secondary cities including Hefei, Harbin and Chengdu. However, it might take up to 10 years to build the businesses in the secondary cities. In spite of this, players like InterContinental Hotels Group, one of the most active in China, are ready to make the move now, if nothing else to secure the best locations and start brand building.


"If I were a large hotel operator, the question is: should I wait another 10 years before starting my enterprise in China?" queried Swiss Bank (Hong Kong branch) real estate analyst Eric Huang.


"Major chain operators are determined to launch a race to occupy vantage grounds."


The fierce competition for prime land will result in a reasonable rate of attrition, particularly eliminating those without solid business models. Huang said: "Many newcomers are getting into China because their headquarters have instructed them to do so. 'Must enter China'."


For those left standing, the risks they face include scores of vacant rooms. Even in metropolises like Beijing, Shanghai, Shenzhen and Guangzhou, demand lags behind supply. "It's difficult to find a good location in these cities when starting a business," Huang said. "Some brand new luxury palaces will be forced to withdraw over time."


Competition for business is fairly evenly spread out among all classes of hotel. In fact, global brands such as the Hilton, Marriott and Hyatt chains have plans to develop "economy class" hotels in addition to luxury developments. Such projects would go head-on against the three-star and below Chinese establishments.


"China is experiencing an amazing change," said Brian Deeson, Accor's CEO (Greater China). Accor currently operates four Ibis budget hotels in China and plans to increase its network to 50 by the end of 2008.


"To maintain superiority, we must take very quick action."


(China.org.cn by Wang Zhiyong, August 25, 2006)


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