Scaling Up To China

U.S. hotel firms scramble for giant opportunity

You don't realize how fertile a territory lodging is in China until you go there. What I saw of the country during a recent trip was persuasive: Construction goes on around the clock, more than 40 new airports will be built by 2010 and the highway system is growing rapidly to accommodate this newly car-crazy country. All that evokes the U.S. of the 1950s, when the postwar boom generated the interstate system — and Kemmons Wilson had the foresight to build Holiday Inns to service it.

One bad side effect: Pollution, which casts a pall over Beijing (which covers an area the size of Belgium and boasts a population of at least 12 million) and Shanghai (population: at least 15 million) and smaller cities like Xiamen (about 2.5 million).

During my November visit to those three and Hong Kong, I glimpsed a vibrant, embryonic hotel market with a pioneering feel. Call China lodging the Wild East. While Mandarin is the dominant language, there are more than 50 minority languages and dialects, and more than 90 million people speak Shanghainese — more than the population of Germany.

According to research presented at the Wyndham Hotel Group Global Sales Team Summit meeting in Chicago in June 2007, China will add 342 million people to its cities by 2030; the country constructs more buildings in a year than the entire European Union would in a decade; and there are 171 “mega cities” with more than one million in population (there are only nine in the U.S.). In addition, there are 279 cities with populations of 500,000 to one million, 210 of 200,000 to 500,000.

Such staggering numbers help explain why hotel brands scramble for even a tiny piece of Chinese lodging. In a country of 1.3 billion, a sliver of hospitality business can be a bonanza. Harry and David Tan, the Singapore natives who run Days Inn China, are trying to figure out how to pick off some of the travel business the Chinese generate during the “golden weeks,” three national holidays. More — there's plenty — would be gravy.

The Tan brothers, respectively chairman and chief executive officer-deputy CEO, Days Inn China, say that during these holidays, 47 million Chinese travel domestically, which accounts for 90 percent of the market. Now that the government allows couples to have two children, not just one, travel will only increase. (We're not even talking international tourism, which the government is counting on the Olympic Games, which start Aug. 8, to boost. Beijing has been gearing up for them — and working hard to reduce its chronic pollution — for months.)

“There are more than 10,000 star-rated hotels in China,” says David. “In the U.S., there are more than 60,000. But the population of China is five times that of the U.S., so the potential is tremendous.”

As of March 31, Wyndham Hotel Group's China presence comprised 21 Days Inn hotels representing 4,083 rooms; 17 Howard Johnson hotels/4,694 rooms; 28 Ramadas/6,858 rooms and 72 Super 8s/6,706 rooms.

“Over the next 20 years, over 300 million Chinese will be urbanized, so there's a slogan here,” says Harry Tan. “They're building another America in China.”


During my 10-day trip, I visited hotels — not all Wyndham-related — in Beijing; Shanghai, a banking and financing powerhouse and my favorite place; Xiamen, a rapidly developing city across the Formosa Strait from Taiwan; and Hong Kong, one of four Special Autonomous Regions, where Western and Chinese culture coexist in high, commercial style.

This report is based on face-to-face interviews with hotel executives in China and one by telephone with Best Western chief executive officer David Kong.

I traveled with Richard Roberts, vice president of communications for Wyndham Hotel Group, and Anne Tan, the group's vice president of global sales and marketing, Asia Pacific region. Anne was our voice, negotiating everything from airline accommodations to meals to shopping. She also arranged for transportation within China, where there are people everywhere, all the time. And too few hotels to accommodate them. That's where U.S. chains come in (see page 40).


Hotel brands are different in China; where a U.S. Super 8 is limited-service, there it can be three- or four-star. Where real estate appreciates (at least in good times) in a capitalist economy like the U.S., in communist China, it's a “cash-on-cash model,” says Mitchell Presnick, chairman and CEO of Super 8 China. His domestic competition includes Home Inns, a Chinese budget chain with more than 400 hotels open or under development in more than 90 cities, and Jin Jiang Hotels, a chain with a similar footprint, though in fewer cities.

Presnick even faces challenges from bootleg Super 8s that alter signage just enough to pass for real. (In Beijing, we visited the Silk Street Pearl Market, a five-story cornucopia of counterfeit clothing, jewelry and more. In this kingdom of the knockoff, bootlegs are common and the notion of intellectual property carries scant weight.)

“The market is so wide open, I don't even consider them real competitors,” Presnick says. “We help them and they help us; we're helping define for the market what is an economy hotel — and economy customer.”

Where the economy sector is mature in the U.S., “it's going through meteoric growth” in China, says Presnick. “The annual growth of Chinese GDP has been averaging eight to 10 percent over the last 15 years, and travel GDP has been growing about 50-percent faster.”

An emerging middle class with disposable money and time is fueling demand for such lodging, he says. Also contributing to the segment's spurt: “transitioning of a lot of state-owned, one-, two- and three-star lodging assets into economy-branded properties.” Such conversions and “retirements” mean underperforming and undermanaged properties are “being replaced by well-managed, strong-performing branded economy assets.”

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