Big hotels booming in China

By Roger Yu
USA Today

U.S. and other Western hotel companies are expanding rapidly in China as the country emerges as an economic superpower and prepares for the 2008 Olympics.

Working with local developers, Marriott, Hyatt, St. Regis and Ritz-Carlton are some of the five-star U.S. brands pouring billions into the country. Rooms in upscale hotels in Beijing and Shanghai can fetch prices rivaling those found in large U.S. cities, hotel executives say. Midprice hotels, such as Holiday Inn and Days Inn, are also proliferating.

"There's an explosion in new hotel development (at a level) unheard of," says Tom Monahan of Starwood Hotels. "Our No. 1 focus is China. I can't imagine anyone not focused on China."

Starwood is building 16 hotels in the country, more than in any other country outside the United States. Marriott, Hyatt, Carlson and U.K.-based InterContinental Hotels are also building more hotels in China than in any other foreign country. Driving the demand:

• Foreign visitors. The number of inbound visitors to mainland China rose 20 percent to 109 million in 2004, breaking the 100 million mark for the first time, according to the China National Tourism Administration. Foreign business travel, in particular, is fueling the boom as the country heavily attracts foreign investment. Business travel accounts for about two-thirds of Marriott hotels' business in China, says Ed Fuller of Marriott. Leisure travel also will grow rapidly, as China is on course to overtake France in the next several years as the most toured country in the world, Monahan says.

• Domestic travel. China's rising middle class is exercising greater purchasing power, and citizens are freer than ever to travel within the country. As of 2003, there were nearly 880 million domestic travelers, according to China's tourism administration.

• Market immaturity. That the country's lodging industry is still nascent is enticing Western companies, which operate about 5 percent of the 10,000 hotels in China, says Joe McInerney, president of the American Hotel & Lodging Association. (There are about 44,000 hotels in the U.S.) Many Chinese-run hotels lack the style and quality sought by international travelers.

With the 2008 Summer Games coming to Beijing, infrastructure development for the event has been exhaustive, and new roads and airports make the country more attractive to foreigners, Monahan says.

Starwood, whose brands include Sheraton, Westin, St. Regis and W, is so bullish in its outlook that hotels in operation or under construction could double in three years from the current 35, Monahan says.

Marriott, whose brands include Ritz-Carlton, has 24 hotels open in China. Six more are under construction, but the figure would be "two to three times" higher if projects being considered are added, Fuller says.

Carlson operates five hotels, all Radisson, in China, and is building five more, including the five-star Regent International.

InterContinental, which owns the Holiday Inn and Crowne Plaza brands, has 20 hotels on the mainland. It has opened more hotels in China per year in each of the last six years than the year before, says Patrick Imbardelli of InterContinental.

Much of the growth is in Beijing and Shanghai. But even smaller cities such as Ningbo, Hangzhou and Nanjing, where populations exceed 4 million, have drawn development. Carlson is building a Regent International in Ningbo, 100 miles south of Shanghai.

"We're doing deals ... in cities I'd never even heard of. I literally have to look at the map," says Michael Shindler of Hyatt, which has 12 hotels in development on top of five it operates.

Meanwhile, midscale hotel construction is in full swing, largely in anticipation of the growing market for Chinese travelers. Days Inn, Holiday Inn and Howard Johnson hotels have opened for business. Even Starwood, which runs upscale brands, is considering new hotels in the midprice segment, Monahan says.

The domestic business has gotten so hot that about 70 percent of the 1,000 calls a day at InterContinental's reservation center in Guangzhou are from Chinese travelers.

Doing business in China still isn't easy, and most Western hotel companies own only a fraction of the hotels they manage. Getting the right permits to build and hire people can be difficult. Wide variations in local development and tax rules can be frustrating, executives say. "We look at it as dealing with 40 or 50 different Chinas," Shindler says.

But doing business in the country has gotten noticeably easier over the years. "It is far less bureaucratic now," Marriott's Fuller says.