Simon Chivers, Faithful+Gould’s Country Director – China, reflects on China’s hospitality trends and how the industry plays an integral role in the economy.
China’s domestic tourism industry has seen considerable growth over the past decade. According to China National Tourism Administration, China registered 4.44 billion domestic travels in 2016, generating RMB3.9 trillion in domestic tourism revenue compared to 260 million inbound and outbound travels.
Driven by China’s expanding middle-class households with disposable income, the rapid development of road and rail networks, and affordable domestic air travel, the popularity of weekend getaways and short stay holiday packages is gaining momentum and has given rise to mid-scale hotels.
While demand for typical holidays involving luxury big brand hotels and large tour groups continues, today’s discerning Chinese tourists seek new and unique travel experiences. This new breed of domestic travellers is shaping the future of China’s hospitality industry towards experiential travelling and hotels.
Experiential travelling and hotels
One area that hoteliers have become especially interested in China is the establishment of boutique hotels. Unlike big brand hotels, boutique hotels have a strong focus on lifestyle, offering customers a memorable and unique experience that comes from a combination of great location, stylish design, and gourmet cuisine.
Wellness tourism is also gaining popularity in China. These retreats offer integrated health experiences and lifestyle coaching to relax the body and destress the mind. While most hotels provide spas, yoga and detox programmes, some wellness resorts offer a more traditional approach with in-house physicians to prescribe traditional Chinese medication for guests.
The same goes for eco-resorts that have a strong focus on sustainability for the environmentally conscious travellers. Operators who embrace and implement green initiatives will benefit from operational savings and the growing market for environmentally friendly resorts.
We’re also starting to see a rise in the development of themed hotels as they become an integral part of large-scale theme parks such as the Disneyland Hotel and Toy Story Hotel at the newly opened Shanghai Disneyland.
Strategic alliances and joint ventures
With increased competition from local Chinese hoteliers and the government’s aim to retain as much domestic tourism spending within China as possible, international brands looking to gain market share in China will have more success through strategic alliances and joint ventures such as the recent merger of Marriott International with Starwood Hotels & Resorts Worldwide.
Major international hospitality brands such as Marriott, Sheraton, Hyatt, and Intercontinental have had a presence in China for several decades, but mainly as hotel managers and operators while investors have primarily been local developers.
Although there has been some foreign investment into large mixed-use projects, which include hotels from international developers such as CapitaLand, Tishman Speyer, Hines, and Portman, there are high barriers to entry. The Chinese government owns all land in China and leases commercial space on a 40-year term to developers, better positioning well connected local developers with access to loans from China’s state-owned banks to acquire financing and planning approvals.
Other factors that would deter foreign investment in the Chinese hospitality market include the nation’s complex legal system, the perception of protectionism, bureaucracy and treasury controls. While free trade zones have assisted foreign investors within the manufacturing and hi-tech sectors, they have not had the same impact in the hotel industry.
There has been an upward trend of Chinese outbound investment in recent years. In 2016, Chinese investments in the US, Europe and other markets abroad amounted to RMB1.12 trillion (USD161 billion), approximately an 80% increase from the year before.
One highlight was when Chinese conglomerate HNA Group acquired a quarter of Hilton Worldwide Holdings for about USD6.5 billion from Blackstone Group. Another deal involving Blackstone Group was the sale of Strategic Hotels & Resorts to Anbang Insurance Groups who were in the race for Starwood until Marriott closed the deal.
So, what can we expect in 2017?
Despite the Chinese government announcing tighter measures on outbound investments and the potential weakening of the Renminbi, interest from Chinese investors remains favourable.
We can also expect to see the steady rise in China’s middle class, with their increased spending power, fuelling continued demand for Chinese tourism destinations. New government-supported tourist areas such as Shangri La, Lijiang in Yunnan, Guilin in Guanxi, Xian, and Chengdu will benefit from government and corporate investment to meet this demand. International tourist numbers are also expected to rise with easier visa relaxation now allowing short-term (six days) transit tourists.
In addition, the rapid growth in high speed rail links is making travel to more remote areas easier as air traffic congestion restricts growth in air travel. The many projects that are now being planned will provide continued work for consultants and contractors alike.