BIZCHINA / Top Biz News
Foreign firms look to hotel sector
By Ding Qingfen (China Daily)
Updated: 2006-05-18 06:53
SINGAPORE: Foreign investors began showing increasing interest in China's
hotel sector in major cities including Beijing and Shanghai in 2005, and
the trend is set to continue in the lead-up to and after the 2008 Beijing
Olympics, according to hotel industry executives.
But a lack of understanding about the Chinese market still remains a
major obstacle for foreign investors, admitted the executives from Jones
Lang LaSalle Hotels, a leading worldwide service provider in the hotel
and tourism sector.
"China will be one of the largest, if not the largest, economies
worldwide, and more people from home and abroad will visit and experience
China," Andreas Flaig, executive vice-president and head of the hotel
group's China arm, told China Daily.
"That is why foreign investors are showing increasing interest in owning
hotels in China, employing capital here to enhance future growth."
China's gross domestic product (GDP) reached 18.23 trillion yuan (US$2.23
trillion) in 2005, the fourth-largest in the world, and an increase of
9.9 per cent year-on-year. Its GDP is expected to remain on a stable but
fast track, or grow 9 per cent this year, said Qiu Xiaohua, head of the
National Bureau of Statistics, earlier this month.
China's hotel markets in Beijing and Shanghai also experienced good
trading in 2005. In Beijing, five-star hotels witnessed the highest
average daily revenue (ADR) of 1,204 yuan (US$150) and occupancy rate of
75.3 per cent since 1994, and the highest revenue per available room
(RevPAR) of 907 yuan (US$113).
Shanghai is still the preferred investment location, given its position
as China's financial centre. In 2005, ADR for Shanghai's five-star hotels
saw a record high of 1,649 yuan (US$206), as did RevPAR, which first
climbed to 1,200 yuan (US$150) since 1993.
Besides the major cities, interest from foreign investors in China's
emerging secondary cities including Dalian, Tianjin, Guangzhou, Shenzhen
and Sanya is also increasing.
"They expect to take advantage of being the first to move there, thanks
to considerable increases in room rates and long-term appreciation," said
Flaig.
Flaig predicted China's hotel investment market would not be much
different before and shortly after 2008, especially in Beijing, the host
of the 2008 Olympics.
According to a report entitled the "Hotel Investment Outlook 2006"
launched by the company on Tuesday, Beijing is one of the fastest-growing
markets in the Asia-Pacific region, with RevPAR increasing by
approximately 32 per cent last year.
"The Olympics is a catalyst it could promote Beijing to the world to a
great extent, helping China showcase its best parts, and this may lead to
more hotel investment transactions," said Flaig.
"There is a bright future for China's hotel market (to attract foreign
investors)," said Scott Hetherington, managing director of Jones Lang
LaSalle Hotels Asia-Pacific.
However, for foreign investors, China still represents challenges with
barriers to entry.
Developing an understanding of the market is the most important step,
according to both Flaig and Hetherington.
The opening of the Chinese market remains in its infancy, and procedures
surrounding foreign investment mean a transaction can take up to one year
to complete, with regulatory approvals potentially taking six months,
according to the report.
But Hetherington says this situation "has changed in the last four to
five years."
Over the last decade, Shanghai has developed a reputation as an
investor-friendly city with less red tape and procedural delays.
Investors are now familiar with the process in Shanghai and are likely to
take another 12 to 18 months to understand Beijing's process, the report
said. It claimed investors still prefer the cities of Shanghai, Beijing
and Tianjin.
"Transparency is also a major issue holding back foreign investors whose
decision is based on data. If the data provided is not available or not
reliable, they would hesitate to invest," Flaig said.
"We could see change in three to five years," he added.
The head of the hotel group's China arm suggested foreign buyers be more
flexible and co-operative and more importantly try to get good advice
from a consultant.
"Good advice could help them get a reasonable assessment of the value of
what they would like to buy, as some sellers are not reasonable in making
pricing expectations on the background of China's fast-growing economy,"
he said.
The company set up its China office in Beijing in early 2005 with eight
staff; its business covers 15 cities.
(China Daily 05/18/2006 page11)
(For more biz stories, please visit Industry Updates)
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