The Chinese hospitality market is nowhere near reaching its saturation point. Experts predict exponential growth for inbound and outbound tourism in the coming decade. In the following report I will discuss first the tradition of China hospitality, followed briefly by an overall trend and investment outlook, and finally a lead into adapting for the Chinese guest.
China in Retrospect
When Deng Xiaoping introduced the “Open Door Policy” in 1978, many predicted the coming decades of unprecedented economic growth. This new found economic liberty and the freedom to partner with foreign investors rocketed China’s hotel investment community forward to seize the opportunity to welcome outside investment. The hotel industry in China went from 137 properties in 1978 to 14,237 properties by 2009, and multinational hotel groups expanding helped bolster this effect. Today the outlook for international tourism in China is steady, as the World Tourism Organization shows, China is now the fourth most popular international tourism destination (in terms of arrivals) with more than 133 million visitors yearly. According to China Tourism Research Institute, China had 120 million outbound visitors in 2015. Those travelers spent in excess of $104.5 billion US dollars, which was an increase of 12% and 16.7% compared with 2014.
An Emerging Mega Force
Meteoric growth inside China is illustrated by the $44 billion revenue stream across some 2.5 million hotel rooms. But the potential is comparatively unlimited. Comparing the US and UK markets, for instance, per capita rooms in China are less than 4 per 1,000 people, compared to 20:1000(US) and 10:1000(UK) respectively. This study (PDF) by A.T. Kearney Korea predicts the China hospitality will become a $100 billion dollar industry within 10 years. Of course tier 2 and 3 cities are destined to see the most growth, but there are also fairly grand projects in process from investment to the planning and development stages. According to the aforementioned report, the budget and mid-scale segments will see the most impactful growth, or an estimated $38.3 and $56.8 billion dollars respectively by 2022.
As we’ve already seem, local and international players have been in the news with mergers and acquisitions, as brands like Hilton’s Hampton Inn, and Barcelo enter the market with Jing Jiang-Plateno, HNA-NH Hotels and many others enter the fray. International investment by CEFC China Energy in Prague’s Mandarin Oriental, Jing Jiang’s acquisition of Louvre Hotels, and fabulous new developments like the Hualing Group’s Tbilisi Sea New City project in Georgia, they speak of immense potential and wealth being leveraged by Chinese businesses. China’s largest private conglomerate, Fosun has invested in the likes of Cirque du Soleil and Club Med, and has acquired a €960 million stake four new China resorts. As massive as the inbound hospitality possibilities are, overseas projects promise to revitalize whole regions and infrastructures.
To give you some idea of the potential here, even looking at the lists of US deals involving China entities in worldwide hospitality is daunting. This HN report by Li Chen speaks of a deal back in February 2016 in which Hersha Hospitality Trust sold a 70% majority interest in seven Manhattan hotels to Chinese investment firm Cindat Capital Management for $571.4 million. Then in March Blackstone Group sold Strategic Hotels & Resorts, Inc. to China's Anbang Insurance for upwards of $6.5 billion. Later in the Spring HNA Tourism Group announced its plan to acquire Carlson Rezidor Hotel Group, and the list goes on, and on.
Projects to Watch
With the launch of the Shanghai Tower J-Hotel, the world’s tallest luxury hotel, China’s emergence onto the worldwide scene became all the more prevalent symbolically, and literally. At 632 meters and 128 stories, the skyscraper will be the tallest building in China and will also have the highest open air observation deck in the world. But the J-Hotel is even more significant for being the “greenest” hotel on Earth. With China trying desperately to elude the notion Beijing and other cities are pollution Meccas, the Jing Jiang endeavor shatters the record books for having the world’s fastest elevators, highest restaurant, and the biggest ever cement pour, it’s sustainability that really puts it on the map. Awarded the top green rating, LEED Platinum, J-Hotel sets a major trend.
At the other end of the spectrum of Chinese hotels business, Plateno’s Pai Hotels provide a design driven, budget price accommodation, soon coming to Europe, Russia, and the CIS. Overall, the investment climate tells the story of Chinese hospitality best of all. According to data from CBRE, China’s outbound property investment rose by 144 per cent to US$16.1 billion during the first six months of the year, compared with US$6.6 billion during the same period a year ago. So owning the world’s tallest hotels simply brands a “the sky’s the limit” business strategy by a plethora of China interests. News this month that Chinese booking giant Ctrip is breaking out of its domestic shell and looking to become much more of an international player further accentuates these trends.
Introducing the Chinese Traveler
In my next segment I will discuss the micro-strategies for hotels outside China to attract, engage, and meet the unique needs of China’s outbound travelers. A few key takeaways here should suffice to help consolidate ideas on taking advantage of the stunning potential enumerated above.
As we’ve already seen, a good number of international brands have begun campaigns expressly targeting the Chinese market. InterContinental’s Hualuxe and Mövenpick’s Rui Xiang are two important ones inside China, but the number is growing rapidly outside the country too. As is the case with any “new” subject group, establishing the right network of locations, products, amenities, and services is crucial for European, North American, and other regional hotel markets. Understanding the expectations of the Chinese traveler will obviously differentiate businesses beckoning this growing demographic.
Data shows, for instant, that more than 50% of China hotel revenues come from food and beverage. Spas and reports play well for the burgeoning middle class traveling the world these days too, as do loyalty programs. On the latter, most upper middle class Chinese tourists take advantage of these programs and clubs, IHG for one, has more than 2 million members, while Plateno Group’s massive 80 million members dwarfs any loyalty program on Earth. As is the case with any guest-centric business, western hotels competing for China guests have a “need to know” on everything from pillows to sound proofing expectations, and everything in between. Players like Club Med and Banyan Tree already have a head start, and new budget resorts are in the planning stages too.
Finally, investment trends, the clear inbound and outbound growth ahead, and the natural progression of Chinese guests following China investment overseas galvanize the need for better intelligence going forward. Everyone in hospitality talks about the impact the new Chinese business revelation is having on our industry, but few offer concrete goals and strategies to get a leg up on the competition. Next we will discuss key intelligence on just what the new China traveler expects of your hospitality.
If you want to hear more from Tomasz, you can catch him at Digi.travel Conference & Expo, EMEA, Athens, 2016 where he participates as speaker.
Tomasz Janczak is the E-Commerce & Distribution Director for Plateno Group Europe, the daughter company of the Chinese hotel group, which manages more than 3700 hotels under 16 brands globally. Tomasz is also heading up the launch of a new project for Plateno corporate, that will open up the unlimited Chinese travel market to European hoteliers.