Ahead of his departure from the company next month to become CEO of Pan Pacific Hotels Group, Singapore, we spoke with Bernold Schroeder, CEO of Jin Jiang International Hotel Management Co., about his outlook on the Chinese market.

　　Although its GDP growth has slowed to 7.6% projected for this year, down from 10.4% in 2010, China’s enormous hotel pipeline remains the largest in Asia Pacific.

　　With this in mind, ahead of his departure from the company next month to become CEO of Pan Pacific Hotels Group, Singapore, we spoke with Bernold Schroeder, CEO of Jin Jiang International Hotel Management Co., about his outlook on the Chinese market.

　　How much of an issue is oversupply become for Chinese hotel performance?

　　Bernold Schroeder: The 4-star and 5-star market segments are where you see the most oversupply in China. That market in the first-tier cities is quite oversupplied. For example, with the World Expo in 2010 there were 30 new 5-star hotels in Shanghai alone. In Beijing for the Olympics there were many new hotels, especially in the 4-star and 5-star segments built. The market needs time to absorb that.

　　When you have an oversupplied market, you have to figure out how to fill it. It is key to focus on domestic demand, as when you think of Thailand or Indonesia there are many foreign arrivals but here it is primarily domestic. One way to improve revenues is with food and beverage. In Asia Pacific F&B revenue can easily be 35% to 40% of a hotel’s total revenue, which makes a big difference.

　　This is also true in the secondary and third-tier cities, which are to a very large extent a domestic game.

　　Is that where you see development going?

　　Schroeder: Everyday in China nine million people making an overnight trip and it is not necessarily in Shanghai or Beijing, it might be inland and we have to follow the customer there and have a competitive advantage. In the secondary and third-tier markets is where we see opportunities.

　　Do you think China is experiencing a real estate bubble, as some analysts are warning?

　　Schroeder: There is talk about a real estate bubble, but we have to clearly look at the financing of real estate. The financing is of course much more conservative, at least for residential than in the U.S. You have a lot of institutional investors in the U.S. that want to exit after six to seven years. That is not how they do it here. People hold on much longer to the asset. It is a different class of investors in China. As a consequence there are not much transactions here in China, as most owners are very patient and not looking to sell right now.

　　I am quite positive on China’s hotel market outlook. You have to look at the long term. The U.S. has close to five million hotel rooms while China only has 2.4 million. We have only half the hotel rooms of the US but China is four times larger than the U.S.

　　How is asset managing evolving in China?

　　Schroeder: What they need to do more asset management in China. The U.S. leads at it by running hotels with a systematic approach. That in China is very, very much in the early stages.