China’s hospitality industry is reaping the rewards of the current tourism boom. Analysts are reporting positive market performance and record hotel construction pipelines. Is this level of growth sustainable ?

　　China marches on…

　　China’s hospitality industry is reaping the rewards of the current tourism boom. Analysts are reporting positive market performance and record hotel construction pipelines. Is this level of growth sustainable ? We asked Giovanni Angelini, retired CEO of Shangri-La, founder of Angelini Hospitality and Vice Chairman-advisor to Dusit Overseas Company, for his seasoned perspective.

　　Let’s look at some facts. In 2010, China replaced Japan as the second largest economy in the world, and over the next decade is expected to overtake the USA as the largest economy in purchasing power parity terms. In March 2011, the National People’s Congress approved the 12th Five-Year Plan for National Economic and Social Development, and one of its most remarkable features is the lowering of the target growth rate from 7.5 % per annum to 7.0 % per annum, at a time when the actual rate (i.e. the one in the 11th five-year plan) was around 11 %. Another significant feature of the plan is to shift the economy from being “export-oriented” to being “domestic demand-oriented,” encouraging investments in all domestic sectors, from huge public infrastructure projects (roads, high-speed rail systems, increasing the number of airports from 175 to 225, ports, education, housing, etc.) to local-daily consumption – and that is positive for the hospitality industry in general. Relevant features of the plan also include boosting employment, raising minimum wages and encouraging more spending. A gradual and continued appreciation of the Renminbi is also expected. The World Bank forecasts that in 2012, China’s growth will stand at 7.4 %, which is the lowest in more than a decade but higher than the target of 7.0 % – and indications are that the slowdown is bottoming out.

　　China appetite for foreign goods and investment continues to grow, in particular for natural resources and quality assets around the world. As reported by the Wall Street Journal, $225 billion, or 3 % of the nation’s economic output last year, was spent outside China. This is expected to continue in the future. Hotel assets are also targets and in demand.

　　1. Tourism

　　Outbound Chinese travelers are expected to number close to 80 million in 2012, reaching 100 million by 2017-18. Chinese tourists have become a major target for destination marketing groups and tourist organizations around the world. Chinese consumers are eager to venture forth and to spend.

　　2. Hotel performance 2012 vs. 2011

　　A recent survey shows that the overall sentiment remains optimistic but with some caution. Little change is expected in occupancy percentage by year-end as compared to the previous year, while the ADR is anticipated to increase but not by more than a single-digit rise. A similar situation is anticipated for 2013. Overall there should be an increase on RevPARs.