China’s economic growth slowdown is dominating the conversations surrounding hotel investment and performance in the Asia/Pacific region. But China’s economy hotel segment continues to press forward and a wider midscale segment is beginning to emerge.
In fact, the overall effects on the hospitality industry from the slowdown in economic growth would seem overemphasized, as previous double-digit percentage growth has been reduced to single-digit growth. Existing growth is of course something many other countries would thankfully accept. Gross-domestic-product forecast is also showing a continued growth at approximately 7% moving forward.
The slowdown in growth, including imports and exports to and from China, could have an economic domino effect on neighboring countries. However, that is expected to be offset to a certain extent by more Chinese traveling outside their home country. A rising middle class in China means residents have more financial resources and the ability to take more leave. The Chinese government’s case when creating extended Golden Week holiday periods is again heavily debated among citizens and tourism organizations, with hot topics including perceived macro-level gains and adapting to the increased freedom to travel as a whole.
We are also yet to see the effects of some new initiatives put in place, such as the Shanghai Free Trade Zone, launched late in the third quarter of this year as an effort to create a new financial services hub in the country and wider region.
Furthermore, China recently launched the 72-hour Visa-free transit in order to facilitate global visitors’ shorter stays for sightseeing and bolster tourism spend in Beijing, Shanghai, Guangzhou, Chengdu and Chongqing. These five cities adopted a Visa-free transit policy in 2013, which allows transit passengers with passports from 45 countries to stay for up to 72 hours without Visa on direct transit.
Getting to know Chinese travelers
Now that the Chinese have more freedom to travel, Thailand is already seeing a great effect. The country is experiencing massive revenue-per-available-room increases, partially attributed to incoming Chinese visitors. As an example, one in 10 foreign travelers into Pattaya today is from China (still well behind Russia, which represents one-third of all international Pattaya visitors).
Inter-Asia/Pacific travel as a whole is growing dramatically. And when the Chinese start to travel, the mere size of their population causes other countries to adapt. But it works both ways: Countries need to understand what it’s like to be a Chinese traveler, and Chinese travelers need to learn how to adapt to other cultures when traveling. Examples of amenities/services that the Chinese travelers would expect in a hotel are: free Wi-Fi, smoking rooms, Chinese breakfast food and Chinese TV channels.
China is a highly mobile country. Mobile and handheld devices were rapidly adopted. Therefore, how Chinese travelers book hotel rooms has shifted. Booking sites—both brands and third parties—are adapting.
For example, when Ctrip, the market-leading Chinese-based online travel agency, saw growth declining that ultimately affected the company’s overall valuation on the stock market, it shuffled leadership and, among various efforts, launched a new app and new solutions addressing the mobile consumer. The company has since nearly doubled its value and now hoteliers and consumers are seemingly back on board. Mobile commerce in China is absolutely critical, arguably even more so than in the United States.
To house the growing middle class, Chinese developers are adapting their strategies. Budget brands are focused on second- and third-tier cities, while developers in primary cities are trending more toward midscale hotels.
But it takes a certain hotelier to understand how midscale hotels work. What won’t work is taking a budget product, doing a soft refurbishment, raising the average daily rate and calling it midscale. This has proven to be a challenge for some hotel owners.
Around the region
Some brief, high-level thoughts on significant markets around the Asia/Pacific region outside China:
- While the economic slowdown in China may have been thought to affect Australia, RevPAR in the country’s top markets appears to be holding up well. There is still less supply coming online in Australia and those hotels that are open now remain bullish as demand persists, and we expect RevPAR to grow year over year. It’s a sensible approach if managed within reason, and not being oversupplied will keep the business attractive.
- Despite reports of potential oversupply in Japan, Tokyo is still in need of hotels in the right segments. There are many budget and some upscale hotels in Tokyo, but demand remains fairly solid today. A larger concern in Tokyo centers around the cost of doing business; interest rates and inflation should be a hotelier’s biggest fear as we start to see effects of the new economic wave under Shinzo Abe.
- Everyone is talking about the future of Myanmar. Relations with the U.S. have picked up, as have tourism and foreign investments. The future challenge for Myanmar will remain how to gradually grow tourism and foreign investment without making mistakes seen in some other countries in the region.
- Coming off a record year of growth last year, Seoul, Korea, couldn’t sustain the growth and is now one of the big losers in year-over-year RevPAR. Seoul previously was considered one of the top three markets in the Asia/Pacific region, but because of high occupancy and market compression the excitement has eased off to a certain extent.
- One of the main challenges for India remains how the government can facilitate hotel investment, and investors and hoteliers in the region continue to proceed with caution. It will be interesting to see how hotel supply is affected long term by the election year.
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