The exploding business of travel and tourism
The Chinese market
China is at the center of the tourism gold rush. Everyone wants a piece of the action. International hotel chains, unimpressed by the anemic economies in Europe and North America, are multiplying their properties in China every year. Young European, Asian and American tourism professionals manage and train the Chinese in tourism. They stay within the limits set by government tourism officials because the rewards can be surprising.
The wealth that is being accumulated is astronomical. In 2011, China had 271 billionaires and 960,000 millionaires. Asia now has more millionaires than Europe and could soon surpass North America. And tourism is one of the great sources of income for the Chinese economy; By 2020, when China is expected to become the number one destination, tourism will provide more than 10 percent of China’s GDP. To keep up with all those tourists, China is expected to need an additional 5,000 new passenger planes at a cost of $600 billion.
A typical example of the tourism professionals attracted to China is Javier Albar, a Spaniard with a degree in hospitality from Oxford Brookes University in Britain. He has spent most of his career in Asia, South Korea and Hong Kong before becoming general manager of the Beijing Marriott City Wall. It is Marriott’s largest hotel outside the United States and when I met him in Beijing in October 2011, he told me that he wouldn’t want to be anywhere else. “China today is a different animal from any other country,” he said. “He went through Mao Zedong’s revolution and all those terrible things. In fact, Mao did several good things. He united the country and laid the foundation for current growth. Now the country is getting richer, the young people are impatient; there are problems of expectations and inequality; everyone wants to get ahead. After what has happened over the last thirty years, who knows what will happen in the near future. The country is very alive. And I want to be here.”
The first and most important requirement to be successful in the Chinese tourism industry is to have the right connections with the government. China is a one-party state where top officials, their cohorts and their children – known as little princes or “red nobility” – play the decisive role in overcoming bureaucracy to obtain the licenses and permits necessary to do business. Across the board, major decisions are made behind closed doors, a situation that has given rise to calls for better and more open legal structures and oversight of business transactions. Since the government maintains control over China’s tourism industry from the top down, connections are essential.
“You can have all the resources, experience and professionals working for you, but without contacts you are nothing,” Albar said. “Connections get you to the table.”
For Marriott International, those connections came overnight with the 1997 acquisition of Renaissance Hotel Group. Renaissance’s principal owner was New World Development Company, a Chinese hotel and real estate powerhouse headed by Dr. Henry K. S. Cheng. With that purchase, Marriott went from managing nothing in China to managing forty hotels and connected with Dr. Cheng. His political ties reach to the top of the Chinese government and he is a member of the standing committee of the Eleventh Chinese People’s Political Consultative Conference of the People’s Republic of China. With that political clout and wealth, Dr. Cheng’s opinions are heard at the highest levels of government. He is the ideal skipper required by any international tour group.
With that partnership, Marriott has a presence in China, adding hotels and attracting Chinese tourists, conventions, business travelers and local events. Bringing local Chinese companies to its hotel is part of a larger ambition, Albar said, to transform Chinese into Marriott fans when they travel abroad.
“Our number one goal here is to attract inbound travelers to China to stay at our hotels. “Our number two goal is to influence Chinese overseas travelers to choose Marriott when they travel abroad,” he stated. “The market is that strong.”
As an example I cited a twenty-four-year-old couple from Beijing who had their wedding at their hotel. “It was elegant: food, flowers. When they went to the United States, they booked into a Marriott. “They went to France and booked into a Marriott”
Like any other tourism professional in China, Albar knows that his profits depend on capturing a share of China’s outbound and inbound trade. Marriott announced plans to open its 100th hotel in China by 2015, a timeline that will require opening a hotel every month for three years.
The competition is fierce. Internationally branded hotels (those owned by Chinese but designed and managed by an international chain) are opening faster in China than anywhere else on the planet. “China, China, China” is the mantra of large chains such as Hilton, Intercontinental, Four Seasons, Hyatt, Ritz-Carlton, Marriott and Starwood. In the five years ending in 2012, the number of international brand hotel rooms grew by 62 percent, and that’s just the beginning of the boom.
By 2014, Hilton will have quadrupled the number of hotels it manages in China. Hyatt Hotels Corporation is doubling the number of hotels it manages in China. The Starwood brand, which includes Sheraton hotels, is building its largest resort hotel in Macau, and industry projections show China could soon become its biggest market, surpassing the United States. All of this adds up to a 50 percent increase in international brand hotel rooms by 2015, an idea that is raising fears that a major hotel bubble will burst and send occupancy rates tumbling.
David Barboza, the New York Times’ Shanghai bureau chief, who has lived in China for more than a decade, has seen the hotel business soar through the roof. “They are doing very well with room rates going up and labor costs still low. They give you a great service without labor costs, more or less the same as in Mexico.”
A few years ago, the Chinese government released figures showing that the average monthly salary of Chinese housekeepers was $97 and hotel receptionists was $133. (In Hong Kong, a receptionist was paid $1,305.) At the same time, international brand hotels were charging $125 a night for a room. While salaries have increased (analysts say to about $200 a month on average), so have average hotel prices at $225. China’s five-star hotels are no longer one of the world’s great bargains.
Low wages are an essential source of those large profits. When Deng opened the economy, he banned strikes in 1982 and kept Chinese unions under government control. In return, unions have kept labor costs low, attracting foreign investment and flooding the global market with cheap goods. It is a public secret that union leaders expect discreet cash payments from hotels and other tourist services as a sign of gratitude for those low labor costs.
Barboza said that in the government’s mentality the tourism sector has been a great success and there is no reason to change its formula. “The Chinese state raises money with licenses, monopolies and associations. Why would officials abandon it?
All of these blue sky predictions have been hard-won. The daily reality of running a hotel in China is complicated. During my four-day stay at the Marriott City Wall, I was able to see the cultural gaps and disconnections. One day, during lunch at the hotel’s dim sum restaurant, I waited half an hour with no sign of my food. When I asked my waitress why none of my dishes had appeared, she responded, “You should have ordered something else.” One morning at breakfast, a hostess interrupted a man who was filling his plate at the buffet and asked him to sign a check with his free hand so she could dial his room number. He wasn’t happy.
As Bill and I flew back to Washington (a fourteen-hour trip) I realized that no other country had affected me as much as China. It is difficult to imagine how much of the future of the global tourism industry is in the hands of the Chinese. With its pastiche of top-down official control over tourism, its nascent bottom-up entrepreneurship, built-in corruption, and obligatory propaganda lessons, China is hardly a model for a company that protects and improves locations and provides a steady profit. and frank.
Part of the short-term logic behind the model is the large number of tourists coming and going to China; especially since the government has granted “Golden Weeks” of paid vacation to its population of 1.37 billion and a directive for them to see the world. The other foundation is China’s basic economic model. China’s penchant for tearing down the old to replace it with “anywhere” architecture or an ersatz of “old China” drives the growth of that system, but also diminishes the country’s long-term appeal to tourists.
Then there is the pollution. It is a health problem and a symptom of the widespread environmental damage caused by China’s industrialization. Tourism cannot be neutral to the pollution of air, water and landscape that Deng had predicted; While Marriott and WildChina have compensation programs, they are a symbol of what needs to be done rather than a solution. The speed and size of tourism growth makes it difficult to imagine how the industry will reduce problems rather than exacerbate them. While tourism officials argue that in the new world everyone has the right to travel, China paints a vivid picture of what happens if those trips are not well managed with the future in mind.
The Chinese government’s tourism policy has been successful in several ways. Tourism has helped spread the image of China as a new and modern nation. Compared to the draconian image of the communist era, China appears open to non-Chinese speaking tourists who have, at best, three weeks to traverse this continent-sized nation. They don’t notice the plainclothes police patrolling Tiananmen Square looking for potential dissidents, nor do they understand the strict political and cultural censorship. They do not use the Chinese Internet and have no idea about the severe censorship that blocks entire websites with any content critical of China, all in the name of “harmony.” Nor do they see routine police arrests, without a court order, of dissidents and protesters… the list is long.
And the Chinese government has achieved its other goal during this long period of experimentation and is making huge profits, as Deng also predicted, but they are difficult to track.
The stakes are equally high for foreign countries that are counting on Chinese tourists to improve their business futures by traveling abroad in large numbers and spending equally large sums of money. As Jonathan Tourtellot of National Geographic said: “If the Chinese get it right, if they find the right balance, then tourism will be fantastic. If the Chinese make a mistake, we are all toast.”