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Overbooked: 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 with 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 bounds set by the government tourism officials because the rewards can be stunning.
The wealth being accumulated is astronomical. As of 2011, China had 271 billionaires and 960,000 millionaires. Asia now has more millionaires than Europe and could surpass North America shortly. And tourism is one of the great cash cows for the Chinese economy; by 2020, when China is expected to become the number-one destination, tourism will provide over 10 percent of China’s GDP. To keep up with all those tourists, China is expected to need 5,000 additional new passenger airplanes at a cost of $600 billion.
Typical of the tourism professionals lured to China is Javier Albar, a Spaniard with a degree in hospitality from Oxford Brookes University in Great Britain. He has spent most of his career in Asia, in South Korea and Hong Kong before becoming general manager of the Beijing Marriott City Wall. It is Marriott’s biggest hotel outside of the U.S., and when I met him in Beijing in October 2011, he said he wouldn’t want to be anywhere else.
“China is a different animal from any other country today,” he said. “It went through the revolution of Mao Zedong and all of those terrible things. Mao actually did several good things. He united the country and he set the ground for the growth of today. Now the country is becoming wealthy, the young 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 for doing well in the Chinese tourism industry is having the right connections to the government. China is a one-party state where top officials, their cohorts and their children—known as princelings, or the “red nobility”—play the decisive role in cutting through the bureaucracy to win the licenses and permissions necessary to do business. In all areas the most important decisions are made behind closed doors, a situation that has led to calls for better and more open legal structures and supervision of business dealings. Since the government retains control over the tourism industry in China from the top to the bottom, connections are essential.
“You can have all the resources, the expertise and professionals working for you, but you are nothing without contacts,” said Albar. “Connections bring you to the table.”
For Marriott International, those connections came overnight with the 1997 acquisition of the Renaissance Hotel Group. The principal owner of Renaissance was the New World Development Company, a Chinese real estate and hotel powerhouse run by Dr. Henry K. S. Cheng. With that purchase Marriott went from running nothing in China to managing forty hotels and became connected to Dr. Cheng. His political ties go 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 heft and his wealth, Dr. Cheng’s views are heard at the very top of the government. He is the ideal patron required for any international tourist group.
With that partnership Marriott has a presence in China, adding hotels and attracting tourists, conventions, business travelers and local Chinese events. Bringing local Chinese business into his hotel is part of a larger ambition, said Albar, to transform the Chinese into fans of Marriott when they travel abroad.
“Our number-one objective here is to attract inbound travelers to China to stay at our hotels. Our number-two objective is to influence Chinese outbound travelers to choose Marriott when they travel overseas,” he said. “The market is that strong.”
As an example he cited a twenty-four-year-old Beijing couple that held their wedding reception at his hotel. “It was elegant—food, flowers. When they went to the U.S., they booked at a Marriott. They went to France, they booked at a Marriott.”
Like every other tourism professional in China, Albar knows his profits depend on capturing a share of the outbound as well as the inbound China trade. Marriott announced plans to open its hundredth hotel in China by 2015, a schedule that will require opening one hotel every month for three years.
The competition is fierce. International-brand hotels—those owned by the 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 for major chains like 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 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 Macao, and industry projections show that China could become its most important market soon, outpacing the United States. All of this adds up to a 50 percent increase in international-brand hotel rooms by 2015—a thought that raises fears of one big hotel bubble that will burst and send occupancy rates plunging.
David Barboza, the Shanghai bureau chief for the New York Times, who has lived in China for over a decade, has seen hotel business shoot through the roof. “They are doing very well with room rates up and labor costs still low. They give you great service with no labor costs to speak of—about the same as in Mexico.”
A few years ago the Chinese government published figures showing that the average monthly wage for Chinese chambermaids was $97 and for hotel receptionists, $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 wages have gone up—analysts say to around $200 a month on average—so have average hotel prices to $225. China’s five-star hotels are no longer one of the world’s great bargains.
Low wages are an essential source of those handsome profits. When Deng opened up the economy, he outlawed strikes in 1982 and kept Chinese unions under government control. In return, the unions have kept labor costs down, attracting foreign investment as well as flooding the global market with inexpensive goods. It is a public secret that union officials expect discreet cash payments from hotels and other services for tourists as a token of gratitude for those low labor costs.
Barboza said that in the mind of the government, the tourism sector has been a huge success and there was no reason to change its formula. “The Chinese state rakes in the money with licenses and monopolies and partnerships. Why would officials give it up?”
All these blue-sky predictions are hard-won. The day-to-day reality of running a hotel in China is complicated. During my four-day stay at the Marriott City Wall, I could see the cultural gaps and disconnects. At lunch one day 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 answered, “You should have ordered something else.” At breakfast one morning a hostess interrupted a man filling his plate at the buffet, asking him to sign a check with his free hand so she could check off his room number. He wasn’t happy.
When Bill and I were flying home to Washington—a fourteen-hour journey—I realized that no other country has affected me like China. It is hard to fathom how much of the future of the world’s tourism industry is in the hands of the Chinese. With its pastiche of official top-down control over tourism, its nascent bottom-up entrepreneurship, the built-in corruption and mandatory propaganda lessons, China is hardly a model for a business that protects and enhances locations and provides a steady, aboveboard profit.
Part of the short-term logic behind the model is the sheer number of tourists coming and going to China; especially since the government has given “Golden Weeks” of paid vacation to its population of 1.37 billion and a directive to them to see the world. The other foundation is China’s basic economic model. The Chinese penchant for tearing down the old to be replaced by “anywhere” architecture or ersatz “olde China” fuels growth in that system, but it 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 wide environmental damage wrought by China’s industrialization. Tourism can’t be neutral in the face of the polluted air, water and landscape that Deng had predicted; while Marriott and WildChina have offset programs, they are symbolic of what needs to be done rather than a solution. The speed and size of tourism’s growth makes it difficult to imagine how the industry will reduce rather than exacerbate the problems. While tourism officials argue that in the new world, everyone has a right to travel, China presents you with a vivid picture of what happens if that travel isn’t well managed with the future in mind.
The Chinese government’s tourism policy has succeeded in several ways. Tourism has helped spread the image of China as a new, modern nation. Compared to the draconian image of Communist days, China appears open to tourists who speak no Chinese and have three weeks at best to traverse this continent-size nation. They don’t notice the plainclothes policemen patrolling Tiananmen Square for potential dissidents or understand the tight political and cultural censorship. They do not use the Chinese Internet and have no idea of the severe censorship that blocks entire websites with anything critical of China—all in the name of “harmony.” Nor do they see routine police arrests, without warrants, of dissidents and protesters … the list is long.
And the Chinese government has realized its other goal during this long period of experimentation and is making handsome profits, as Deng also predicted, but those are difficult to trace.
The stakes are equally high for foreign countries that are counting on the Chinese tourists to improve their business futures by traveling abroad in great numbers and spending equally large sums of money. As Jonathan Tourtellot of National Geographic said, “If the Chinese get it right—if they figure out the right balance—then tourism is great. If the Chinese get it wrong, we’re all cooked.”