China’s high-speed railway system, the largest-ever transportation infrastructure project in history, is presenting opportunities for global investors, says Jerry Lou, China Strategist at Morgan Stanley.
Beijing will roll out the network next month, with the opening of a $32.5 billion rail line between Beijing and Shanghai. The network will ultimately connect 250 cities across the country over by 2020, mobilizing some 4 billion travelers a year.
The launch is expected to give a big boost to the hospitality and tourism industries, particularly several big multinationals operating in the country.
“The growth story for many of these overseas companies is becoming more China centric; in many cases China is the only part of their growth story,” he noted.
Walt Disney, for one, is in good position to benefit when the network opens, Lou says. The 20 million residents of Shanghai, among the wealthiest in China, will have immediate and easy access to its Disney theme park.
McDonalds and Yum Brands’ Pizza Hut and KFC, three of the top restaurant chains in China, also stand to profit with the build-out of hundreds of transportation hubs offering the companies an opportunity to expand their brand presence across the country.
According to a report by Morgan Stanley, the three fast food chains have more than 25 percent of their store base within the country’s transportation hubs, including Beijing, Shanghai and Nanjing, but just less than 10 percent of their presence in emerging transportation hubs such as Lanzhou, Nanning and Nanchang.
Equipped with a strong understanding of the local market, Lou says the restaurant chains are well positioned to take advantage of new opportunities in China. Yum's KFC already has more than 3,000 outlets in the country, while rival McDonalds has 1,300 nation-wide.
European hotel chain Intercontinental Hotels Group (IHG) is also regarded as major beneficiary of the infrastructure project, given its strong market share of existing hotels and aggressive expansion plans in the pipeline, including the creation of its own Chinese brand.
IHG, the biggest international hotel chain operator in China, currently has a 12.5 percent share of the branded hotel segment, but that figure is expected to increase to 25 percent with the expansion of the rail network.
“We believe that China’s HSR project could have the same transformational impact on the hotel industry as the U.S. interstate highways system had on the U.S. hotel industry the in the 1960s and 1970s,” said Jamie Rollo, leisure analyst at the brokerage, who expects to see a seven-fold increase in the number of branded hotel rooms in China.