China’s slowing economy isn’t deterring CEOs of the world’s biggest international hotel chains, who describe the Chinese market as the “most important in the world” and are keeping their aggressive expansion plans for the country intact.
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Service bell at hotel reception
Christopher Nassetta, CEO of Hilton worldwide, told CNBC that the company plans to more than quadruple the number of hotels in China over the next few years, after growing that number to 30 from just 5, four years ago.
“From an operating point of view, China continues to show great strength,” Nassetta said in an interview with CNBC Asia’s “Squawk Box” Wednesday. “So our expectation is: we will easily meet our goal of having another hundred hotels open and operating over the next few years.”
The CEO of rival Starwood Hotels and Resorts Worldwide , which run high-end brands including the Sheraton, W and St Regis, described China as “the world's first 5-trillion dollar economy” that is “sheepish about 8 percent growth.”
“We will soon have another 100 hotels under construction and the reality is, because of the low cost in China to build hotels, they can be profitable at relatively lower rates of occupancy than almost anywhere else in the world,” Frits Van Paasschen told CNBC Asia’s “Squawk Box” Wednesday.
Starwood and competitors such as Marriott International and IHG , as well as domestic Chinese companies, are currently building more than 120,000 rooms in China, according to statistics from STR Global, a U.S-based tourism research firm, to cash in on the country's growing travel sector.
China is forecast to become the world's second largest travel and tourism economy after the United States by 2015, says the World Travel & Tourism Council. But a slowdown in the world's number two economy, which expanded 8.1 percent at the slowest pace in nearly three years, has concerned some industry watchers already worried about oversupply.
Zhao Huanyan, a tourism analyst with the Shanghai Academy of Social Sciences, told Chinese press late last year that oversupply of hotel rooms in China is inevitable. "If we compare the average occupancy rate and room rate of the hotels in Beijing and Shanghai with those in Hong Kong and New York, we can see a sign of oversupply on the Chinese mainland," he was cited as saying.
According to a report by the China Tourism Academy (CTA) in January 2012, foreign visitor arrivals are forecast to grow by only 1.2 percent year-on-year this year, which could impact hotel occupancy.
But Van Paasschen argues that developer demand remains strong and investors should look beyond these figures. "If there's a short-term correction, that doesn't concern me very much," he said.
Growth in Resorts, Value-Minded Segments
Starwood, which is opening a Westin and Sheraton ski resort in Changbaishan in China in August, sees big growth in the resorts segment.
“Resort space in Asia is still relatively short supply. If you look at the sheer number of people, the sheer amount of GDP relative to great locations to go to, the long term play in Asia is resort locations, [with] Hainan at the top of that list,” Van Paasschen said, referring to the southern Chinese province.
Meanwhile, Hilton, which has 30 hotels in China including a Waldorf-Astoria property in Shanghai, is expanding its focus beyond luxury travelers. The hotel chain says it will build more hotels under its Double Tree brand, for travelers in between the so-called 'economy' and 'upscale' segments.
"None of the international companies have done a particularly good job at exploiting that opportunity and the Chinese companies themselves have stayed at the lower price point," Nassetta said. "We think there's a huge opportunity between the two spaces and over the next 3, 4 years we are going to be going to pursuing those opportunities."