Hoteliers Adapting To Macro Changes In China

　　SHANGHAI—China’s economy is experiencing widespread changes and hoteliers there—and worldwide—must adapt their strategies to stay relevant.

　　Recent news about a slowdown of China’s gross-domestic-product growth is not deterring those looking for opportunity in the region. While the country is not as hot as it was five years ago, an emerging middle class still provides an attractive source of hospitality demand, said Robin Bew, editorial director and chief economist with the Economist Intelligence Unit, during HVS’s ninth annual China Hotel Investment Conference in Shanghai this week.

　　“GDP only grew at 7.7%, what a terrible disaster,” Bew joked.

　　Bew said the Chinese economy seems to be improving, and the growth story this year will be better than in 2012. However, the best is yet to come, he said.

　　“Chinese consumers are more able to support economic growth,” he said.

　　Bew said understanding economic challenges and opportunities is critical for businesses to position themselves in context. While he does expect a global economic recovery, it won’t be as brisk as once expected, he said.

　　As evidence of Chinese economic growth, Bew discussed Chinese disposable income, which he said is a key metric. In 2009, only one city in China was able to report that its average resident netted 30,000 renminbis ($4,853) annually after income and expenditures, which Bew qualifies as “disposable income.” In 2011, seven cities hit that mark. By 2019, more than 100 cities will be able to report average disposable income greater than 30,000 renminbis, he said.

　　“While China today sees a pretty big opportunity, the really big story—rising incomes in (western China) and more cities becoming open for business—that story has been started,” he said. “There’s a lot more opportunity to open up in China.”

　　The evolution of consumption behavior in China is leading to growth in the number of domestic travelers, according to Dai Bin, VP of the China Tourism Academy. Chinese residents born in the 1960s worked hard and didn’t have time to travel, he said. But residents born in the 80s and 90s—major players in today’s consumption market—see travel as opportunity.

　　“Yes, they work hard but they enjoy life, too,” Bin said.

　　Equally as important as capturing demand in China is treating China as a feeder market and learning how to attract an emerging market of outbound Chinese travelers.

　　Generally speaking, demand trends are moving from West to East—both globally and particularly in Asia, Bew said. China is driving retail sales around the world, he said.

　　“China is a major driving force behind what’s happening in the global economy,” he said. “It is not only a large driver because of the demand it generates around the world, but the Chinese are also a major force from their outbound investment strategies. There are opportunities for the rest of the world in creating incentives to capture Chinese investment.”

　　Outside of China, the once-coveted countries of Brazil, Russia and India are fledgling and “starting to feel a bit like last year’s news,” Bew said. There are real structural impediments in Brazil and India, each of which is “stuck in a rut,” he said.

　　Adapting to change

　　Therefore, hoteliers operating in China must stay nimble and be able to react quickly to change, presenters said.

　　Mark Hoplamazian, president and CEO of Chicago-based Hyatt Hotels Corporation, said the tone in China is clearly “austerity.”

　　“One can make the case for a notion that we’re in a different era,” he said, “an age in which constant surprise is a way of life. We need a way to address issues in a new paradigm. Focus on things at the core of being resilient and being adaptable.”

　　A challenge for hoteliers will be rising wages in China. The average wage in China has risen 180% over a recent timeframe, Bew said. Wages in China are still low relative to the U.S. and Europe, but “wage growth here is exceptional,” he said.

　　One hotelier asked if those rises in wages are sustainable.

　　“For China to become a stronger economy, people have to make more money,” Bew said. “But that means in many industries China is no longer competitive. Are you able—within your businesses –to bring up productivity rates to offset that fact that (wage) rates are rising? How do you manage profitability by getting more efficiency out of your employees?”

　　Bew said Chinese business operators should expect wages to rise 10% annually for the foreseeable future.

　　Hoplamazian said Chinese hotel operators will need to bring techniques already applied in other regions around the world to China. Implementing technology to operate more efficiently and cross-training staff are two examples.

　　“We have to rethink business models,” Bew said. “It’s inevitable. People here are going to be earning more money so it’s up to us to import information you use in other markets here.”

　　Bin, of the China Tourism Academy, said today’s businesspeople in China also must take into account the changing characteristics of tourists in China. By 2020, Chinese people born in the 1990s will be getting married and starting careers, he said, and those people will demand higher accommodations and services.

　　“There will be a more intelligent transportation system—expressways and high-speed rail—and people will find it easier to travel and as a result will be able to spend more on vacations,” Bin said.

　　He said the emerging generation of young travelers in China will lead to the growth of a mid-range hotel segment in China because those hotels are not as expensive as the luxury product currently available but still offer value.

　　“Mid-range hotels will become a favorite of young people,” Bin said. “As a result, I hope to see growth of mid-ranged hotel brands, and I hope there will be homegrown high-end hotels.”