2003 Hotel Market Overview China Beijing, Chengdu, Dalian, Guangzhou, Guilin, Hainan Island, Hong Kong, Shanghai, Shenzhen, Wuhan Phil Golding, Associate Director Hubert Viriot, Senior Associate Lim Ai Yi, Associate HVS INTERNATIONAL SINGAPORE 100 Beach Road #32‐04 Shaw Towers Singapore 189702 (65) 6293 4415 (65) 6293 5426 (fax) New York San Francisco Boulder Denver Miami Dallas Chicago Washington, D.C. Weston, CT Phoenix Mt. Lakes, NJ Vancouver Toronto London Madrid New Delhi Singapore Hong Kong Sydney São Paulo Buenos Aires FOREWORD Dear Industry Colleagues, The hotel industry changes constantly, and industry professionals may from time to time find it challenging to keep up with the ongoing developments. At HVS International we endeavour to provide our industry colleagues with the most up-to-date information on the different hotel markets, to facilitate this task of hotel investors, developers and operators. We therefore present a series of Asian Hotel Market Overviews. In this report, we will conduct a thorough analysis of China and highlight some of the most important hotel markets. Each market section discusses the following aspects: · Market profile; · Accessibility; · Seasonality and segmentation; · Total hotel supply and market performance; · Five-star hotel supply and performance; · Outlook. We hope you find this information helpful. Should you require any further information or if HVS can be of any assistance, please do not hesitate to contact us. Yours sincerely, HVS International Singapore HVS International Table of Contents Table of Contents 1. China Overview ............................. 1 2. Beijing................................... 8 3. Chengdu ................................. 14 4. Dalian ...................................20 5. Guangzhou ................................26 6. Guilin ...................................32 7. Hainan Island ..............................38 8. Hong Kong ................................44 9. Shanghai ................................. 51 10. Shenzhen ................................. 58 11. Wuhan ..................................64 HVS International China’s Hotel Industry 1 Hotel Market Overview – China COUNTRY OVERVIEW With a total area of 9,326,410 km², the People’s Republic of China is the third largest country in the world after Russia and Canada. It is bordered by North Korea, Russia and Mongolia to the north; Kyrgyzstan, Tajikistan, Pakistan and India to the west; and Nepal, Bhutan, Myanmar, Laos and Vietnam to the south. China stretches some 5,000 km across the East Asian landmass in a dramatically varied configuration of broad plains, expansive deserts, and lofty mountain ranges, including vast areas of inhospitable terrain. The eastern half of the country, with a long seacoast and a number of offshore islands, is a region of fertile lowlands, foothills and mountains, desert, steppes, and subtropical areas. The western half of China is a region of sunken basins, rolling plateaus, and towering massifs, including a portion of the highest tableland on earth. China is the world’s most populous country with approximately 1.3 billion inhabitants. Han Chinese makes up about 93% of the population; the rest is composed of 55 different ethnic minorities. Approximately 70% of the population is rural; however, the urban population is increasing significantly in line with the economic development of the country. About 94% of the population live on approximately 36% of the land. The population is primarily concentrated in the eastern part of China with the most densely populated areas including the Chang Jiang Valley, Sichuan Basin, North China Plain, Zhu Jiang Delta and the industrial area around the city of Shenyang. On the other hand, the western regions, such as Inner Mongolia, Xinjiang, Gansu and Qinghai – which comprise 55% of the country’s land area, contain only 5.7% of the population. Political Background On 12 February 1912, China’s two-millennia-old dynastic system of imperial government was brought down with the abdication of the last Manchu emperor, the child Puyi. Under the guidance of Sun Yat-Sen, the leader of the nationalist Kuomintang party, the Republic of China was formed, with its capital housed in Beijing. On 1 October 1949, after years of civil war between the communist and the Kuomintang forces (following the Japanese occupation), Mao Zedong formally proclaimed the foundation of the People’s Republic of China whilst the defeated Kuomintang forces fled to the Island of HVS International China’s Hotel Industry 2 Formosa (Taiwan). Ever since, China has been a communist state claiming Taiwan as a wayward province. On 8 September 1976, Mao Zedong died bringing to a close 30 years of ‘Maoism’. Under the impulsion of Deng Xiaoping China began a ‘Second Revolution’ that included a reform of the Chinese Communist Party and its political activities, a reform of the government’s organisation, the economy and defence, and cultural and artistic reforms. These reforms were undertaken to realise the broad goal of the Four Modernisations announced by Premier Zhou Enlai in 1975 (the modernization of industry, agriculture, science and technology, and national defence) and to bring China into the community of advanced industrial nations by the start of the new millennium. As a result of these reforms, China experienced strong economic growth during the past two decades. These reforms were rewarded in 2001 when China entered the World Trade Organisation (WTO). In November 2002, Vice President Hu Jintao took over presidency of the ruling Communist Party and became China’s new president at the National People’s Congress. The parliament also elected a new premier, Wen Jia Bao, and several new senior ministers. Heading a new generation of leaders, Hu is widely anticipated to continue to give priority to political stability and economic reforms to facilitate the country’s gradual entry in the WTO. With political stability (except for the China-Taiwan dispute) and further economic development, we anticipate strong growth in the tourism sector, including demand for hotel accommodation. National Economic Economic development has been the priority of China’s leaders, and Overview consequently the national economy has expanded significantly during the last two decades. Table 1 provides a summary of China’s historical and forecast key economic indicators. Table 1 Historic and Forecast Economic Indicators, China 1994-06 Historical Forecast 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Real Economic Growth Rate (%) 12.6 10.5 9.6 8.8 7.8 7.2 8.0 7.3 7.8 7.6 7.8 8.0 8.0 Private Consumption (%) 7.7 10.1 9.6 5.8 6.7 12.5 — — — — — — — Government Consumption (%) 9.1 5.9 8.4 7.2 8.4 13.0 — — — — — — — Total Investments (% Change) 22.7 11.1 12.9 6.9 0.5 -11.2 -5.0 9.5 — — — — — Unemployment Rate (%) 2.8 2.9 3.0 3.1 3.3 3.1 3.5 3.8 — — — — — Consumer Price Index (%) 24.1 17.1 8.3 2.8 -0.8 -1.3 0.4 0.7 0.3 -0.5 0.5 1.5 3.5 Export (% Change) 31.9 23.0 1.5 21 0.6 6.1 28.3 15.0 — — — — — Import (% Change) 11.2 14.2 5.1 2.5 -1.5 18.2 30.8 20.0 — — — — — Chinese yuan:US$ 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 Source: Economist Intelligence Unit 8.8444 HVS International China’s Hotel Industry 3 As indicated in Table 1, China experienced significant economic growth, averaging approximately 8.8%, between 1994 and 2002. Economic growth has been led by increases in industrial output. Although originally pioneered by government enterprises, private investors and foreign investment have significantly contributed to the industrial output in recent years. As controls on the economy reduced, and with demand for personal services growing in line with the enrichment of the urban population, services have also been growing rapidly. It is important to note that China’s economic growth has mainly benefited the coastal areas on the eastern seaboard due to good accessibility, links with overseas Chinese businesses and a more developed infrastructure. As such, eastern provinces have consistently achieved far higher rates of growth than the western provinces. Despite the strong growth and progress achieved in recent years, some key fundamental challenges face China, such as, reforming the ailing state-owned enterprises, overhauling the financial sector and raising the average income of China’s rural population. The banking system is also in desperate need of reform: non-performing loans are estimated at over 20% of total loans; however, it is widely believed that this estimate is somewhat conservative and that the real figure is probably much higher. As such, there are fears that vulnerable sectors, agriculture in particular, may suffer from foreign competition as China enters the WTO. Nevertheless, China’s strong economic growth is anticipated to continue during the coming years and the long-term economic outlook thus remains very positive. We anticipate that this economic growth will have a positive impact on the tourism sector and demand for hotel accommodation, in particular in the Commercial segment (Corporate and Meeting, Incentive, Conference and Exhibition ‘MICE’ demand). Tourism Overview – Table 2 sets out visitor arrivals to China from 1996 to 2002. Visitors HVS International China’s Hotel Industry 4 Table 2 Visitors to China 1996-02 % of Total CAAG* 1996- Nationality 1996 1997 1998 1999 2000 2001 2002 2002 02 Asia Japan 1,548,843 1,581,747 1,572,054 1,855,197 2,201,528 2,385,700 2,925,553 22% 11% Korea 693,944 781,119 632,806 991,979 1,344,721 1,678,836 2,124,310 16% 20% Mongolia