REPORT FROM CHINA—Once it was China’s first tier cities—Beijing, Shanghai and Guangzhou and Shenzhen in the south—that
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attracted the attention of international chains. But as the number of international visitors declines because of the global economic slowdown, major brands are turning their backs on these high-profile destinations and turning to the country’s second- and third-tier cities across the country to capitalize on the growth of China’s domestic market. Marriott International plans to add 40 hotels by 2013, and Starwood Hotels & Resorts Worldwide’s Sheraton brand plans to open 24 properties during the next two years, all in cities that few people outside China would’ve heard about. Ibis, Accor’s international economy hotel chain, also has signed 10 new hotels in cities such as Dalian, Shenyang, Anshan and Weifang—all industrial cities in North China. The strong growth of demand for value-driven accommodation, by mainly local and intraregional business travelers, has made expansion necessary, said Gilles Larrivé, senior VP of Ibis Asia.
But it’s not just budget brands—Accor’s luxury business brand, Sofitel, also is expanding into three more second- and third-tier cities by 2010, increasing from its current portfolio of 15, excluding its properties in Beijing and Shanghai. There’s a growing demand for five-star hotels in those cities, said Michel Molliet, VP of Sofitel Greater China. The domestic market is still strong, in some dynamic secondary cities in particular.
Roy Graff, the managing director of China travel consulting company ChinaContact believes this movement toward smaller cities—in more developed parts of western China and the Northeast in particular—is because first-tier cities such as Beijing and Shanghai are oversaturated.
“The best locations are taken and new brands entering are willing to spend more money on a foothold and flagship hotel,” he said. “Those who know the market understand the benefits of being in (second- and third-tier) cities to benefit from domestic and regional business travel and leisure travel.”
Beijing’s revenue per available room in the first quarter of 2009 plummeted 42.4 percent to US$39 while Shanghai fell 36.9 percent to US$46, according to Smith Travel Research.
It’s the sheer scale of China that makes the investment worthwhile, Graff said.
“A small city in China can still have more than 6 million people and massive inward investment,” he said. “Getting good government connections in these cities is easier and labor costs are lower.”
These new properties are catering mainly to domestic travelers, who are increasingly keen to travel. While international visitor numbers are down 1.5 percent from this time last year, the China National Tourism Administration predicts domestic tourism will grow 9 percent from 2008 to reach 1.85 billion trips.
Molliet confirmed the new Sofitel properties will focus on the domestic market. The market for our hotels in secondary cities is mainly domestic and is made up of individual corporate clients, corporate meetings and government related meetings, he said. In leisure destinations such as Hangzhou, Sofitel also target domestic leisure business.
With those kinds of figures, it’s no surprise international brands are switching their focus.
“The Chinese are switching from outbound to domestic travel, so that’s good news for China but not so much for the rest of the world,” Graff said.
And domestic tourist numbers should rise further because the government is taking steps that will benefit the industry more. It plans to replace the odd system where Chinese workers’ holidays were at set times throughout the year. Now, employees are being encouraged to take paid holiday leave between April and June, enabling people to take longer holidays and travel within the country.