The Shangri-La hotel in Wuhan. (Photo courtesy of Shangri-La Hotels and Resorts)

August 22, 2007 -- A new standard for luxury accommodations is set to roll into Chengdu in 2008. The five-star Millennium Hotel will open in the Sichuan capital's upscale Shen Xian Shu Road neighborhood, while in Wuhan, an hour and a half flight east, GreenTree Inn, a mid-range business hotel, is opening up to ten hotels by the end of 2007. The hospitality industry had reached central China.

"China has unmatched market potential," said Andrew Cosslett, chief executive of InterContinental Hotels Group (IHG), in a statement last month. InterContinental is on the brink of a major expansion into China with plans for a net gain of 50,000 to 60,000 new rooms by the end of 2008.

"IHG signed a landmark deal with the Chengdu Exhibition and Convention Group to manage six hotels, three in Chengdu city and three in the Jiuzhaigou Scenic Area, representing a total of 4,500 hotel rooms," Dexter Chia, vice president of sales and marketing at IHG Greater China, told Emerging China.

"These recent developments are in line with the IHG aim of having 125 hotels opened in Greater China by 2008, a significant increase from our current portfolio of 70 hotels," said Chia.

IHG is benefiting from the overall growth of the Chinese hospitality industry. Jones Lang LaSalle (JLL) reports that in 2006 China was the second most active hotel investment market in the Asia-Pacific region with a total of US$500 million worth of transactions. These transactions are increasingly happening throughout the country, not just in Beijing and Shanghai.

"Institutional investors often prefer to enter the market through Beijing and Shanghai, however they are starting to consider second tier cities that also offer strong growth potential and often better value," states the same JLL report.

It is not just at the high where the growth is being see: branded budget hotels are opening at a phenomenal rate.

"In Wuhan, budget hotels are growing fastest," Margaret Ng, senior director of CBRE Research for CB Richard Ellis in Hong Kong, told Emerging China. "In Chengdu, both luxury hotels and budget hotels are displaying strong growth momentum." From 2007 to 2010, some 25 to 30 budget hotels providing about 2,500-3,000 rooms are scheduled for completion in Chengdu says Ng.

"The increase in business travel into China and the growing expatriate community are fueling strong demand for high quality accommodation," Ee Chee Hong, Ascott International's China CEO, told Emerging China.

Ascott International is a global leader for serviced apartments with over 19,200 units globally and 4,000 in China. Ascott's primary customers include expatriates working for both foreign and Chinese companies in China, and corporate executives on business trips or short assignments or projects. Ee cites Ascott's plan to increase the number of units in China to 10,000 by 2010.

According to Ee, Ascott's Chinese investments are aligned with China's emphasis not only on development of its first tier cities, but also on tapping into the potential of second tier cities by bringing investments and employment there.

Ascott's strategy is to anchor itself firmly in leadership positions in key gateway cities like Shanghai, Beijing and Guangzhou, while penetrating into second tier cities like Dalian, Tianjin, Suzhou, Xi'an, Chongqing, Shenyang, Chengdu, Wuxi and Nanjing.

"Our focus is on four main regions within China...[including] central and west China, areas where there are multi-industry development," said Ee. In the second half of 2007, Ascott plans to open new properties in Suzhou and Xi'an.

CBRE Research statistics show that the overwhelming majority of visitors to China's interior are domestic visitors. In 2006, only one percent of visitors to Chengdu and Wuhan were from overseas, including visitors from Hong Kong, Macau and Taiwan.

"In general local customers are more price sensitive than their foreign counterparts," said Ng, explaining the reason behind the strong budget hotel market growth in central and western China. In Wuhan, the location of Shangri-La the first international hotel brand in Central and Western China, sector leaders include Home Inn, Motel168 and Jinjiang Inn.

"I stay at the Shangri-La Wuhan," R.J. Morford, Shanghai-based director for Wescast Industries' Asia sales and frequent visitor to Wuhan, told Emerging China. "Rooms, food and staff are similar to Shanghai, however the price is significantly less."

Cities in central and western China will not stay local for long. According to the World Travel and Tourism Council, the number of foreign visitor arrivals in China is expected to rise from 50 million in 2006 to between 150 and 180 million in 2020. Such a rise would make China the number one destination for international tourists.

China's National Bureau of Statistics predicts domestic Chinese tourists will rise from 1.2 billion in 2005 to 3 billion in 2020.

With the budget sector expanding rapidly, higher end accommodations are also growing but with a greater emphasis on quality rather than quantity. The location of the new Millennium Hotel Chengdu, for instance, was chosen especially to create a relaxing environment for high-end business travelers.

Amidst all this activity, there are warnings that too much and too rapid investment could lead to overheating of China's hotel industry. "New hotel openings in all sectors of the market have diluted occupancy levels and slowed performance growth," reports Deloitte.

In Chengdu, however, development continues to roll along unabated. The Millennium Hotel is just one new hotel opening in a line of many planned for coming years. Chunxi Road, a retail center in central Chengdu, is slated to become the regional retail hub of southwest China by 2009. With real estate investment in China up 28.5 percent in the first half of 2007, hotels throughout China are benefiting from tremendous growth but as many hoteliers see, the biggest opportunities are in China's own emerging markets outside the traditional centers.