The media is full of raving reports on how busy China is with opening more hotels, several media and analysts reports mention the unprecedented growth that hotel companies are announcing in China in particular, but also in Asia in general;

A recent China-focus report listed the 527 construction projects China as being the second largest market for hotel developments after the USA.

This was announced for example by TOPHOTELPROJECTS, a worldwide leading provider of b2b hotel data. It also reported that on the focus in the hotel construction is increasingly shifting to the cities in the inland, the so-called secondary and third-tier cities.

As the first-established Hotel Recruitment Firm in the PR China, TOP Hoteliers has been recruiting for over a decade for hotels in these secondary- and third-tier cities already, and it is by regularly visiting these locations where fact from fiction can be established.

Whichever city we visit, we are usually updated by the hotel managers present, on what is all rumored or announced to be opening next, in the coming 1-3 years in that city, in terms of new hotel projects. Yet, when we come back 1-3 years later to the same city, a different scene has become reality.

There are few reports on hotels that were announced that were never opened, continue to be under construction while funds have run out, or the hotels that in fact did complete construction, opened it’s doors but has changed (brand) name already since.

The announcement of projects to come or to be built falls largely in line with the type of ‘propaganda’ and feel-good reporting we see in general in booming economies and a country proud of its (apparent?) progress.

Besides hotel projects, there would be similar media reports on the tallest buildings, the longest bridges and the fastest trains being built in China right now, as well as countless stadiums, airports, golf courses, convention centers and all that sort of modern-day-pyramids of the ruling local government & business elite.

Back to the hotels, it is only hotel industry insiders who know that those hotels announced are most often not built by the Hotel Management Company that claims it’s flag on the project, but these hotels are built by the owners of the building, having only invited a management company to manage the hotel from pre-opening to opening, and hopefully many years there after.

The general public still believes that it is the hotel brands who decide where a hotel is built, how it’s built, and how it is managed. When it comes to employment in these hotels, it’s also the hotel owner who pays the salaries, not the Hotel Management Company.

More hotels would lead to more employment opportunities for hoteliers, one may think. The pipe-line of more hotels is a commonly used ‘carrot’ by hotel companies to sway potential employees to join them, not seldom to persuade a hotelier to accept a job in a less popular location, for a lower salary than the market could offer, or in a hotel that isn’t quite the flagship of the group.

However, apart from the many hotel projects that stall- or get cancelled, few of the reports that state the growth by merely listing the ‘announced’ new hotels also report on falling occupancy rates, disappointing room rates due to overcapacity, unrealistic market prognosis & feasibility study, as well as the desire of every new hotel opening to become a market-leader, in terms of rate, occupancy and product and failing this objective within the first 1-5 years after opening.

While most of the major hotel management companies can now claim a 25-year, some even 30-years presence in China, the current leadership of these hotel groups has of course not spent that much time in China.

And as a market, China does chance easily every 5 years. What worked in the 1990’s or in the pre-Olympics boom from 2000 �" 2008 may not be a valid formulae for success today anymore.

Another fact is that “At the moment only 20% of (foreign) companies that come to China are successful. The 80% who are unsuccessful mostly fail due to their own, often arrogant, attitude combined with lack of preparation & understanding of the market dimensions” �" says Peter Pronk, an entrepreneur with extensive China experience.

Despite all the rush to add more hotels, banking on China’s potential, the already operating hotels in China by end of 2013 had 2.7 million rooms in 11,700 hotels were waiting for guests, with still a large number of luxury hotels that will enter the market this and next year.

The revenues of 40 billion dollars in 2013 were below the previous year, and the industry was driving a lush loss, according to official statistics. This is the new reality of slower growth, where different factors are responsible for.

The general economic slowdown in China, where after years of double-digit economic growth, this is now single digit growth, even though still a faster growth than in most countries worldwide. A drop in domestic tourism due to Chinese increasingly travelling overseas, and more competition for the domestic & international business- and leisure traveler due too many regions opening up for tourism, MICE and building the facilities to encourage businesses to settle in their location simply makes a relatively large market spread thinner.

In additon, more recently, the Chinese government campaign against wasteful spending, has cut short a previously very lucrative market segment of government officials entertainment spending big bucks in hotels and restaurants.

This has all lead to hotel managers adjusting ad-hoc how the business is run, not seldom counter to the standards of the hotel brand standards. Cost-saving, corner-cutting and quality fade is a widely reported problem in China’s manufacturing industry, giving a negative image to products ‘made in China’ and this is currently also happening to hotel brands, where not only the guests experience a product & service below the brand promise of a hotel, but so do its employees, and the owners.

In some cases analysts see the China hotel market as saturated, with very poor earnings in 2013 as one reason the industry had a loss of 2.1 billion yuan (RMB).

However, the "penetration", how many hotel rooms per 1,000 populations are available, is still significantly lower than in developed markets. While this is in the USA at 20 and in the UK at 10, the number in China is only at 2 rooms. Would the sector grow as expected, with 6.3 million rooms per 1,000 inhabitants around eight rooms would be available until 2022.

The occupancy rate has decreased in the past years, in 2012 it was 59 percent (2011: 62%), and in 2013 it was estimated at 61%. In Eastern, Northern and Central China it was lower, on the other hand in West China and especially in South China a higher amount was reached with over 65 percent.

For those who are dazzled now by the numbers, do realize that the critical eye and keen observer does not rely on reports only. A Hotel Manager knows his business in & out by walk-around management. Talking to employees and guests alike and walking through the back-of-the-house frequently, as well as stepping into other hotels is still a technique that avoids a Hotel Manager to be relying on reports only.

Marco Polo has been widely read over the centuries, creating the attraction that China has to the foreigners. While Marco Polo claimed that he was 17 years in China, and told about his experience and what he all saw in this mysterious country many years later when back in Italy (and in prison), many scientists question if Marco Polo was actually ever, or that many years in China, or only told what he had heard again from his father & uncle who did travel to China.

The author of this article has been 17 years in China this year and has thanks to today’s technology more opportunity to share his observations from the ground. China continues to impress, amaze and its sheer potential keeps attracting ambitious entrepreneurs and global companies to make it big in China. China has potential and there is no place in the world today where opportunities are there for the grabs as there are in China.

But China also remains a country where translating opportunity into real business and profits is harder than thought. Even if only 10% of the reported new hotels actually materialize and open, then this is still a significant growth.

The best clients for an Executive Search Firm are not the many prospected new hotels opening, as many of them may open with difficulties, or not at all. Our best clients are still the up & operating hotels, that have established their market place and have a normal turnover of management and which are much easier and safer to recruit talents for, based on past-performance of the hotel, a stable management team, and less anticipation on a dreamed- or hoped-for business performance.

We therefore welcome all the growth and new hotels announced, knowing that once the hotel is open & operating, regardless of which hotel brand manages the hotel, they shall be needing qualified managers, to operate the hotel to satisfy the guests and the hotel owners.

A reality check for prospective employees to be recruited for all these hotels, and their prospective employers as well is also something we find to be a much better approach, than just relying on numbers and yet-to-materialize prospects. 

René J.M. Schillings, a Dutch National, is the Managing Director of TOP Hoteliers, the first specialized hospitality recruitment agency to open offices in the People’s Republic of China (in 2004). Based in Hong Kong he devotes most of his time managing the 3 offices in Hong Kong, Shenzhen and Beijing, where his team of consultants recruit hotel managers for all major international and some local hotel companies in China. His company was very early to recognize the need for local talent, Mandarin speaking expatriates and China experienced expatriates. His knowledge of the China Hotel Industry stems from his career as Hotelier in China that began in 1997. He has a BA in Hotel Management from Stenden University, a.k.a Hotel Management School Leeuwarden, The Netherlands and an MA in International Tourism & Leisure Studies from Metropolitan University in London, England. He is a keen observer of industry trends and has published numerous articles on HR issues in hospitality in China & Asia. Working in China, Hong Kong & Korea since the late 1990’s, René has lived in Hong Kong from 2005 to 2012 and resides since 2013 in Thailand with his wife and 2 children.

www.tophoteliers.com