Monday, March 7, 2011

Chinese Lodging Industry Growth - an unprecedented opportunity


We recently summarized our thoughts on the Chinese lodging industry in a comprehensive report.  The work focuses on growth and development of the lodging industry within China and to a lesser degree the Asia Pacific region The work presented in the report is a combination of company, industry and economic analyses that address what we believe are the key issues tied to the ongoing development of the Chinese lodging industry. The project work is independent and is not sponsored in any way by any of the companies or institutions mentioned in the report.

Over the past 20 years, China and the Asia Pacific region have experienced rapid development and significant economic growth.  China is viewed today as an emerging world economic power that is expected to develop at what may be the highest rate of economic growth in the world over the next decade and beyond.  At the current forecasted growth rate, China’s GDP may surpass the size of U.S. GDP as early as 2020. 

With this growth, come challenges and a massive development story as millions of residents move from rural to urban areas and reach middle class status.  Due to the size of the country’s population (approximately 1.3 billion), the magnitude of these and other shifts as drivers to the ongoing overall development story is unprecedented.  The influences of many of the major themes within the Chinese development story are likely to have a significant impact not only on China but also the region and world as whole.  Driven by the significant growth backdrop and positive structural tailwinds, multi-national companies in a variety of industries view China as a significant market and continue to invest in both the country and region.  These and other large long-term development trends within China and the region are expected to continue to provide a positive, powerful backdrop for long-term industry growth for many industries including the lodging industry over the next decade.

We sourced relevant information for the topics covered in the research from companies, investment banks & consulting firms that are participants in and/or focused on China and the Asia Pacific region.  We have also sourced information from government databases within Asia, China and the U.S., relevant books written about the region, industry trade organizations and various news outlets, among other sources.  We have also held discussions with institutional investors, industry analysts and industry executives that are active participants within the China and the Asia Pacific region. 

As the subject of China’s major social, political and economic trends vis-à-vis the lodging industry is quite large and complex, it would be easy to produce a voluminous report; instead we have summarized the key issues. As a result, this report serves as an entry point for further research into China’s lodging industry.    We have provided a list of sources to allow for further reading and research on topics covered in this report. We have also provided a summary of current and forward looking economic and development issues. 

Executive Summary

Despite some fear of an economic slowdown in 2011 (being engineered by the Chinese central government in an effort to control inflation), long term growth forecasts over the next 5 to 15 years remain intact.  The current size and pace of economic growth over the next decade means that that Chinese GDP could surpass the size of U.S. GDP as early as 2020.  This record-breaking pace of economic growth and overall development creates its own set of risks and issues.    

Within the overall Chinese emerging market development story, the lodging industry has grown at a significant pace, buoyed by the positive economic backdrop and other factors such as foreign travel and investment in the region, growth of the middle class and development of the domestic tourism industry, among other factors.  During 2010, the lodging industry in the Asia Pacific region and China recovered at a significantly stronger pace than the remainder of the world.  Our analysis provides a snapshot of the growth of the lodging industry within China and to a lesser degree the Asia Pacific region (ACPC).  To understand the development of the industry, we believe one must have some context as to the economic and development environment within China and Asia. 

The goal of this report is to provide an introduction and overview of the Chinese lodging industry and key companies that operate within the country and region as well as insight into some select current and essential issues.  Key points and findings of this report are:

     Y/Y RevPAR growth in ACPC and China have significantly surpassed y/y RevPAR growth in Europe and the U.S. during 2010.  YTD y/y RevPAR growth as of 10/2010 is approximately 7%, 3%, 24% and 37% for the U.S., Europe, ACPC and China.  The above world trend for ACPC and Chinese RevPAR growth continues today.  The 2010 recovery in ACPC and China RevPAR follows the 2009 downturn, that was triggered by the short term supply glut tied to the 2008 Olympic Games and 2008-2009 worldwide economic downturn.