As China works to balance economy, global hotel brands sign deals

Since Monday, headlines around the world have been buzzing about China's plunging economy, which have caused a global ripple effect in markets as anxious investors try to sell off their affected stocks.

The day following what has been called Black Monday, China’s central bank cut its benchmark interest rate and freed banks to lend more, which the New York Times says is the latest signs of the government’s growing distress over slumping stocks and slowing economic growth. The central bank lowered the benchmark lending and deposit rates by 0.25 of a percentage point. It also cut the so-called reserve requirement ratio for the amount of cash that banks are required to hold in reserve by 0.5 of a percentage point. The main Shanghai share index plunged another 7.6 percent on Tuesday to its lowest level this year, bringing its three-day decline to 22 percent and signaling that two months’ worth of attempts by the government to prop up stock prices had limited effects.

It was China’s fifth interest rate cut since November, and the fourth reduction of the reserve ratio since February. The central bank made a similar tandem cut to both rates in June, when the stock market first began to fall from its peak, but that reduction of the reserve ratio did not apply to the biggest banks.

China’s prime minister, Li Keqiang, acknowledged that the country was feeling the effects of market turbulence, but insisted that the economy remained sound. Cutting interest rates may help lift the economy, as signs have proliferated in recent weeks that growth is slowing faster than some official data suggest. 

These efforts may prove helpful to would-be hotel developers who can now find better rates for their projects. The reductions and cuts from earlier in the year already seem to have spurred a number of hotel projects, with numerous signings and openings in the month of August alone. 

Most recently, Frasers Hospitality, a member of Frasers Centrepoint, announced that it is on track to double its presence in China with the acquisition of a serviced residence property in Dalian, the gateway city to Northeast China and a major center for trade, industry, business and tourism. Frasers paid a total of S$100.29 million for the serviced-residence property, one of the 16 new properties that Frasers Hospitality will be adding in China, including those in the pipeline. These new properties will be located in Changsha, Dalian, Hefei, Nanchang, Shenzhen, Suzhou, Tianjin, Wuxi, Xiamen, Chengdu and Shanghai, and will bring its portfolio in China to 30 properties with over 7,000 rooms.

“With a growth rate of seven percent per annum, one cannot ignore the strength of China’s position as the world’s second largest economy and a strong magnet for foreign direct investment,” Choe Peng Sum, chief executive, Frasers Hospitality said in a statement.

Starwood, meanwhile, is planning to open three new Element hotels in Zhangjiakou, Sanya and Tianjin after the brand made its Asia Pacific debut in Suzhou this past June. Wyndham Hotel Group will expand its Ramada brand by reaching into strategic second- and third-tier markets across China. Wyndham announced that its newest hotel, the 156-room Ramada Nanjing, has officially opened, adding that it has signed agreements to open seven more properties in eastern, central and southwest China. And Regent Hotels & Resorts has signed a management contract with China's Hua Hong Group for a new hotel in Harbin. The 250-room Regent Place Harbin is scheduled to open in 2017 and will be Regent Hotels & Resorts' fourth property in China, following the launches of Regent Chongqing and Regent Place Xian in 2016 and 2017 respectively and its current property Regent Beijing. 

The appeal of the smaller cities is understandable: Earlier this month, HVS noted that hotels in "fringe" cities are perform better than the urban hubs. In 2013, the two top performing cities for RevPAR growth in the luxury market were Kunming and Lijiang with year-on-year growth rates of 38 percent and 21 percent, respectively. Both cities are popular tourist destinations in the southwestern province of Yunnan. The worst performer was Taiyuan, capital of Shanxi province, which posted a 35-percent decrease in RevPAR growth.

In 2014, the Tibetan capital of Lhasa was experienced the greatest RevPAR growth, jumping 60 percent. Another western Chinese city, Yinchuan, posted the second-biggest growth, nearly 24 percent. Kunming’s fortunes changed dramatically, with RevPAR growth plummeting by 32 percent, second only to Zhengzhou’s 44 percent drop.

Of China’s top five hotel markets—Beijing, Shanghai, Guangzhou, Shenzhen and Sanya—only Sanya experienced RevPAR growth in 2013, barely clearing 2 percent. Beijing was hit hardest, with RevPAR growth dropping by more than 10 percent. The big five fared better in 2014, with only Guangzhou experiencing negative RevPAR growth.