Chinese investments abroad need more planning

From New York to London to Sydney, Chinese companies are pouring money into hotel purchases abroad, but it is uncertain whether the major players already active will take the plunge further or that their investments will even pay off.

Chinese investors are increasingly willing and able to make large investments in overseas markets, where demand from Chinese tourists is on the rise. Last year, 107 million Chinese traveled abroad, about 20 percent more than a year earlier, spending US$164.8 billion.

As domestic growth slows, hotel developers are finding new motivation to seek opportunities abroad. There is much talk among companies in China of investing in hotels in overseas markets, but for many of them, it may just be talk.

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“You see a lot of Chinese hotel investors who are aiming to invest overseas, but not many of them have put this into action,” said Henrich Huang, director of the Shenzhen office of HVS. “Major players like Greenland or Wanda have made their moves. Looking at the big operators, the locations they chose were basically where Chinese business was already established.”

Huang has his doubts regarding other Chinese companies joining the big players in expanding their hotel holdings abroad. He said most inquiries were about properties in North America and Europe, although he noted that Southeast Asian destinations including Phuket and Bali that are popular with Chinese tourists were also raised.

“They’re still in the observing stage,” Huang said of smaller investors. “They might purchase small shares in hotels but they’re not going to make major investments, as they lack government support and influence. It doesn’t make sense for them.”

Economics aside
There's little reason to believe that the recent currency depreciation will negatively impact outbound international hotel investment out of China. On the contrary, a weaker yuan could translate into higher profits once revenues earned abroad in foreign currency are repatriated back to Mainland China.

Wang Jianlin, chairman of the Dalian Wanda conglomerate and Asia’s wealthiest man, told the World Economic Forum in Dalian in 2013 that his group was looking to build Wanda hotels in as many as 10 cities outside China. That year, Dalian Wanda announced plans to invest US$1.08 billion to build and operate a luxury hotel in London, the first luxury hotel venture announced by a Chinese firm outside of China.

Since then, Dalian Wanda has rolled out plans to increase the company’s global presence in the hospitality space, including a luxury hotel project in Madrid and a US$900 million skyscraper in Chicago, housing a 240-room luxury, 5-star hotel, luxury apartments and retail space in 2018 and a US$1 billion investment a five-star hotel in New York.

Wang is one of a handful of Chinese pioneers in outbound investment in this space.

Last year, one of the country’s largest insurers, Anbang, paid US$1.95 billion for the iconic Waldorf-Astoria. In November, Jin Jiang International Holdings, which operates more than 1,200 economy hotels across China, acquired the Louvre Hotel Group for about $US1.2 billion and Shanghai Fosun International invested and gained control of France's Club Med earlier this year in order to expand its hospitality empire. Additionally Greenland International Hotels announced in May that it will build a Primus-branded hotel in its first Canadian development in Toronto.

“We are working with a few ultra high net worth Chinese investors and leading Chinese private funds. They are eager to look at and to explore acquiring new and operating international hospitality assets within the U.S. and Europe right now,” said Michael Chin, an experienced hospitality veteran from Hong Kong who has worked as EVP for the Westmont Hospitality Group, a large privately owned hotel investment company, and is now executive chairman of WT Global Hospitality Investment. “However, based on the known transactions recently, most of them have bought over market value.”