What the U.S., China investment treaty would mean for the hotel industry

It might not be as dramatic as President Richard Nixon's 1972 visit to China, but a near investment treaty between the U.S. and China could prove as monumental. But it isn't going to be easy.

Today, Chinese President Xi Jinping is set to address a meeting of some of the top names in Chinese and American business, leaders that would be extremely interested in the progress toward a treaty between the nations that, as The Associated Press writes, "would provide a framework for broader investment in each other's economy."

Expected to attend are Apple CEO Tim Cook, Microsoft's Satya Nadella, Amazon's Jeff Bezos, Warren Buffett and Alibaba's Jack Ma. Notable absences include representatives from Twitter, Facebook and Google, sites that are blocked in China.

In total, 30 executives are to attend the close-door meeting being moderated by former U.S. Treasury Secretary Henry Paulson, himself an advocate for such a treaty. All of the American CEOs participating signed a letter to Xi and U.S. President Barack Obama urging them to support an agreement.

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There's ample reason why. A treaty of this sort makes it easier for U.S. and Chinese companies to invest in the other company without some of the legacy rigid rules and more safety measures. 



"Bilateral investment treaties provide the rules of the road for companies doing business in other countries, and can help ensure that the rights of foreign investors are protected and that foreign companies operate on a level playing field with domestic ones," the AP writes.  

Supporters of the treaty say a U.S. agreement with China would open up more of that nation's massive market to American companies, provide clearer rules for Chinese investment in the U.S. and create jobs on both sides.

Evan Feigenbaum, vice chairman of the Paulson Institute, told the AP that treaties such as this one, "can be a powerful catalyst for more economic growth." 

One of the hangups slowing down the agreement on a treaty is reportedly the list of sectors that would be off limits in an investment treaty. Cyber policies are also a hotly bandied topic and something President Obama and President Xi will discuss when they meet at The White House later this week. 

According to Reuters, the U.S. business lobby has expressed disappointment at the pace of negotiations on the bilateral treaty. Myron Brilliant, EVP of the U.S. Chamber of Commerce, said progress was being made, but at a slower pace than desired.  Brilliant said that, while he hadn't seen the list, he understood the number of sectors that remained off-limits to U.S. investment had gone down from about 80 to between 35 and 40.

"Typically when we negotiate bilateral investment treaties with other countries, we are talking about one piece of paper, not a thick document excluding these main sectors," he told Reuters. "There’s still a long way to go here. China has got to come much further with its offer."

Brilliant added that it was important that both Xi and President Obama renew their commitments to the treaty and urge officials to move quicker, given the tenuous state of the global economy, the economic slowdown in China and "growing distrust of Beijing’s plans among U.S. businesses, especially those in banking, agriculture and technology," Brilliant said.

How the Hotel Industry Could Benefit
While the treaty, as made public now, does not specifically address travel and hospitality, any agreement allowing U.S.-based companies easier access into China would be well-received by the hospitality industry. 

In recent times, U.S. hotel brands have looked to crack China, a gigantic country that is still dominated by provincial brands, from such outfits as Home Inns, 7 Days and Jin Jiang. (Earlier this week, Jin Jiang acquired a controlling stake in 7 Days.)

But it's not easy, and rarely can it be done alone without a local partner navigating countless bureaucracies. Vice versa, while there have been large deals by Chinese companies acquiring U.S. real estate, tax implications make exiting an asset onerous. A deal that benefits both contries could mitigate these variables. 

Meanwhile, Arne Sorenson, president and CEO of Marriott International, is very much a proponent of an investment treaty between China and the U.S., telling China daily, "Let our people bring us closer together." 

Sorenson cites a recent Marriott survey that found that the highest percentage of people who most want to visit the U.S. are the Chinese. 

"I think that's a sign that even though our politics can be complicated at times, even though our government systems are obviously very different, there is a fascination that we have with each other that I think bodes very well for travel between the two countries," said Sorenson. 

Marriott International has seen the number of Chinese guests it receives in the U.S. grow by about 20 percent each year. "We expect that to continue," Sorenson said.

China reportedly has already become the second-largest market for Marriott International, behind only the U.S. "We are doing great in China. We are opening a hotel every two weeks," he said. 

Marriott International currently has 75 hotels operating in China.

Sorenson also addressed the slowing domestic Chinese economy. While he isn't worried about a slowdown in exports and infrastructure, he is wary of the slowdown shown in capital investment, such as in real estate.

"I suspect we will see fewer new hotel construction starts in the next few quarters. We would guess that there will be a short- and medium-term impact, but long-term, there will be good growth in hotel developments in China," he said.

Other U.S. hotel companies continue to pursue the Chinese market. According to its website, Starwood Hotels & Resorts' largest inventory of hotels outside the U.S. lies in China, very much led by the Sheraton brand, which, in 1985, became the first western company to operate a hotel in China. 

Earlier this week, the DoubleTree Resort by Hilton Xishuangbanna in Yunnan province opened as DoubleTree by Hilton's 23rd hotel in China, and adds to Hilton Worldwide's portfolio of 61 hotels operating in the Greater China and Mongolia region.

 

 

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