beyondbrics

If there’s a general rule to doing business in the world’s most populous country, it’s that every rule has its exceptions, even those of supply and demand.

As beyondbrics reported earlier this month, luxury hotels in Shanghai, Beijing and other Chinese cities are feeling the fallout from rapid proliferation, with operating profits plunging as openings outpace demand, while announcements of new projects show no slackening.

Yet in Sanya, China’s southernmost city, the opposite dynamic appears to be at work. The 2010 China Hotel Industry Study to be published this month by consultants Horwath HTL in conjunction with the China Tourist Hotel Association shows gross operating profits per luxury room rose 29 per cent in 2009 to Rmb210,926 ($31,100) in Sanya, almost two and a half times the figure for Beijing.

“Ironically, new supply in Sanya has been driving much of this growth, bringing international brands and quality supply to the market,” in Horwath’s view. “This in turn has resulted in higher average room rates and a greater recognition of the destination.”

International brands are indeed pouring into Sanya, often pitched as “China’s Hawaii” and located on Hainan island in the South China Sea. Hyatt Hotels last month announced that it would be opening a Park Hyatt together with an outlet of its new Andaz brand. Accor’s upscale Pullman brand is opening its second resort in Sanya later this year and a Conrad, a St Regis and even an MGM Grand (sans casino) are set to open next year.

“As the only real tropical area in China and [with] its status as the premier resort destination in China, the success of Sanya lies in the excessive demand for the market during the peak winter season, particularly over the Chinese New Year period,” said Nigel Summers, a Horwath director in Hong Kong. “This gives hotels in the market an incredible ability to yield extremely high room rates during peak season, premiums which add directly to the bottom line.”

As in other parts of China, however, the international hotel chains are merely acting as managers for Chinese developers rather than investing their own cash in putting up resorts.

Hainan is perhaps the Chinese property market most notorious for the forming and popping of bubbles, so exception or no, few outsiders are willing to take their chances.