There’s no sign yet of a red star rising over Rockefeller Center, but cash-rich Chinese property groups are rushing into troubled California hotels.
Last week, Shenzhen New World Group, a private Chinese developer, grabbed the 451-room Sheraton Universal hotel adjacent to the Universal Studios theme park in Los Angeles out of receivership. Local press accounts put the price tag at $60m to $90m.
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.
While Rusal, L’Occitane and other European companies are increasingly looking toward Hong Kong as the ideal market to hold an initial public offering given the rise of China, some Chinese companies continue to swim against that tide.
Talk about a post-Olympic hangover. Every hotelier wanted to cash in on what was expected to be a boom in visits to the Chinese capital with the 2008 Games. Security worries however kept the crowds from heaving, and now the city’s stuck with more fancy digs than in knows what to do with – and more hotels are still going up.
The result is a predictable plunge in profit. The 2010 China Hotel Industry Study to be published this month by consultants Horwath HTL in conjunction with the China Tourist Hotel Association shows that gross operating profits at five-star hotels in China have fallen to an eight-year low. The study puts profits per room at Rmb91,752 ($13,535) in 2009, 39 per cent below the peak level reached in 2005 and the fourth straight year the figure has declined. The comparable figure for Hong Kong was HK$331,393 ($42,518).
“Quite clearly, the continued decline that we have witnessed in hotel profitability in China over the last few years can be attributed to the oversupply that we see in many markets across the country,” said Julie Dai, a Horwath director in Beijing.
Might China have had something to do with the recent failed auction of Metro-Goldwyn-Mayer, the historic Hollywood studio?
The debt-burdened studio’s lenders received a number of bids, but were unimpressed with their size. With the outlook cloudy after setting the bids aside, the studio put production of the next James Bond movie on hold.
While Bond is now on the ropes, film fans report the studio has finished shooting the next big picture on its release calendar – and that just might have led some prospective bidders to discount their offers.
US President Barack Obama didn’t make it out to visit Indonesia and Australia as planned last month because of last-minute manoeuvrings over the congressional vote on his health care bill, but Kurt Campbell, the senior US diplomat for Asia, suggested in Hong Kong last night that the president may have some surprises in store.