China is investing $8 trillion in infrastructure and logistics projects across a huge swath of land to its west, but any hotel and tourism benefits are unlikely to be divided equally.
GLOBAL REPORT—Chinese politicians believe the country’s economic ambitions now depend on a massive reshaping of infrastructure, both domestically and internationally, known as the New Silk Road, sources said.
China’s wealth is paying for road, rail and port initiatives around the world, which all would most likely see a swath of new hotels opened to cater to new transport routes that are set to dramatically widen the coverage of the original Silk Road.
“If you look back at the history, you will see railways always have opened destinations,” said Joseph Fischer, CEO of business consultancy Vision Hospitality & Travel. “In the 19th century, they changed the U.S. forever, as did (President Dwight D.) Eisenhower’s (Federal Aid Highway Act of 1956). High-speed trains will change Europe as we know it, too, and it will not take decades. Low-cost air carriers will go bust, while trains will go to new cities and develop infrastructure and change the way people think.”
The New Silk Road was inaugurated with the One Belt, One Road action plan announced by the Chinese government in 2015. It will dramatically increase the coverage of the original medieval Silk Road network system, which made a beeline to Middle East and Turkish ports serving Europe.
For instance, “new” Silk Roads will travel through Southeast Asia, south through India and into Africa.
According to the World Economic Forum, China has pledged approximately $8 trillion to improve infrastructure and its own routes to market across 68 countries.
At the first Belt & Road Forum for International Cooperation in May 2017, China’s President Xi Jinping in a keynote speech underlined his nation’s ambitions, saying “we have accelerated the building of Jakarta-Bandung high-speed railway, China-Laos railway, Addis Ababa-Djibouti railway and Hungary-Serbia (Budapest to Belgrade) railway, and upgraded Gwadar (Pakistan) and Piraeus (Greece) ports in cooperation with relevant countries.”
According to STR, the parent company of Hotel News Now, four of the markets with Chinese-funded initiatives in place have seen most of their hotel performance metrics improve in full-year 2017 terms.
Budapest saw a 3% increase in occupancy to 77.5%, an 11.4% increase in average daily rate to 26,068.75 Hungarian forints ($101.41) and a 14.7% increase in revenue per available room to 20,204 forints ($78.59). Belgrade hotels reported a 22.5% increase in occupancy to 67.3% and a 20.5% increase in RevPAR to 6,096.62 Serbian dinars ($63.12) but a 1.6% decrease in ADR to 9,062.47 dinars ($93.84).
Addis Ababa and Athens both saw improvements across all three metrics.
Addis Ababa posted a 2.2% increase in occupancy to 53.8%, a 4.6% increase in ADR to 4,630.33 Ethiopian birrs ($167.92) and a 6.9% increase in RevPAR to 2,490.97 birrs ($90.33), while Athens posted a 5.7% increase in occupancy to 74.7%, a 3.9% increase in ADR to €119.38 ($145.88) and a 9.8% increase in RevPAR to €89.13 ($108.92).
One hotelier looking to the future is Daniel van der Heijden, GM of the 175-key Sheraton Djibouti, managed by Constellation Hospitality Hotel Management.
He said the transportation networks opened up along the New Silk Road have boosted demand significantly.
For example, there’s the $3.8-billion Chinese-funded improvement of the Addis Ababa-Djibouti railway, which began commercial operations on 1 January.
“Without Ethiopia, one of Africa’s fastest-growing economies, Djibouti would be nowhere, although it does play a geographically strategic role, not only for it being Ethiopia’s outlet as a port, but because of its large military presence. It has the U.S.’s only permanent African base, and there are up to 12,000 Chinese troops here, too,” van der Heijden said, who added the country received tourists looking for more extreme travel experiences or scuba diving.
The future for the region is rosy, van der Heijden said.
“The Ethiopian currency has lost strength and buying power, but we do not feel that in the hotel, as the Djibouti franc is linked to the (U.S.) dollar,” van der Heijden added.
Chinese-funded projects in Europe include the Hungary-Serbia railway, which began in November 2017, and the purchase of the Athenian port of Piraeus, Greece’s largest port.
Zoran Kasum, managing director and partner at Zagreb-based Hotel & Destination Consulting, said China is funding two major projects in Croatia, and the country will see a spike in tourism and travel over the long term. This will increase what he calculated as a current daily spend from visitors from the European Union and southeast Europe of approximately €80 ($97.74) per day.
Kasum speculated the “introduction of the Chinese travel market to Croatia will start through some touring groups and some business-related guests. In the long term, it will have somewhat larger influence as ... more and more Chinese capital will be involved in other sectors than just infrastructure and trade.”
Kasum said Chinese purchases most likely would include hotel and travel companies and or greenfield sites.
The first of the projects Kasum alluded to is the Pelješac Bridge, which will connect two sections of Croatian coast, one of which contains Dubrovnik. This new connection will result in the bypass of a small section of Bosnian-Herzogovinian coast squeezed in between them, which also has the advantage of cutting through red tape, as Croatia in is the EU but Bosnia-Herzogovinia is not.
The second project is the Zadar/Gazenica port and railway initiative, which, Kasum added, the Chinese have selected as its principal freight port within the EU and which has a Chinese duty-free “economic zone close by.”
It is tempting to rush out immediately with a pickaxe and a brand flag, sources said, but increases in travel numbers might be scattered to smaller or larger degrees across China’s new investment portfolio.
Woody Wade, a Lausanne, Switzerland-based expert on scenario planning and head of management consultancy Wade & Company, said that looking ahead to 2020, the Chinese project might result in increased travel in five main ways:
- Huge stocks of temporary worker housing will be needed as these myriad infrastructure projects are implemented.
- Once these routes are in use, increased commercial activity means the number of people traveling on business must surely increase.
- Cultural heritage tourism will grow, though likely appealing to travelers with fairly niched interests.
- Some remote Central Asian destinations will benefit, experiencing large tourism growth, albeit starting from a low base.
- Outbound Chinese travel will accelerate by making destinations Chinese already want to visit easier and perhaps cheaper to reach. Here, the opportunity for hotel companies is to identify where the Chinese like to travel and assume there will be plenty more of it.
The Chinese government has added increased outbound tourism as part of its return-on-investment scenario, sources said.
“The Chinese are very aggressive. They have made the loans and made and operate the infrastructure, so now they want to see the color of the money,” van der Heijden said. “These are huge projects of globally connected free zones, and people will come with it.”
Fischer said Deutsche Hospitality’s IntercityHotel brand is focused on growing with infrastructure projects.
“The brand was created on railway stations, and this is something that will come back in big time,”
Fischer said. “The (hotel firms) that adopt such a concept will make a killing.”
Wade has some doubts.
“I’m skeptical the ‘win-win-win-win’ results that practically all stakeholders so enthusiastically promote can possibly be as rosy as all their happy talk would lead you to believe,” Wade said.
“For example, one source estimated 150 million outbound trips by Chinese travelers to (One Belt, One Road) countries between 2016 and 2020, with … spending (topping) $200 billion. … You only have to read a little further to see the top three destinations are Thailand, Singapore and Malaysia. Is this really because of (One Belt, One Road)-generated investment?”
Wade added a more prescient financial angle to this possible woe.
“The whole, gigantic project relies on debt financing, and many of the expected recipients of development loans are not very creditworthy, with bad track records of defaulting or requiring debt restructuring,” he said. “In short, China will be converting liquid assets into illiquid assets, most of which will not generate a sufficient return on investment.
“Does this even matter to China? Maybe not. After all, its goals with the project are probably more political than economic, but emerging-market countries are littered with half-completed resorts and other projects that were abandoned when the money ran out. This is a scenario that could play out here, too.”