Can Chinese tourism beat the credit crisis?

China’s GDP has slowed, a sign the nation is feeling the effects of the global downturn. Now its tourism engine is sputtering, too.

Recent news from China might be causing jitters among tourism industry executives counting on a surge in business from China’s newly wealthy travelers. With gross domestic product growth slowing to 9% for the third quarter, the slowest rate in five years, the Chinese economy is starting to feel the effects of the global downturn. At the same time, China’s tourism engine is showing signs of slowing. The number of Chinese tourists traveling to many overseas destinations fell in August; Hong Kong retailers accustomed to big-spending visits by mainland tourists griped about disappointing sales during the week-long National Day holiday in early October; and casino operators in Macao, the former Portuguese colony that depends largely on Chinese tourists, saw revenues fall to $890 million in September, a 3.4% drop from the same period a year ago and a 28% drop from the previous month.

On Oct. 20 the Macao government’s gaming regulator reported that revenue for the city’s casinos fell for the second straight quarter. According to the Gaming Inspection & Coordination Bureau, gaming revenue dropped 10%, to $3.25 billion. In what could be another sign of weakness, Las Vegas Sands (LVS) is reportedly putting on hold a plan to expand in Macao with four new hotels. Hong Kong’s South China Morning Post on Oct. 20 reported billionaire Sheldon Adelson’s company, which last year opened the giant Venetian Macao (BusinessWeek.com, 8/28/07) on the city’s Cotai Strip, is calling off a proposed $5.25 billion fund-raising because of the credit crisis. A spokesman for Las Vegas Sands says the company abandoned plans to refinance a $5.2 billion loan package and is instead trying to raise just $2 billion to build two hotels.

The industry has been counting on a boom in Chinese tourism, both domestic and international. U.S. Commerce Secretary Carlos Gutierrez signed a deal with Beijing last December to ease restrictions on Chinese travel to the U.S. Given the growth of the Chinese middle class, that deal has the potential to translate into 579,000 visitors from China by 2011, according to the U.S. Commerce Dept. Other governments have signed similar deals. Even Taiwan, which for decades prohibited almost all visitors from the mainland, is now looking for an economic boost by opening to Chinese tourists.

“Long-Term Potential”

But does the current slowdown mean the Chinese tourism boom is suddenly in jeopardy? Peter Gowers, CEO for Asia Pacific at InterContinental Hotels Group (IHG), says there’s still reason for optimism. Tourist numbers may take a hit as the economy slows and “there may be some slowdown in the pace at which hotels can be constructed,” Gowers says. But, he adds, “we see great long-term potential to expand in China.” With almost 100 hotels in the country, ICH is the largest operator in China, and it expects to double the number of hotels it operates there within five years. On Oct. 15 the company announced it will open six Chinese hotels with local property developer Shimao Group.

Other big foreign hotel operators are sticking with their expansion plans. Hilton Hotels (HLT), which has six hotels in China, opened one in Beijing on the eve of the Olympics; the company is scheduled to open another at the city’s new airport terminal soon. By 2011, Hilton plans to open 17 more hotels in the country.

In June 2007, Hilton formed a joint venture with Deutsche Bank (DB) and H&Q Asia Pacific to set up 25 Hilton Garden Inn service hotels in China. Marriott’s (MAR) Ritz-Carlton expects to open three luxury hotels (BusinessWeek.com, 4/21/08) in China this year to go with the three it already operates in Beijing and Shanghai.

Hotel groups from the Middle East and elsewhere in Asia are targeting China, too. Dubai-based luxury chain Jumeirah on Sept. 25 announced it is teaming up with a Chinese partner, GT Land Holdings, for a hotel in the southern Chinese city of Guangzhou. The 200-room Jumeirah Guangzhou, scheduled to open in 2011, will be the company’s second in China after the opening of a 309-room hotel in Shanghai’s trendy Xintiandi district scheduled for early next year. Indian Hotels, the subsidiary of India’s giant Tata Group and operator of the Taj chain of luxury hotels, in July announced an agreement with Chinese partner Zhong Qi Group to operate a 500-room resort on the southern island of Hainan and a 106-room hotel in Beijing. “China is one of the major tourism hubs worldwide,” Krishna Kumar, vice-chairman of Indian Hotels, said in a statement, pointing to the country’s 8% year-on-year tourism growth and 135 million tourists in 2007. “It is critical for Taj to have a presence in this country.”

Forging Ahead

Entrepreneurs are still counting on Chinese tourists, too. Shanghai-born David Jin, 46, is president and CEO of Grand Canyon Skywalk Development, an attraction in Arizona launched last year with the Hualapai Indian tribe. A glass bridge that extends over a part of the canyon and gives visitors the chance to look down at the vast natural wonder 4,000 feet below, the Skywalk attracts about 50,000 visitors a month, Jin says, and he predicts that number will grow once a new museum and gift shop open by the end of the year. “There’s plenty of space for growth,” says Jin, who adds that the monthly capacity for the Skywalk is 150,000 visitors.

Jin is now looking to China to capitalize on what he thinks will be a boom in the Chinese tourist industry. He recently was back home talking with government officials about opening a new-style tourist attraction that could break the mold of the typical crowded Chinese site. “People could have a better experience if you managed the place differently,” he explains. “You could open more viewpoints at one destination, more attractive places, so people don’t all have to be in one place.” Jin won’t comment on what location in China’s he’s targeting, but he promises “the world will say ‘Oh wow,’ the same as the Skywalk.”

In the meantime, Jin is also trying to boost the number of tourists from China who travel to the Grand Canyon. China had 41 million outbound tourists last year, and that number will likely grow to 65 million by the end of the decade, he believes. “You can’t go wrong with that,” says Jin. “If we can get 10% or 5% of the people who go to the U.S., we’re talking about a lot of people,” he says.