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Marriott bets on growth in China

Marriott International, Inc, the largest US hotel group, is planning its biggest Asian expansion, adding six properties in China as analysts warn a looming oversupply may force five-star hotels to slash rates.

Marriott, Starwood Hotels & Resorts Worldwide Inc -- which runs the Sheraton and Westin hotels -- Shangri-La Asia Ltd and other companies are expanding in China, betting increasing tourism, the country's entry into the WTO and the 2008 Olympic Games will boost visitor arrivals.

Since 1997, the number of five-star hotels in China has risen to 282 from 57, while four-star hotels have doubled to 386, according to the China National Tourism Administration, the country's tourism authority. Analysts say that's crimping profits as it forces companies to cut rates.

"There is probably an oversupply at the top end of the market, mostly the four and five-star hotels," said Nigel Summers, director of hotel industry consultant Horwath Asia Pacific. "It forces those properties down into the lower tier."

Travelers can already get rooms in five-star hotels for as little as US$50 per night in secondary cities such as Chengdu, Chongqing, Kunming and Guilin, according to analysts.

Marriott -- which operates the Renaissance, Marriott and Ramada chains -- opened its 32nd hotel in China last week and plans to add more properties in the country to the 2,600 it runs worldwide within two years.

"China is our No. 1 focus in the region," said Paul Foskey, senior vice president of Marriott's Asia Pacific hotel development. "We have 19 projects in the pipelines, and about a third of them are in China."

The company plans to open three hotels in Shanghai, two in Dalian and one in Wuhan within the next two years, its fastest pace of expansion in China in the past five years.

There may be an oversupply "in some markets, certainly, but there are markets that have been extremely successful in the past few years like Shanghai and Beijing," Foskey said.

Marriott, which first started operating hotels in China in 1997, isn't alone.

Starwood plans to triple its presence in China to about 45 hotels during the next three years. This week, the world's biggest hotel group plans to open a Sheraton on Hainan Island, its 16th in the region.

Six Continents Plc -- the biggest international hotel group in China with its Holiday Inn and Inter-Continental chains -- plans to add another six hotels to its 39.

Asian hoteliers are also moving into China.

Raffles Holdings Ltd, which owns the 115-year-old Raffles Hotel in Singapore, said it wants to replicate that flagship property in Shanghai, Hong Kong and other cities. And Shangri-La Asia Ltd said it will spend US$400 million to expand its chain to 50 from 38 by 2005.

``You'll see oversupply and price competition among hotel operators,'' said Natalie Chow, an analyst at Daiwa Institute of Research. ``There will be a speed-up in consolidation.''

While the five-star occupancy rate in Beijing and Shanghai has been hovering at 70 percent, among the highest in the region, this may fall as more and more hotels open, analysts said.
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