Chinese Banking on American Hotels

by taeyi kim

Each day, the number of Chinese tourists across the globe rapidly increases. For instance, approximately 2m Chinese visit the US every year, but by the end of the decade, this is expected to reach 3m. To both accommodate and benefit from this trend, the American hotelier market is expanding, with significant investment from Chinese nationals who recognize the opportunities associated with accommodating their fellow citizens abroad.

In Gulliver, the business travel blog in The Economist, A.W. examines HNA and other large Chinese corporations’ current business decisions on huge investments in American hotels and the rationale behind it. 

This week, HNA group, the 4th biggest aviation company in China, announced that it is to buy a 25% stake in Hilton Worldwide Holdings while being a shareholder in other well-known hotelier brands such as Embassy Suites, Hampton Inn and Conrad. Following HNA Group, other massive Chinese investments in American hoteliers were made, escalating the trend and Chinese ownership in the market. Despite being anchored in industries irrelevant to hotel-based tourism, these companies are continuously and aggressively purchasing popular and profitable properties in what would appear to be a random manner.

Why would aviation or insurance companies buy hotels in the US? The writer argues that to Chinese investors, American hotelier is a safe haven for Chinese investors to park their money during volatility in the Chinese economy. Since a recent downturn in the financial stability of China, the securing of money in American hotels has brought a sense of safety to investors’ accounts.

I would applicate similar trends are occurring throughout the real estate sector, as ownership by Chinese foreigners is becoming common around the world. In general, Chinese investors tend to lean towards safe purchases rather than pursuing risky opportunities that could stimulate greater profit. In turn, this leads Chinese investors to focus on luxury areas that are economically and politically stable, such as metropolitan areas like Vancouver and New York.

I believe HNA group’s current investment decision was a wise choice in both the short and long term. For the short term, it is the safest and most solid option for the company to retain their money, and quite possibly achieve a return, even if minimal, on their investment. Over the long-term, there is more possibility to achieve the HNA group’s ambitious goals for the future to be in top 100 companies by 2020 and 50 by 2030. By stepping into the hotelier market, the company has doubled in size, thus, it is more likely for them to attain its goals. One benefit of adding breadth to their ownership would be opportunities to combine aviation and insurance with accommodations, which essentially monopolizes the tourist sector and beat competitive companies by offering bundled costs for consumers.

Word count: 450

Resources:

http://www.economist.com/blogs/gulliver/2016/10/rooms-growth

http://www.hnagroup.com/en/corporation/group-profile/about-us/index.html

Images:

http://assa.aero/archives/18968?cat=1&ckattempt=1

https://www.expedia.ca/St-Louis-Hotels-Hilton-St-Louis-Downtown-At-The-Arch.h1152198.Hotel-Information?rfrr=Redirect.From.www.expedia.com%2FSt-Louis-Hotels-Hilton-St-Louis-Downtown-At-The-Arch.h1152198.Hotel-Information