Travel: Rooms to Grow

The view from the top of Beijing's newest and tallest skyscraper is to die for. Still months from completion, the upper floors are currently enveloped by the usual chaos of construction, but there are glimpses of what will be a spectacular, 360-degree panorama. The outlook to the west is particularly stunning--a sweep down the wide swath of Chang'an Avenue, past the Forbidden City, over roofs and parks all the way to the hazy crests of the Western Hills. It's the best view in China's booming capital, and you would expect one of the country's corporate titans to be taking up residence. But it's a testament to the rising prominence of one of China's hottest industries that the top five floors of the building will, in fact, be occupied by the lobby of a Park Hyatt that promises to be Beijing's snazziest hotel.

Even by China's skewed standards, the surge of foreign interest in launching and managing hotels is astounding. "It's stratospheric," says Patrick Ford, president of Lodging Econometrics, an industry research group based in Portsmouth, N.H. "China is the most attractive place in the world right now for hotels. That's why investment capital is racing there and why the major international brands are racing there too." Indeed, 310 new hotels are under construction in China, says Ford, and 210 of them are four- or five-star offerings with more than 200 rooms. Even if some of these projects aren't completed, this building spree might bring as many as 65,000 new rooms to China, at a cost of more than $17 billion.

China has, of course, seen its share of gold rushes before, many of which ended with little return--or large losses--for investors who stampeded in. This time, many foreign companies seem set to make a tidy profit, not least because the hotel business is one industry in which Chinese firms are not yet equipped to undercut overseas rivals while also providing the requisite quality of service. "You can knock off Prada or Montblanc," says Ralph Grippo, China manager for the Ritz-Carlton hotels. "But there's no way you can knock off luxury service. It's about human beings and experience. That's not something you can duplicate." Ford agrees. "There's no Chinese company right now that can go toe-to-toe with Marriott," he says, or other big chains such as Hyatt, Hilton and Westin. "They just don't have the brand name or international drawing power."

Thus local firms are eagerly teaming up with the foreign giants, which contribute their names and expertise, and also ensure that the hotels are designed to their usual standards. The foreign firms earn steady management fees for running the hotels, while the Chinese partners tend to put up the cash for construction.

Heady projections about the future of China's travel industry help explain this building frenzy. Already the world's fourth most popular tourist destination, the country is expected to move into second position within a decade, according to the World Tourism Association. By 2020, China is forecast to overtake the U.S. as the world's most visited country, pulling in some 130 million travelers a year. China's burgeoning domestic tourism market is also critical in the calculations of hotel companies. By 2010, it's anticipated that the number of homegrown tourists will soar from 1.2 billion to about 1.8 billion as more and more Chinese make repeat trips within their own country.