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China’s golden gateway
Published: 01/07/2016- Filed under: Home » Archive » 2019 | 2018 | 2017 | 2016 » July-August 2016 » Destinations » Home » Features »
Luxury yachts ply the waters of the Huangpu River dodging freighters piled high with wares and ferries crisscrossing between the towering skyscrapers of Pudong and the iconic riverfront known as the Bund. Tourists stroll along the popular waterway, but they look more like ants when viewed from the 100th floor of glistening hotel towers.
This is Shanghai, the commercial hub of China. It is also the busiest Chinese destination for corporate travelers, according to a recent report in Buying Business Travel. While Beijing is equally prominent among China’s metropolises (and perhaps more of a tourist draw for its proximity to the Great Wall), Shanghai continues to remain most attuned to the worldly ways of the West.
This means visitors want to shop here, businesses seek to put down roots, and trade is a vital part of the economy. Shanghai’s impressive connectivity improves things further with bustling ports, a pair of massive airports, and highway and rail links that span across the region.
Western companies can use Shanghai as an entry point into all of China’s consumer markets, according to Dr. Stephanie Crofton, associate dean of the Phillips School of Business at High Point University. The city is a key link in many international manufacturing corporations’ logistics chains making it a primary gateway to the immense industrial capacity of China and its reliable subcontractors.
As a result, international business travel continues to play a significant role in the region’s economy. A recent Global Business Travel Association report projects business travel spend in China is set to rise by 10.1 percent this year reaching $320.7 billion, a benchmark-setting figure which overtakes business travel expenditures in the US for the first time.
“Despite a relative slowdown, China’s business travel market remains one of the fastest growing in the world,” says Michael W. McCormick, GBTA executive director and COO. “China surpassing the United States in business travel spending marks a major inflection point and truly demonstrates the global nature of today’s economy.”
Opening the Door to Investment
But China is not the easiest place to do business. It often has a higher cost of entry for incoming business than other markets, and plentiful regulation. Even individuals are immediately struck by restrictions on Internet, news sites (including The New York Times), and foreign social media usage. Luckily, some savvy travelers know that using cell phone data or downloading a VPN (virtual private network) disguises the location of your computer’s IP address, which avoids these government-imposed measures.
China knows it cannot be an economic powerhouse completely on its own. While its meteoric growth may have stalled, the slowdown has prompted local officials to rethink the way they approach outside investment and opportunity.
In 2013, a government experiment launched the Shanghai Free Trade Zone. The result brought in significant overseas investment that pumped much needed energy into the economy. With nearly 46 square miles along the Yangtze River where it empties into the East China Sea, Shanghai’s free trade zone is one of the first in mainland China.
The experiment’s tempered success has proven that foreign investors are an important part of what keeps the region’s economic engine humming. Doing business within the trade zone removes financial stipulations and minimum investment capital requirements usually imposed to set up shop in the country. Duties on imported goods are also reduced for US investors. These are among several measures initiated by the municipal commission to expand trade and manufacturing business.
The latest five-year plan from the government aims for an economic growth target of between 6 and 7 percent per year, which takes into account the recently slowing economy.
The Shanghai Daily reports that foreign direct investment most recently grew by 1.6 percent, and contracted foreign direct investment (thanks to the free trade zone) billowed to an 86.5 percent growth rate as a result of new trade policies.
This is encouraging more foreign investors including many American companies. Shanghai boasts major operations from nearly 100 world brands including HSBC and Citibank, among others – a feat that would have been considered far more difficult less than a decade ago.
The city has everything from manufacturing (especially electronics) and transportation industries to in-depth scientific research centers. Other businesses permitted within the trade zone include health care, banking and law, all part of a shift away from too much reliance on traditional drivers of growth like exports and putting a new focus on high-tech industry and services.
Real estate for both residential and commercial use within the city continues to be one of the strongest investments despite the slowing economy. Locals know that over time, real estate almost always sees a strong return in major Chinese cities hyped up on constant urban sprawl. In the past year according to the Shanghai Statistics Bureau, investment in the property sector grew by 8.7 percent, which is another driver for the economy.
Travel Feeds Off Demand
Research from the World Travel and Tourism Council pegs business travel to China at almost $300 billion by 2023, and as the country’s financial hub Shanghai stands to gain the most. The easing of visa requirements for Americans is yet another boon. Visitors transiting between two foreign countries can now stay in the city for as long as six days without needing a Chinese visa.
The city’s two major airports (one primarily for domestic and regional traffic), three railway stations and the country’s largest port make it a virtual web of connectivity within and between the region and the world.
Delta Air Lines is investing resources in a stronger codeshare partnership with China Eastern Airlines, which has a hub at both of the city’s airports. Delta sees significant opportunity in the region and hopes to make Shanghai its primary Asian hub in the coming years, instead of Tokyo where it has fewer codeshare partners to facilitate onward connections.
As a sign that Shanghai’s measures are succeeding, other airlines and hotel companies are basking in the growth, which has ripple effects across the country. United Airlines has launched new service to three mainland Chinese cities including Chengdu, Hangzhou and Xi’an, each of which has dual potential for business and tourism growth and previously had no nonstop flights to the US.
Xiamen Airlines is starting service between Seattle/Tacoma and Shenzhen, a new route for both airports and the first US service for the Chinese airline. SkyTrax five-star carrier Hainan Airlines continues its impressive expansion abroad with its latest addition, a new flight from Beijing to San Jose, CA.
To meet the demand, hotel brands are scrambling to build strong footprints in sprawling Shanghai and along either side of the Huangpu River. Incentives within the free trade zone only heighten the urgency of travel-related companies looking to grow here. Furthermore, demand could swell measurably with the possibility that more FTZs like Shanghai’s may be added around the country. According to the GBTA report on China’s business travel spend, nearly 70 percent of the Asia Pacific hotel pipeline is in the Chinese market.
Mixed use developments are popping up everywhere combining luxury hotels with residential living and corporate space in glossy towers. Ritz-Carlton Pudong, Grand Hyatt, and Pudong Shangri-La are but a few of these packed into the same neighborhood. Despite such proximity, the city continues to enjoy competitive pricing due to the constant opening of new hotels and restaurants, making it ideal for a mix of business and leisure travel.
Growing from Within
Domestic tourism is booming with a growing middle class ready and willing to spend money on luxury goods and experiential travel. The GBTA report notes that 95 percent of the country’s business travel spend comes from the domestic market. This near-constant demand in the hospitality and service sector helps to prop up the economy in times when other areas lack similar vibrancy.
According to The Shanghai Daily, the statistics bureau reports the city’s own economy grew 6.9 percent last year, led by the service sector which climbed 10.6 percent.
Mid-service hotel brands like Indigo from Intercontinental Hotels Group and Fairfield by Marriott are driving strong growth as they attract the affluent Chinese middle class. Most notable was the recent deal struck between Marriott and Eastern Crown Hotels Group to sign more than 140 Fairfield by Marriott hotels in five years. More than 100 of those properties would also open before 2021, including many in Shanghai and its periphery.
“China is the fastest growing market in Asia for us. The rising disposable incomes of the middle class and development of the consumption-led economy is driving an increased demand for higher quality mid-range accommodation,” says Craig S. Smith, president and managing director of Marriott International Asia Pacific. “Fairfield will focus on young consumers and business travelers looking for a comfortable and productive stay at a great value.”
This mix of travelers is proving quite successful for brands like Fairfield by Marriott, which has the largest pipeline of any of Marriott International’s brands in the coming years.
“From the market perspective, growth in demand continues to be very positive, assisted by the opening of significant infrastructure additions such as the Hongqiao Exhibition Centre and Disneyland, providing further opportunities for the hotel industry,” says Bruce McKenzie, Hilton Worldwide’s senior vice president of operations for China and Mongolia, adding, “We have several properties in our pipeline slated to open in Shanghai in the next few years.”
Weekend traffic from domestic travelers helps to balance the mix of corporate visitors during the week, but even business travelers are keen on extending their stay for a bit of leisure to explore the region.
Within an hour’s drive are prominent tourist destinations like Suzhou, the “Venice of China,” which draws tourists from around the world to explore its network of waterways and canals that intertwine with café-lined streets and stores. Suzhou even has its own business park and free trade zone that complements Shanghai’s offering, albeit at a lower cost making it attractive to new entrants.
Tea lovers can take the high-speed train to Hangzhou, also near Shanghai and a mecca for green tea production, to explore the stunning West Lake with its various pagodas and tour boats.
Experiential travel is becoming a big draw for Chinese travelers, and hotels are quick to jump on the bandwagon. The Ritz-Carlton Shanghai, Pudong has created a variety of packages that pair a stay with unique activities like the option to head to Hangzhou with the hotel’s chef to pluck the region’s famous green tea leaves. Other experiences ideal for business travelers with families in tow include its unique junior hotelier program or a kids’ night safari with in-room camping.
There are even entire resorts designed for experiential travel like the new Disneyland and Toy Story properties near Shanghai. Few other regions of the world seem be as creative as Asia Pacific at enticing business travelers to stick around with the family.
What’s In Store for Shanghai?
Even an economic slump is just a blip on the radar for a city like Shanghai. Dean of the Phillips School of Business at High Point University, Dr. Jim Wehrley, says, “Shanghai, and China overall, will continue to have great opportunities based on the shift that is occurring from an export economy to a consumer-based economy that will grow for many years due to the explosive growth of its middle class.”
High-end shopping and luxury brands perform well, not only among foreigners, but especially among this Chinese middle class that see such brands (whether slung over the shoulder as a fancy scarf or purse or travel-related like a high-end hotel) as important social status symbols.
The Destination Retail 2016 report ranks Shanghai sixth globally among major cities worldwide for attracting luxury retailers. Hong Kong takes the number two spot, after London, but Shanghai is becoming a hot spot for brands interested in dipping their toe into the Chinese market.
In a city that pairs business with leisure so seamlessly, Shanghai’s prospects remain strong. Expect to see more of those “ants” strolling along the Bund (perhaps adorned in Gucci or Hermes) and more consumer brand names illuminating their path.
By Ramsey Qubein