The boom in Beijing

Finding a world-class hotel in China’s capital city is about to get even easier, but you’d better book a room now, before newly affluent Chinese take it.

Malcolm Binks didn’t so much as see the inside of a hotel when he first traveled to China, in 1981, as an investment banker with Merrill Lynch & Co. His Bank of China hosts had such disdain for the leading hostelry in town, the government-run Beijing Hotel, that, Binks confides, “they put us up in a government guest house that had been the East German embassy.” For Binks, two memories of the place stand out: the enormous dining hall and the ubiquitous Red Army soldiers.

Corporate hospitality in China could only get better. And it has -- stunningly. Beijing today offers visitors some 600 hotels, including dozens that carry familiar Western or Asian names, like New Otani, Radisson, Sheraton and St. Regis. Several Beijing and Shanghai hotels, such as the Grand Hyatts that made Institutional Investor’s

December 2004 list of financiers’ favorite hotels, offer service and luxury to rival the elite establishments of New York and Paris.

Binks, a former senior vice president for Merrill who now runs his own, New Yorkbased financial consulting firm, is a regular at Beijing’s China World, which is managed by Shangri-La Hotels and Resorts and is situated in the China World Trade Center complex.

China’s hotel boom began in the early 1990s, when a handful of chains led a serious push of foreigners into the market. The Hong Kongbased Shangri-La chain opened 19 mainland properties, four in Beijing, including the Kerry Center Hotel, whose three-story sports club has a lap pool and a basketball court. In 1999 the Grand Hyatt opened on the top 35 floors of the futuristic, 88-story Jin Mao Tower in Shanghai. It remains the highest hotel in the world -- and the most famous of a mainland group that now numbers five. The InterContinental, Holiday Inn and Crowne Plaza group operates 45 hotels in China, including the swank InterContinental Pudong Shanghai.

When Beijing joined the World Trade Organization in 2001, it was as if a Chinese fireworks rocket that had been steadily climbing suddenly burst. China has emerged as the world’s third-largest trading power, with an economy expected to attract $60 billion in foreign direct investment this year -- more than the U.S. The China National Tourist Office reports that travel to the country for business and pleasure has surged by one fifth since 2002.

“All the hotel brands see that they need to get in fast and build a national network,” says Katharine Le Quesne, a London-based Deloitte & Touche corporate finance manager who specializes in hotels. The World Travel & Tourism Council, also based in London, expects to see some 900 hotels in Beijing by 2008, when the city is due to host the Olympic Games. Shangri-La expects to boost its China hotel count from 19 to 33, including its Traders brand, by 2008; Hyatt aims to have 17 hotels, including its Regency and Grand brands (standard and luxe, respectively) by then; and the InterContinental, Holiday Inn and Crowne Plaza group plans to be operating 80 hotels in China.

The Games are not what’s really driving the hotel boom, of course; business and tourism, which are often intermingled, are the main impetus. In the Xicheng district, just west of the Forbidden City, bankers and businesspeople are already swarming into the Finance Street neighborhood. In the past decade some 1,200 foreign and domestic banks and financial service companies, along with the state Finance Ministry, have installed main offices within the 254-acre zone.

Finance Street -- not to be confused with the other business district, in Chaoyang -- will soon be anchored by a new hub: a 37-acre “village” of high- and low-rise buildings for offices, shops and restaurants. It was designed by San Franciscobased architectural firm Skidmore, Owings & Merrill, which planned the master scheme for London’s Canary Wharf. Scheduled to be completed in mid-2006, Finance Street Central Area features a park, artificial streams, pedestrian walkways and underground parking for 13,000 cars.

The Finance Street village has two hotels slated to open next year. The Ritz-Carlton Hotel’s 256-room tower will feature fancy restaurants hidden behind the facades of siheyuan, traditional courtyard houses that were salvaged from the site. The 500-room Westin Beijing Financial Street will consist of two towers, one for hotel guests and the other for residents.

One new world-class hotel has already broken ground in the Xicheng district: The InterContinental Financial Street Beijing is set to open next month. Typical of new hotel construction in the area, the 23-story building will incorporate a bank and an insurance company. Less typically, it will offer panoramic views of the Forbidden City’s palaces and pagodas.

In fact, the prevailing model for Beijing hotels is an everything-but-the-airport scheme -- a megacomplex that combines office, retail, residential and hotel functions. That suits both nation-hopping executives and semipermanent expats, who prefer to work, eat, exercise and entertain without the hassle of dealing with Beijing’s horrendous traffic.

For existing hotels, the trick will be to keep up with all the chic newcomers. To that end, Hong Kongbased Peninsula Hotels just spent $35 million to make over the 16-year-old Peninsula Palace Beijing, adding elaborate glass and water sculptures to the lobby and the latest high-tech features to the guest rooms. Meanwhile, the Shangri-La Hotel Beijing is undergoing a $72 million expansion that will add a new tower in 2006, and the Hilton Beijing is updating its look for a relatively modest $15 million.

To be sure, such investments are not made only in pursuit of foreign travelers. “The Chinese are going to be staying at these hotels -- if not today, tomorrow,” points out John Wallis, Hyatt International Corp. senior vice president of global asset management. “They have the wealth, leisure and desire to travel.” And they’re fast developing a taste for Western-style luxury.