The slow demise of Chinese property developer Evergrande Group hardened into reality in January this year when the world’s most indebted real estate business was ordered to liquidate by a Hong Kong court. After Evergrande failed repeatedly to restructure its huge debts – which are estimated to be in the region of $300 billion – Judge Linda Chan said “enough is enough” and appointed Alvarez & Marsal as liquidator.
The ruling came after a rollercoaster few years for the firm, whose chairman, Hui Ka Yan, is under investigation for alleged criminal activity. Evergrande first defaulted on its debt in 2021, filing for US bankruptcy protection in August 2023 to shield itself from creditors. While the Hong Kong court ruling is an attempt to bring a day of reckoning, experts note that most of its debts are in Mainland China, and the order may not be enforceable there. Meanwhile, in February, family relations to Hui Ka Yan launched lawsuits which have been interpreted as an attempt to protect assets.
Legal wranglings aside, the Evergrande story has, if nothing else, proved a ‘reg flag’ for Chinese real estate. “It has reinforced the international perspective that China is a very difficult and challenging market at the moment,” says James Macdonald, head of China research at Savills. Joined by peers like Country Garden, which has also missed debt payments and defaulted on billions of offshore bonds, China’s developers have themselves blamed soaring interest rates for creating a liquidity crunch. “The government has been very conservative in terms of its support of the real estate industry and the broader economy, in comparison to Western economies which received sizeable stimulus packages during the pandemic,” Macdonald adds. “There’s a sense that there will be a rationalisation of the real estate development industry now for the long-term health of the sector.”
Playmaker role
China has been cast in a playmaker role in geopolitical shifts and shocks over the past four years. From Covid-19 to Russian threats, from the rise of a BRICS consensus to global manufacturing and supply-chain shifts, governments and investors have assigned greater influence to president Xi Jinping on the world stage. Accordingly, formerly enthusiastic expansion plans targeting China from global brands and funds have become wait-and-see or even withdrawal strategies – although not for all.
While AirBnb famously pulled out of China in 2022, suspending its support for domestic listings, experiences and bookings, other hospitality brands have doubled down on growth plans. Hilton, which describes itself as the fastest-growing hospitality company in Asia-Pacific, announced the expansion of its franchise model in Greater China six months ago into the upscale full-service segment, bringing the DoubleTree by Hilton brand to the territory. Unveiling some 19 new franchise projects across its Hilton Garden Inn and DoubleTree flags, Clarence Tan, senior vice president, Development, Asia Pacific, Hilton, said: “As we ride the continued wave of travel recovery across Asia Pacific, franchising is poised to become an increasingly important business model in this region.”
Hilton is not alone in this strategy. Last year, French hospitality group Accor surpassed 500 hotels in China. In an interview with the Chinese government-backed People’s Daily, published in November, Gary Rosen, Accor’s China CEO, said that China was poised “to become the largest tourism market in the world by 2035”. With China’s reopening in March 2023 boosting domestic tourism numbers last year, Rosen added: "Whether you're talking about the development of hotels or technology, we've really created a bespoke level for China."
Marriott International is another firm to have announced recent openings. In January, the firm unveiled plans to launch the third The Ritz-Carlton and the first Marriott Marquis Hotel in Beijing by 2026, in partnership with Beijing North Star Company. “The signing is a testimony of our continued growth in Greater China in key cities,” said Gavin Yu, chief development officer, Greater China, Marriott International. The news follows ongoing launches with Eastern Crown Hotels to expand the Fairfield by Marriott brand across China. Meanwhile, last month, IHG announced the opening of its 700th hotel in Greater China, marking almost five decades in the region, as it reiterated a commitment to continue expansion.
Brand strategy
Brands are undoubtedly emboldened by the return of some positive trends. In the wake of borders reopening, domestic tourism revenues reached RMB 148.06 billion on Labour Day in May 2023, a year-on-year increase of 129%, and in line with 2019 figures, according to Colliers data. Similarly, in the second quarter of 2023, the average room rate for mainland China’s all-star hotels surpassed the market business performance seen during the pre-pandemic period, reaching RMB373.79 per night, Cushman & Wakefield reports.
Data coming out of the hotel development industry is also surprisingly buoyant. The China Construction pipeline Trend Report from Lodging Econometrics forecast record project and room counts at the start of this year, expecting 3,788 new hotel projects comprising 691,722 rooms. The report predicts that a total of 871 hotels will open in 2024, with 955 projected to launch in 2025, compared with 683 in 2023. Boosting this, during the first weekend of the Chinese New Year, Hong Kong alone saw 750,000 visitors, most of them coming from Mainland China, and surpassing 2018 figures.
China’s tourism and travel sector is one of its brighter spots, experts concur. “The high-speed railway network has opened up parts of the country like never before,” Macdonald notes, “and we have continued to see investment in other tourism infrastructure like airports, hotels, and attractions. There has also been a push by the government to create more tourism opportunities in rural areas, with outdoor experiences such as camping and fishing on the rise – and retail stores launching to meet demand for equipment.”
Across the country, the economy is also trying to reposition away from low-cost manufacturing to new economy sectors such as solar cells and electric vehicles and advanced sectors like semiconductor manufacturing. Some regions are looking to augment other parts of their economy apart from manufacturing, Macdonald notes. “Going forward, many provinces may shift their focus away from industrial facilities and try to compete for tourism expenditure, particularly after success stories in domestic tourism during the pandemic.” While China’s borders were closed, citizens could still explore their own country, and did so in significant numbers.
But the country is still battling with a 30-year low in GDP, rising unemployment and low birth rates, and economists paint a long-term picture of waning global influence and stuttering growth. “There are real estate investment opportunities with values falling and slightly higher yields, but it’s still a very difficult and challenging market for international capital,” MacDonald concludes.