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6 White Paper on the Business Environment in China
room revenue off 11 percent in the period, while dining receipts The other end of the hospitality spectrum, catering, has (and
plunged nearly 19 percent.”20 will likely continue to) see strong growth as well. Yum!, the
management group primarily known on the Mainland for its
Somewhat stiflingly, the China Tourist Hotel Association— Pizza Hut and KFC franchises, in 2009 stated its intent to open
the government agency that hands out the stars—says that, 500 new restaurants that year—one-third of its total worldwide
“There’s no such thing as ‘downgrading stars.’” If five-star prop- openings.24 Similarly positive, Yum!’s second quarter 2010 earn-
erties choose to change their ratings, says the association, they ings were up 33 percent in China, compared to 10 percent in the
will be considered unrated instead.20 United States.25 More recently, the company opened 92 addi-
tional restaurants in the first quarter of 2011 and saw its adjusted
Beijing’s new-found austerity has not threatened more operating profits grow 18 percent.26
tourism-oriented projects, however. After a brief delay, the $5
billion Chimelong Hengqin Bay resort and theme park21 was Despite “same-store sales in China [dropping] 4% in the
scheduled to open on January 14, 2014. Located near Macau, fourth quarter [of 2012], compared with a jump of 21 percent
the project features a roller coaster, a whale shark tank and a the same period a year earlier,” Yum!’s intent to open 700 stores
lavish 1,888-room hotel.22 over the course of 2013 was reported by the Wall Street Journal
in December 2012.27
“While some extravagant infrastructure projects in China
have turned into white elephants,” explains Reuters, “the odds Competitors McDonald’s is reportedly aiming to reach
are on Hengqin’s side largely due to the support of the Beijing 2,000 outlets across the nation by 2013, having increased
government and the island’s proximity to the millions of tour- investment in 2010 by 25 percent and planning a further 40
ists who throng to Macau every year.”21 percent increase in investment over 201128. In August of that
year, the company announced its first developmental licensee,
After several tough years in which the sector reportedly be- Kunming North Star Group, what will help the brand expand
came “a victim of its own ambition”, rising domestic tourism is on the Mainland.29
bringing about a “welcome reversal” for China’s hotels in 2015.
Third quarter RevPAR – an industry measure of occupancy McDonald’s, like Yum!, also reported lower China same-
and daily room rates – grew 0.3% year-on-year, the first posi- store sales in 2012 but only for October.27
tive result in four years. In Beijing, demand for high-end hotel
accommodation is growing almost twice as fast as supply – a More recently, Reuters reported that the growth of McDon-
noticeable change for a sector once plagued by overexpansion, ald’s, Yum! and others had been hit as “Chinese consumers
oversupply, and external forces such as the national anti-corrup- are increasingly opting for healthier alternatives in food and
tion campaign which has helped to suppress demand for luxury drink.”30
accommodation.
Yum’s sales also fell after CCTV ran a report accusing some
Those factors still have not disappeared, however: According of the firm’s poultry suppliers of misusing antibiotics as well as
to Fitch, 4 in 10 rooms still sit empty in China as a result of the the April 2013 outbreak of bird flu. Significantly, The Shanghai
aforementioned overexpansion. Still, official figures show RMB Food and Drug Administration investigated the chicken con-
1.65 trillion was spent on domestic travel in the first half, up tamination incident. It did not bring a case against Yum China
14.5% year-on-year. While an increasing amount of Chinese and did not assess a fine—see below for on CCTV’s apparent
tourists are traveling abroad, domestic tourism still accounts editorial campaign against foreign enterprises in China.31
for more than 80% of China’s travel expenditure. Fitch analysts
forecast double digit growth to continue for the coming five Sugared beverage manufacturer PepsiCo is also investing
years, as domestic destinations become more attractive and heavily in the PRC, but in infrastructure and R&D. A total of
accessible and more households acquire the means to travel. $2.5 billion amount is reported to be going toward building ad-
ditional production capacity in four provinces by 2012, in addi-
Cruise tourism, introduced to China fewer than 10 years tion to a research and development center tasked with develop-
ago, has seen rapid growth. In that time, “five terminals have ing new products for the Asian market, agricultural production
been built at an estimated cost of more than 4.5 billion yuan and spending on branding.32
($735 million),” with “three [more] under construction and
another six [in] the pipeline.”23 In late November 2011, China Daily reported the compa-
ny’s plans to open 10 to 12 new manufacturing plants across a
Despite expanding capacity and nearly 10 percent growth greater number of Mainland provinces over the coming three
in port calls by international cruise lines, China Cruise & Yacht to five years.33
Industry Association vice president Zheng Wei-hang told Reu-
ters that rapid construction had eliminated profits and that “all Meanwhile, The Coca-Cola Company opened three bot-
five established cruise terminals have suffered losses mainly as a tling plants in 2010 (in Inner Mongolia, Henan and Guang-
result of excessive investment by municipal authorities in build- dong), which brought the total number to 42 in the PRC
ing landmark structures that have yielded insufficient returns.”23 alone,34 and in September 2011 announced a planned invest-
ment of $4 billion before 2014, most of which will be spent on
216
room revenue off 11 percent in the period, while dining receipts The other end of the hospitality spectrum, catering, has (and
plunged nearly 19 percent.”20 will likely continue to) see strong growth as well. Yum!, the
management group primarily known on the Mainland for its
Somewhat stiflingly, the China Tourist Hotel Association— Pizza Hut and KFC franchises, in 2009 stated its intent to open
the government agency that hands out the stars—says that, 500 new restaurants that year—one-third of its total worldwide
“There’s no such thing as ‘downgrading stars.’” If five-star prop- openings.24 Similarly positive, Yum!’s second quarter 2010 earn-
erties choose to change their ratings, says the association, they ings were up 33 percent in China, compared to 10 percent in the
will be considered unrated instead.20 United States.25 More recently, the company opened 92 addi-
tional restaurants in the first quarter of 2011 and saw its adjusted
Beijing’s new-found austerity has not threatened more operating profits grow 18 percent.26
tourism-oriented projects, however. After a brief delay, the $5
billion Chimelong Hengqin Bay resort and theme park21 was Despite “same-store sales in China [dropping] 4% in the
scheduled to open on January 14, 2014. Located near Macau, fourth quarter [of 2012], compared with a jump of 21 percent
the project features a roller coaster, a whale shark tank and a the same period a year earlier,” Yum!’s intent to open 700 stores
lavish 1,888-room hotel.22 over the course of 2013 was reported by the Wall Street Journal
in December 2012.27
“While some extravagant infrastructure projects in China
have turned into white elephants,” explains Reuters, “the odds Competitors McDonald’s is reportedly aiming to reach
are on Hengqin’s side largely due to the support of the Beijing 2,000 outlets across the nation by 2013, having increased
government and the island’s proximity to the millions of tour- investment in 2010 by 25 percent and planning a further 40
ists who throng to Macau every year.”21 percent increase in investment over 201128. In August of that
year, the company announced its first developmental licensee,
After several tough years in which the sector reportedly be- Kunming North Star Group, what will help the brand expand
came “a victim of its own ambition”, rising domestic tourism is on the Mainland.29
bringing about a “welcome reversal” for China’s hotels in 2015.
Third quarter RevPAR – an industry measure of occupancy McDonald’s, like Yum!, also reported lower China same-
and daily room rates – grew 0.3% year-on-year, the first posi- store sales in 2012 but only for October.27
tive result in four years. In Beijing, demand for high-end hotel
accommodation is growing almost twice as fast as supply – a More recently, Reuters reported that the growth of McDon-
noticeable change for a sector once plagued by overexpansion, ald’s, Yum! and others had been hit as “Chinese consumers
oversupply, and external forces such as the national anti-corrup- are increasingly opting for healthier alternatives in food and
tion campaign which has helped to suppress demand for luxury drink.”30
accommodation.
Yum’s sales also fell after CCTV ran a report accusing some
Those factors still have not disappeared, however: According of the firm’s poultry suppliers of misusing antibiotics as well as
to Fitch, 4 in 10 rooms still sit empty in China as a result of the the April 2013 outbreak of bird flu. Significantly, The Shanghai
aforementioned overexpansion. Still, official figures show RMB Food and Drug Administration investigated the chicken con-
1.65 trillion was spent on domestic travel in the first half, up tamination incident. It did not bring a case against Yum China
14.5% year-on-year. While an increasing amount of Chinese and did not assess a fine—see below for on CCTV’s apparent
tourists are traveling abroad, domestic tourism still accounts editorial campaign against foreign enterprises in China.31
for more than 80% of China’s travel expenditure. Fitch analysts
forecast double digit growth to continue for the coming five Sugared beverage manufacturer PepsiCo is also investing
years, as domestic destinations become more attractive and heavily in the PRC, but in infrastructure and R&D. A total of
accessible and more households acquire the means to travel. $2.5 billion amount is reported to be going toward building ad-
ditional production capacity in four provinces by 2012, in addi-
Cruise tourism, introduced to China fewer than 10 years tion to a research and development center tasked with develop-
ago, has seen rapid growth. In that time, “five terminals have ing new products for the Asian market, agricultural production
been built at an estimated cost of more than 4.5 billion yuan and spending on branding.32
($735 million),” with “three [more] under construction and
another six [in] the pipeline.”23 In late November 2011, China Daily reported the compa-
ny’s plans to open 10 to 12 new manufacturing plants across a
Despite expanding capacity and nearly 10 percent growth greater number of Mainland provinces over the coming three
in port calls by international cruise lines, China Cruise & Yacht to five years.33
Industry Association vice president Zheng Wei-hang told Reu-
ters that rapid construction had eliminated profits and that “all Meanwhile, The Coca-Cola Company opened three bot-
five established cruise terminals have suffered losses mainly as a tling plants in 2010 (in Inner Mongolia, Henan and Guang-
result of excessive investment by municipal authorities in build- dong), which brought the total number to 42 in the PRC
ing landmark structures that have yielded insufficient returns.”23 alone,34 and in September 2011 announced a planned invest-
ment of $4 billion before 2014, most of which will be spent on
216
