Teach your children Mandarin
I just returned from a one-week trip to China, and I am still trying to force my eyeballs back into their sockets. It’s been almost 20 years since my last visit ? a lifetime in terms of the growth and development that has occurred. I have read and heard about the activity there, of course … but seeing is believing. What I discovered provided a fairly stark contrast to what has occurred in North America and many other regions over the past several years in terms of real estate markets, generally, and hotel markets, specifically. For instance …
These numbers may not be news to anyone, but the sheer growth in population from 1.3 billion to 1.4 billion in the next five years is being compounded by a mass urbanization of the Chinese population ? 600 million new city dwellers ? such that by sometime between 2015 and 2025, there will be 30 cities of more than 20 million people. Bejing and Shanghai are already at that level. For perspective, the population of the New York City tri-state metro area is 19.1 million, and the greater Los Angeles Area (L.A. County, Orange County, San Bernardino County, Riverside County and Ventura County) is 17.6 million. The population for the whole state of New York is a little under 20 million people.
It is not just population, though. It is the amount and quality of development of every sort, including hotels ? not just in the major cities, but in resort areas as well. On a single 4.3-mile (7-kilometer) stretch of beach on Hainan (an island south of Hong Kong that I hadn’t even heard of until a month before my trip), there are 15 luxury resorts, each averaging roughly 500 rooms under development, along with all the supporting infrastructure and amenities. The entire project will be completed by 2014. This is in addition to 25 existing 4- and 5-star hotels already open and operating on the island.
Whether in urban or resort areas, hotels, office buildings, retail and residential projects are being planned and developed at a tremendous pace. Might the development activity be getting out in front of demand? Perhaps, on a near-term basis. The similarly astonishing supply growth in the Middle East certainly did. What is different here, I believe, is the level of demand, both existing and latent.
According to a November 2010 report from Standard Chartered Plc, China will overtake the United States to become the world’s largest economy by 2020. Domestic road and railway passenger traffic increased 45% from 15.3 billion in 2001 to 22.3 billion in 2007, with aviation passenger flow recording 147% growth during the same period. This large-scale movement of the population is expected to continue in the years to come, with the construction of a $190 billion inter-city railway network and the building of 97 new airports before 2020. Moreover, these income-enabled Chinese consumers have a voracious appetite for goods, especially branded luxury goods. One knowledgeable insider told me that a single LVMH store in Macau does more than $400 million a year in revenue.
If I could offer any advice from this experience, it would be this: Go there and see for yourself. When you return, you will be hoping your children learn Mandarin.