What to Expect from Chinese Hospitality Investments in 2017

While the explosive growth of Chinese tourists may have been the main takeaway in Chinese tourism for many destinations around the world in 2016, a perhaps even more important trend in 2016 was the staggering number of Chinese investments and acquisitions of overseas hospitality companies. Considering that 2016’s "Word of the Year" on Dictionary.com was “xenophobia,” the future of such investments can certainly be put into question. So, what does 2017 have in store for Chinese overseas investments in the tourism and hospitality industry? For the United States, the incoming Trump administration and its unclear stance on China policy and Chinese investments perhaps remains the biggest question mark for the year to come. Although Trump himself has benefitted from Chinese investments and has placed bets on the future of Chinese travel, his anti-Chinese rhetoric on the campaign trail combined with his “America First” platform has raised questions about both the future of Chinese investments in the United States as well as the future of relatively liberal visa policy towards Chinese travelers. Trump’s historic phone call with Taiwanese President Tsai Ing-wen after his election and China’s formal complaint in response further underlines the rocky bilateral foundation between China and the incoming Trump administration, which may shape policy for the four, or maybe eight, years to come. Even though the Trump administration’s China policy will likely influence EU-China policy as well as NATO-countries’ China-policies, there is an even bigger question mark lingering for the rest of the world (and the United States): Chinese curbs on outward investment. Chinese investments abroad amounted to 1.12 trillion Chinese yuan (US$161 billion) in 2016, with the United States as the primary recipient of Chinese investments, accounting for over 30 percent of all Chinese overseas investments. This far surpasses the 785 billion yuan (US$113 billion) in overseas investments received by China, to the Communist Party’s dismay. To combat the continued rise of such capital outflows, Gao Hucheng, China’s Minister of Commerce, has signaled that the Chinese government will “promote the healthy and orderly development of outbound investment and cooperation in 2017” in an attempt to return to the situation when foreign direct investment (FDI) in China was still larger than China’s outward FDI. According to insiders in China quoted by the Financial Times, the Chinese State Council has been preparing a range of new restrictions to further limit Chinese overseas investments. Allegedly, large overseas acquisitions are the source of most concern, with US$1 billion proposed to serve as the limit for overseas investments of China’s state-owned enterprises, as well as serving as the limit for investments that don’t require scrutiny by Chinese officials for investments made by privately held Chinese corporations. According to the Rhodium Group, which runs the U.S.-China FDI Project, a project that aims at bringing transparency to FDI between the United States in China, real estate and hospitality ranked as the second-biggest recipient industry of Chinese FDI in 2016, with US$12.8 billion in Chinese investments last year alone—highlighting the importance of the hospitality sector for Chinese overseas investments. Deals in this industry that broke the US$1 billion barrier were many in 2016, including Anbang’s US$6.5 billion acquisition of Strategic Hotels & Resorts, HNA Group’s US$6.5 billion stake in Hilton, and Ctrip’s US$1.7 billion acquisition of Skyscanner. Anbang’s attempted US$14 billion acquisition of Starwood would have broken all previous records had it not lost out to Marriott. In total, some 33 acquisitions valued above the proposed US$1 billion limit were agreed upon throughout 2016 according to the Financial Times. However, there are reasons to believe that the Communist Party views Chinese investments in the hospitality industry more favorably than investments in other industries. Some of the companies in this sector which have received significant Chinese investments predominantly serve Chinese companies, helping funnel Chinese tourist spending back to the Chinese economy. Chinese tourists, who spent US$215 billion abroad in 2015, also serve a major capital outflow for China. If acquisitions of overseas companies that serve China’s tourists help some of that revenue back to Chinese shores, it may be viewed as a net win for China’s policymakers. Some of Ctrip’s recent investments in U.S.-based tour operators do just that—acquiring the overseas part of the Chinese traveler ecosystem in the United States. Whether or not headline-making acquisitions and investments in multinational hotel chains such as the attempted Starwood bid would pass under a new approval regime remains in question. It is doubtful if such deals would be deemed as serving enough Chinese travelers to be worthy of approval on the grounds of bringing Chinese tourist spending back to China. For better or worse, Chinese regulators like to keep rules flexible—so it remains a possibility that investments in the hospitality industry will be allowed to remain strong in the face of overall tightening restrictions on overseas investments. With both the incoming Trump administration and the Chinese government being less than transparent about policies regarding overseas investments, the role Chinese investments will play in the hospitality industry in 2017 remains unclear. However, with a record-breaking acquisition spree in 2016, one thing is for certain: Chinese companies remain hungry for investments in the tourism and hospitality industry. If policy allows it, there are few reasons to believe that 2017 won’t be another year of headline-making acquisitions and investments.

What to Expect from Chinese Hospitality Investments in 2017

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Published December 29, 2016

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What to Expect from Chinese Hospitality Investments in 2017