Sanya's High-End Makeover: Trying Too Hard? Or Paying Off?

    The problem with Sanya's makeover seems to be that Hainan officials are trying too hard to craft it into a "luxury city", when its perfect weather, golden beaches and five-star resorts give it more than enough to offer tourists.
    Jing DailyAuthor
      Published   in Finance

    City Promoting Itself As "The Riviera Of China"#

    Hainan is renowned for its golden beaches

    The top resort area on Hainan Island, China's southernmost province, the city of Sanya has spent the last couple of years working to transform its infrastructure and reputation and become a world-class destination on par with Bali, Hawaii or Thailand. While the city has been the playground of wealthier Chinese, and primarily Russian foreign tourists, for years, in late 2009 the Chinese government announced plans to give the city--and Hainan Island--a high-end makeover. Initial plans to "encourage developers to build premium hotels and resorts", boost the island's financial sector, and build luxury shopping malls have, over the past year and a half, spread to the recently enacted duty-free shopping scheme and fed persistent rumors (regularly shot down by officials) that Sanya could eventually become the first mainland Chinese city to legalize gambling.

    Although Sanya increasingly has the right "hardware", with resorts by Mandarin Oriental, Ritz-Carlton, Banyan Tree and others, the Chinese government's dreams of seeing the city become the playground for wealthy Chinese and foreign tourists by 2020 still looks ambitious. To kick in the "software" side of Hainan, provincial officials have heavily promoted blue (ocean), green (eco-tourism) and red (communist history) tourism to mainland Chinese tourists, and recently launched the aforementioned duty-free shopping program to boost tourist spending.

    But the lavish spending the Hainan provincial government hoped to see from mainland Chinese tourists has yet to dramatically buoy the island's retail market. Instead, mainland money has continued to pump up Sanya's real estate market. The effect of the property-buying spree that's taken hold in Hainan over the past two years has been dramatic, stoking fears in Hainan of a second property bubble. With increased mainland speculative buying, the prices for some properties in Sanya rival even those in Manhattan, with a typical seaview apartment at the high-end Yajule Qingshuiwan (雅居乐清水湾) subdivision now selling for 70,000 yuan (US$10,800) per square meter and some apartments selling for more than 4 billion yuan (US$617 million) even before being completed. Still, with a growing number of wealthy property buyers flocking to the city in recent years, retailers seem to think that the duty-free program and better shopping infrastructure will trickle down, as it has in destinations like Macau and Hong Kong.

    Ya Ju Le (雅居乐) luxury subdivision in Sanya

    But whether this optimism is well-placed is still a question very much up in the air. Events like the recent Hainan Rendez-Vous have heavily promoted the "luxury lifestyle" in Sanya, and very wealthy Chinese have, in some cases, made their new homes in the city, but it will likely take quite a while for the actual living standards in the city to match other tropical destinations. It's got beautiful beaches, extravagant apartments and world-class resorts, but Sanya still primarily remains a temporary playground for mainland Chinese, while the average living standard of native Sanya residents is still very modest. Like other Chinese cities that are rushing to become "world-class", some aspects of Sanya have yet to catch up to its glittering real estate. Travelers regularly complain about the condition of the city's Phoenix International Airport, the city's regular gridlock, and the level of food service. (Although those more partial to street food regularly gush about this feature of the city.)

    So will Sanya become a real "luxury city"? Interestingly enough, the problem seems to be that Hainan officials are trying too hard to craft it into one, when its perfect weather, golden beaches and five-star resorts give it more than enough to offer tourists. Not everyone who travels to Bali or Kauai does so to spend hours in a mall. In Sanya's case, building a few high-end flagships and offering duty-free rebates is probably a smart move, but if tourism officials remain dead-set on competing head-on with duty-free juggernaut Hong Kong to attract mainland Chinese tourist-shoppers, they'll likely find themselves sorely disappointed.

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