In the beginning of this year, China’s top property developer Dalian Wanda Group caught the attention of the entire nation when it revealed a plan to invest US$1.09 billion to build and manage a luxury hotel in London. Back in the summer of 2013,
Wanda Group was the first Chinese company to invest in an overseas luxury hotel construction project. Since then it has added a luxury hotel in Madrid and invested US$900 million in a skyscraper in Chicago’s Lakeshore Drive East last summer.
The Chicago tower will have a 240-room luxury five-star hotel, luxury apartments and retail space and will be the third tallest building in the city when it is completed in 2018. Besides Chicago, Wanda is also setting its sights on other US cities including New York, Los Angeles and San Francisco.
China’s eighth largest conglomerate Anbang Insurance Group also sent shockwaves through the hotel industry with the recent US$1.95 billion acquisition of New York’s landmark Waldorf-Astoria, the largest ever hotel acquisition in the US. Last October,
Sunshine Insurance Group also joined in on the action acquiring the Sheraton on the Park Sydney for AUD$463 million (approx: US$399 million).
In November, Shanghai-based Jin Jiang International acquired the European Louvre Hotel Group for approximately US$1.2 billion.
Chinese investors are not targeting only hotels when they scoured the globe for investment opportunities. Major food processor Shuanghui International sparked a heated debate in the
American food industry last year when it bought US Smithfield Foods for US$4.76 billion.
In June last year, Shandong-based Tranlin Paper Co also invested around US$2 billion to build a papermaking and chemical fertilizer plant in Virginia that is slated to open in 2020 and will create 2,000 jobs.
Chinese capital investment to the US has skyrocketed from US$58 million in 2000 to US$14 billion in 2013 and overall Chinese private investment to the US has reached a total of US$40 billion. Chinese investment in the US has already surpassed US investment in China, according to Hong Kong’s South China Morning Post.
The forces driving Chinese investment in the US and overseas are identical to those in the Japanese overseas investment boom 30 years ago. With as much as US$4 trillion in foreign exchange reserves, China is now facing a savings surplus. This makes US and European assets with high return for investment the prime targets for Chinese investors, according to Fortune Magazine.
Meanwhile, Chinese consumers are still avid consumers of all things American and they are confident that their assets are well protected in the US. These consumers make up 85% of the applicants for the US Employment-based 5th category visa, issued under a US immigration scheme to those who have made investments of over US$500,000. The majority of these applicants are investing in what they consider as the safest form of investments–US real estate, according to CNBC.
Over 100 million Chinese are now choosing to travel abroad and this figure will double within the next five years, according to industry leaders. Chinese investors like Wanda Group are counting on this enormous Chinese market to form the customer base that will enable them to expand in the overseas hotel industry.
Their move is reminiscent of the successful large-scale global expansion decades ago of local western luxury hotel brands like Hilton, Sheraton, Accor and Marriott on the back of growing travel demands by European and American tourists.
Although tourism markets like Russia, Korea and Japan are also growing, only China has the financial and tourist volume to emulate the US hotel industry’s growth model. One Chinese hotel brand Homeinns economy hotel chain has already made it to the top ten global rankings in terms of room capacity, and other Chinese hotels are bound to follow suit sooner rather than later.(Translation by David)