Reports coming out of the southern resort of Beihai have been far from glowing. A feature in South China Morning Post included tales of piracy, corruption and abandoned properties. The central message was that the city had missed an opportunity to build a foundation for growth because of a prevailing mood of short-termism fostered by lax government control.
Admittedly, part of the problem has been caused by events outside the local authority's control. The big hope for this city ? tourism ? was hit by the cancellation of real estate and infrastructure projects brought on by the national credit tightening policy.
Instead of a thriving resort, Beihai has acquired a reputation for being a city displaying some of the murkier features normally associated with a special economic zone ? including lawlessness, prostitution and squandered public spending ? but without the benefit of a thriving economy built on foreign investment. "The image has not been tarnished irredeemably," says Mr David Hayden, managing director of Shangri-La Hotels. "And Hainan has been tarnished too."
With no substantial industrial base to fall back on, the city's hoteliers have experienced some difficult years. The top-rated hotel is the 425-room Shangri-La, which, when it opened in April last year, added to competition in a city which was hardly in danger of running out of beds. The 17-storey property is targeted at the tourist with a range of leisure facilities including tennis courts, landscaped gardens and a large outdoor pool.
The hotel to suffer most from the new competition was the 318-room Furama which opened in September 1993. Mr Ronnie Hiang, executive director of Furama Hotels International, accepts that the market has been tough but he maintains that the city's fortunes will benefit from improved facilities. "The arrival of Shangri-La Hotel in Beihai underscores the potential of tourism and conferences business in this city," he says. "However, its timing was not perfect when Chinese leaders wanted to curb inflation and started the austerity drive in 1993."
Occupancy rates at the Shangri-La Beihai have been around 55 per cent at a rate of US$50-60 a room. This does not measure up to the group's other properties in China, long established in the major cities and now expanding into second-tier industrial centres such as Shenyang and Changchun. Even Hangzhou and Xi'an, which are also tourist attractions where the group owns hotels, have the advantage of being provincial capitals with more significant industrial and commercial activity than in Beihai which boasts only a small, light industrial base.
"They have rued the day [they decided to open in Beihai]," says one Hong Kong-based travel writer who preferred not to be named. "The government has not come through with the promise of support to develop Beihai as a gateway."
Beihai's potential has been hampered by poor transport links and a failure on the part of local and national tourist authorities to market and develop the resort. "The tourism bureau is trying to promote Beihai within China but I prefer to depend on myself," says Mr Gilbert Jung, general manager of the Shangri-La in Beihai. "The tourism industry is still in an infant stage."
Hayden highlights China's failure to develop tourist facilities in cities such as Xi'an and Beihai. "Tourism infrastructure is new to them," he says. "They will build a road and airport and then ask 'What else do you want?'"
For these reasons, it is unlikely that more international groups will be attracted to Beihai in the near future. "The last time we were there was over two years ago, and that tells you something," says Mr Paul Foskey, Holiday Inn's Director of Development in Beijing. His team of four spends half the time on the road in China assessing new venues and Beihai is not on their priority list.
Twelve key resorts
Shangri-La's decision to build a property in Beihai was taken five years ago, before the start of the credit-tightening policy. This policy was especially significant because the resort's viability depended on continued high levels of investment and infrastructural development. Another priority area was improved transport links, which remain insufficient to attract substantial visitor numbers. There are just two flights a week to Hong Kong which is only 50 minutes away, and they are on days which are far from ideal ? Tuesday and Saturday. Services are operated by Beihai Airlines which charters planes
from China Southern. At best these flights are half full, offering little commercial incentive for an increase in frequency.
Foskey sees the main constraint on domestic travel being limited disposable income and air capacity. Domestic flights to Beihai, particularly those serving Beijing, Shanghai and Guangzhou, are frequently full.
Given these constraints, Shangri-La's move represented something of a gamble by a group normally associated with financial and commercial prudence. "That's always been a bit of a mystery for me," says ING Barings analyst Rohan Dalziell, before adding that it probably could be explained by the personal decision of Mr Robert Kuok, the chairman of South China Morning Press (Holdings) and majority shareholder of Shangri-La. Kuok is committed to Shangri-La operating the largest luxury hotel network in China. "It was Robert Kuok himself who found many of the initial sites," adds Dalziell. "Beihai probably came in the package [of sites suggested by the Chinese authorities]. There could have been more of the political element rather than sitting down and doing the numbers."
Beihai is located on the southern coast of Guangxi Zhuang autonomous region, roughly halfway between Hong Kong and Hanoi. It has been identified as one of 12 key resorts by China National Tourism Administration. The task of promoting this many resorts on a limited budget risks diluting the message. "This number is a bit more than they could chew," says Hayden. International promotion has been scant and even within China it has been a problem convincing people that Beihai (which means 'north sea') is, in fact, a warm southern retreat.
The city's commercial potential has also been under-exploited. For example, the commercial port of Beihai has never really been developed to meet the expected surge in containerised and general cargo throughput for Guangxi. Instead, the port's handling facilities have been gradually adapted to handle heavy bulk cargoes, especially iron ore and coal. Consequently, growth has been slow. Figures issued by the Beihai Harbour Administration show that for the last five years growth in berth throughput has not exceeded 4-5 per cent a year.
What the city does have to offer is a warm climate, miles of beach and a more restful environment than on Hainan Island, just 200km to the south. There are all the usual seaside attractions plus camel rides for the more intrepid.
Foskey believes there is demand in northern China for those who want to escape the winter cold and head for the south, especially among the younger generation. Overseas travel for most Chinese remains difficult and there are a limited number of resort destinations to accommodate them.
Local holiday traffic and conference business should develop so long as transport connections improve. Dalziell believes Shangri-La will look to trim staff levels to keep costs down while pursuing business at competitive rates so as to boost turnover. Ensuring that the property at least pays for itself in the early years will be the priority, he says.
Another good sign has been the tentative recovery of Beihai's real estate market. In the third quarter of 1996, over US$50m of deals were secured, reported Xinhua, the highest quarterly total for two years. Tourism-related investment is also starting to recover. During last summer, additional investment in the city's largest property project, the Hengli Ocean Sports Vacationing Centre, reached US$25m.
The upturn came about after the city authorities took action to standardise and stimulate the market. Taxes were reduced to help property developers get out of trouble. In May, it implemented a series of measures to standardise the market and to reclaim parcels of land that had been leased improperly or in excessive amounts. The action has recovered nearly 11 square kilometres of land.
There are also signs that transport connections and holiday traffic are starting to improve. The main highway from Beihai to the regional capital Nanning is open, while work is underway on a new railway connection. "We had quite a bumpy start but we've seen good improvements in the past two to three months ? mainly among PRC holiday-makers and meetings and conference organisers," says Jung. "People want to get away from the big cities ? Shanghai, Beijing and even Guilin. They are looking for something different… In the November to February period it should be rather quiet here, but we saw exactly the opposite."
If Beihai is developed in a more responsible way than in the early 1990s and if the tourist authorities channel their investment and promotion activities in a more focused way, the long-term prospects for Beihai are favourable. "Given the growth of inter-Asian travel," says Hayden, "there should be enough business for everybody ? even if the forecasts are only half right."