Star power

Roberto Madan was born in Macau and started his career in hotels when he was only 16. From there, he went on to study hotel management at Les Roches International School of Hotel Management in Switzerland. For the last two years he has worked at the Days Hotel Tongji in Shanghai. He spoke with CHINA ECONOMIC REVIEW about what the star rating system means in China, dealing with the current hotel overcapacity problem, and the development of markets in western China.

Q: How is the hotel ratings system interpreted in China?

A: The star rating system standards are much higher in China than elsewhere. They have very, very stringent criteria. There’s hundreds of items in the rating classification book; the décor, the ambiance, the theme, what you use in terms of chinaware, cutlery, uniforms, and then there are other luxury items like swimming pools and spas. They even consider how luxurious your chandeliers are. This star system is controlled by the state tourism bureau, but in order to get five stars you need to go one tier up, because they need to send someone from Beijing to confirm that you are fit for it. Anything below five stars, the provincial bureaus can handle.

Q: Other quality control certifications in China have proven easily corrupted. How subject is this ratings system to influence?

A: It’s gotten much better than it used to be over the last year or two, especially during the run-up to the Olympics. It’s actually quite difficult to get around the system now.

Q: Are foreign hotels held to higher standards?

A: No. In China, foreign hotel chains are actually only managing properties held by Chinese owners. Actually, some of the best hotels in China are government-owned.

Q: What about the overcapacity problems currently plaguing the sector?

A: I think this will improve in two years time. The reason is, as we all know, there is a world recession, but I’m optimistic. I think it will turn around by 2011. Foreign travel is off, though. In Shanghai, from January through June, there were a total of 2.9 million foreign arrivals. This is probably 50% down on the same period last year. In two years, when everything settles down, demand will pick up again. There will always be demand for luxury, but in China we are depending on domestic travel more than anything.

Q: Why do you think demand for luxury is more resilient here?

A:  As long as we don’t have a major war, luxury will always be more resilient, because every consumer wants to move up to the next level. We all know that China has over 100 million upwardly mobile consumers with reasonably good disposable income. This is the population that really demands luxury. They are traveling all around China, and they no longer want to stay in the little hotels, they want to move up the ladder to unique hotels with well-appointed facilities. I’ve been in China 20 years and I’ve seen the change. I’ve seen 25-year-olds dining at five-star hotels.

Q: What about competition at the budget, three-star level?

A: It’s very fierce. Look at some of my staff. The mid-level department heads have a disposable income of RMB5,000-6,000 (US$730-875) per month, excluding bonus. I asked them, when you guys go traveling, are you going to try a five-star hotel? They say it depends on the location. If they are going to go to Sanya, they are going once a year, so they are going to stay at the five star. But if they are traveling for general reasons, they are going to stay at a budget hotel. Budget hotels tend to be very profitable. They have low overhead, because they use a lot less staff. And labor costs here [in China] are much, much higher than they used to be. But this also depends on the province and the city.

Q: So what other provinces and cities are you looking at for development?

A: It depends what you are looking for, but the area for growth is definitely Sichuan. The other provinces are still 15 years behind. Chongqing and Chengdu are where the growth is happening. I visited Chongqing six times over six months and the pace of development was unbelievable. We have five properties in Chongqing open or due to open soon.