The tourist trap

The world-famous terracotta warrior site in the ancient city of Xian is one of the leading tourist attractions in China. For many foreign tourists, no first visit to the Middle Kingdom would be complete without seeing this under-ground army of 8,000 clay soldiers, chariots and horses. "The historical significance of the city, combined with the terra-cotta warriors site, makes Xian one of the most important tourist destinations in China," says Mr Steve Kleinschmidt, managing director of PKF Consulting. Organised tour groups regularly include Xian as part of their China itinerary and there is no shortage of top-grade hotels to accommodate them. The city has four five-star properties.

However, the hotels are not thriving and many blame over-capacity. "Like all other cities in China, Xian has an over-supply of guest rooms. To make things worse, local hotels are still opening in 1998 ?a situation which is likely to escalate into a price war,", says Mr Michael Lew, general manager of the Grand New World Hotel. "Most joint venture hotels are not revising room rates for fear of losing business."

Halt on new building

The fundamental problem is a dearth of visitors during off-peak months. "The market is still a very poor performer in terms of occupancy and rate due to high levels of seasonality, reliance on the group tour and leisure market segments and over-supply of four- and five-star hotels," says Kleinschmidt.

The Shaanxi authorities have responded by halting approval for new hotels in Xian during the current five-year plan, which ends in 2000, although expansion of existing hotels is not restricted.

However Mr Bill Lam, general manager of the Bell Tower Hotel, says that over-supply is so bad that the moratorium on construction will not improve things for at least five years.

Average occupancy rates are low and prices highly competitive, even by Chinese standards. The New World recorded 53 per cent in 1997, at an aver-age rate of Yn309n (US$37.20). The Sheraton achieved 56 per cent occupancy last year on rates described as "rather soft" by general manager James Greig.

Seasonal variations

He is forecasting 57 per cent in 1998 and hoping for a stronger showing from business guests. The Hyatt Regency, the top rated hotel in the city, achieved 62 per cent occupancy in 1997, an increase of eight per cent on 1996. This property benefits from a relatively high proportion of business guests.

Mr Stuart Deeson, director of business development at the Hyatt Regency, is cautious about 1998. "We are waiting to see how far the regional economic problems will affect China in the coming year," he says.

Partly because of the extremes of temperature in summer and winter, Xian suffers from big seasonal fluctuations in visitor arrivals. Serious pollution exacerbates the levels of discomfort. In autumn the city is thronging with tourists and in the most popular month of October there is a shortage of rooms. However, duringwinter months occupancy rates can be as low as 25 per cent. "If we can encourage more tourists to visit Xian in the off-season, the problem will be solved," said Shaanxi Tourism Administration deputy director Zhang Xiaoke last year. He argues that most of the cultural relics are indoors and out of the cold. "Moreover, even in the coldest winters it is only about during the day time."

Convincing travel agencies that the city is a year-round destination seems to be another matter, despite the generous price incentives offered by hotels. Some blame the authorities for not doing enough to stimulate interest and invest in facilities.

The challenge is to add diversity to attract more tourists and detain them for more than just a couple of days. Deeson says more could be done to promote sites such as the Huaqing hot springs to add greater depth to the tourist base. Investment in infrastructure and more imaginative promotional campaigns would help to freshen up the image of the city. "Xian is not over-supplied with hotels, it is under-supplied with demand," argues Greig.

Opinion is divided over future growth prospects although there is general caution about the impact of the Asian financial crisis. "Xian's greatest potential currently is in the leisure market segment," says Kleinschmidt. "Increased and affordable flight avail-ability from source markets could improve the location's attractiveness."

The meetings business

But with tourist numbers growing by little more than 1-2 per cent a year, most hoteliers say that business guests represent the biggest opportunity. They point to the fact that more than 180 joint ventures were established in Shaanxi province last year. "Due to the improved economic reforms throughout China, a new market has emerged," comments Lew. "There is a big market for domestic business travellers which every hotel is targeting."

Within this sector, the meetings business is regarded as the most promising. "There is a market for the domestic meetings business in Xian and other destinations in China," says Greig. However Kleinschmidt argues that hoteliers should not expect too much from this market since Xian is not considered a MICE market destination. Certainly there is no big convention centre located in the city and little experience in handling big events. However, there is potential to position Xian as a new and cost-effective venue for corporate meetings and smaller conferences.