“We are speeding up efforts to open our five-star Shangri-La and four-star Trader hotels in smaller cities," Kent Zhu, Shangri-La’s vice-president of marketing, told Business Weekly.

Shangri-La, given its long-term history in China, is more familiar with markets in medium Chinese cities compared with other foreign players, Zhu added.

He made the remark last week during a celebration in Beijing marking the fifth anniversary of Shangri-La and Air China’s partnership.

Shangri-La in 1998 became the first international hotel group to join Air China’s frequent flyer programme.

Under the programme, guests of Shangri-La’s 16 hotels in the Chinese mainland receive air miles, while Air China Club members obtain discounts on their hotel accommodations.

Shangri-La was one of the first overseas hotel chains to enter the Chinese mainland. Shangri-La since 1984 has opened in China 16 properties with a combined 8,000 rooms.

Shangri-La owns 38 properties with 20,000 rooms worldwide. The company is the largest luxury hotel group in the Chinese mainland.

Yet, Shangri-La isn’t willing to rest on its laurels.

“We hope to locate Shangri-La or Trader hotels in each of China’s major cities," Zhu said.

Shangri-La this year will open hotels in Zhengzhou, in Central China’s Henan Province and Zhongshan, a middle-sized city in South China’s Guangdong Province.

The company also plans to open in 2004-05 hotels in Fuzhou, capital of Fujian Province; Shijiazhuang, capital of Hebei Province; Changzhou, Jiangsu Province; and Sanya, a coastal city in Hainan Province.

Shangri-La’s expansion in smaller Chinese cities is a wise strategy given the rising competition among international hoteliers including US-based Marriott International and UK-based Six Continents, experts suggest.

International hoteliers have stepped up their expansions into the Chinese market since China entered the World Trade Organization (WTO) in 2001.

The global economic downturn has prompted them to accelerate their expansions.

Marriott in November opened its first hotel under the Marriott brand in Beijing.

Hilton last April opened its fifth hotel in the Chinese mainland, in Chongqing, an emerging city in southwestern China.

Six Continents announced that month it will open in 2004 an Inter-Continental hotel, a super five-star hotel, in Beijing’s luxury Fortune Plaza business complex.

However, most international hotel groups have limited their expansions in China to metropolises, such as Beijing, Shanghai and Shenzhen.

An expert with Marriott told Business Weekly last year that China’s hinterland cities needed three-star hotels.

Smaller Chinese cities also need four- and five-star hotels, Zhu countered.

It could be difficult operating a luxury hotel in a smaller city, Zhu added.

“It requires a long-term investment and high familiarity with local cultures. In this aspect, we are better than foreign hotels," Zhu said.

Shangri-La owns more than 50 per cent of the shares in most of its hotels in the Chinese mainland. Other hotel groups from Western countries prefer instead to provide their management and brand, but not money, for their hotels in China.

Ironically, Shangri-La’s policy of investing in its hotel properties could impede its expansion in China, due to its insufficient capital, experts say.

Shangri-La, which is adjusting its strategy, is beginning to take over hotel properties, Zhu said. However, direct investment remains the company’s major expansion strategy.

Some analysts have expressed concern there is an oversupply of hotels in China. By the end of last year, China had more than 7,400 hotels above the one-star rating.

“It depends on how you see the future market," said Sunny Paw, Shangri-La’s vice-president of sales and marketing in China.

People in many smaller Chinese cities want accommodations for their clients or relatives to be luxury hotels, such as the Shangri-La, Paw said.

Shangri-La will also seek assistance for its expansion, and its co-operation with Air China is one example, Paw said.

The two companies announced that between January and May 31, 2003, Air China Club members paying “China Executive Plan" rates at any of the 16 Shangri-La or Traders hotels in the Chinese mainland will be receive a 50 per cent Air China bonus mileage.

(Business Weekly January 28, 2003)