China, with considerable cooperation from international leisure firms looking for new markets to exploit, may be well on its way to turning its southern island province of Hainan into another Hawaii.
Lured by special tax incentives, Club Med Inc. is building a resort in Sanya on the southern edge of Hainan--a tropical island on the same latitude as Hawaii's Kauai island. (The Chinese province is just east of Vietnam, across the Gulf of Tonkin.)
And on Tuesday, MGM Grand Inc. said it signed a memorandum of understanding with the provincial government giving it exclusive rights for six months to negotiate to build two large resorts on the island.
Hainan is the largest of several economic development zones that the Chinese government has designated to attract foreign investment. Hainan, whose traditional industries have included agriculture, fishing and forestry, received its status in 1988 as part of a plan to draw the foreign development capital necessary to turn the lush island into an international tourist haven.
"There is a great hunger on the part of the Chinese government and the Chinese people to enjoy many of the same gaming and recreational activities we have come to take for granted in the U.S." said Jeffrey Logsdon, an analyst with the Seidler Cos. in Los Angeles.
However, Hainan's greater appeal to foreign companies is its proximity to other Asian countries with booming economies and a growing number of affluent citizens.
Alex Yemenidjian, vice president and chief financial officer of Las Vegas-based MGM Grand, said Hainan's "second to none" location makes it a logical site for expansion in the tourism market.
"It is 45 minutes away from Hong Kong, within a two-hour flight from Indonesia and Malaysia, and a four-hour flight from Tokyo," he said.
That should make the Hainan sites appealing to the "high net worth" tourists MGM Grand hopes to lure from all over Asia, Logsdon said.
"It's a big trip to come to the U.S. from Korea or Japan," he said. "But if they can get to a resort on a three-hour flight, (American companies) could build up a lot more business."
If MGM Grand succeeds in getting a definitive agreement, many developers may flock to the island.
Even Walt Disney Co. has contemplated building a theme park or resort in southern China and has reportedly made deals for land in Sanya, said David Tsai, a Los Angeles businessman active in brokering deals in Hainan. A Disney spokesman in Burbank said it is company policy to neither confirm nor deny "rumors" of possible expansion.
MGM said it envisions building an upscale beach resort in Sanya with tennis, swimming and boating facilities. Another hotel is planned for Haikou, the provincial capital, and may include a theme park, a bowling center and other recreational facilities, said Robert Maxey, president of MGM Grand.
New York-based Club Med announced in 1993 that it would build a 700-room resort near Sanya complete with restaurants, a theater, a marina, convention facilities, a golf course and a casino. That project is a joint venture with Sanya Luhuoltu Area Development Corp., a subsidiary of one of China's largest financial corporations.
Club Med will target upscale tourists from Japan, Australia and New Zealand, said Edwina Arnold, a spokeswoman for the company in New York.
Club Med already operates resorts in Bali, Thailand, Malaysia and Japan, and about two-thirds of Club Med's visitors to those resorts are from Asia, she said.
Equally important is the Chinese government's willingness to allow gambling in a country where it has been officially banned since the 1949 Communist revolution.
"It seems China has become much more (relaxed about) their historical and political ways in the past year," said Andrew Zarnett, an analyst with Ferman Selz in New York City.
MGM Grand and Club Med both plan to offer traditional casino games, but only to their non-Chinese clientele under current Chinese law. The details are yet to be worked out, but Yemenidjian said he believes Chinese nationals can play slot machines in certain areas as long as the payout is in tokens, not cash.
To attract investment, Hainan made significant investments in infrastructure, building new roads to major cities and an airport in Sanya, Yemenidjian said.
"I wouldn't be surprised if other parts of China begin to try to develop their economies by encouraging foreign companies to come in and build destination resorts," he said.