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Global financial crisis hits Beijing luxury hotels hard

A glut of new upscale hotels opened before the Olympics, and business has gone from bad to worse.

February 22, 2009|Barbara Demick

BEIJING — Financial crisis? What financial crisis?

The owners of a new ultra-luxury hotel maintain an air of confidence in the face of adversity. The 234-room Pangu Plaza, which opened in December, charges as much as $17,750 a night for a suite. The sushi bar, where the cheapest lunch special is $265, cooks its rice in mineral water flown in from Japan. The walls in the hotel are covered with silk, the floors with marble -- Italian of course.

"The Chinese new rich have plenty of money. We have Bentleys pulling up with no number plates. So you can tell that they're brand-new," room manager Dennis Seng said, scoffing at the suggestion of inauspicious timing for opening a luxury hotel.

"The other day, a Russian couple ran up a $4,000 tab at an intimate lunch for two in the Japanese restaurant," he said.

His confidence, however, is belied by the cavernous, empty lobby where the only sound is the tapping of the high heels of the crisply attired staff. No paying customers were evident during a weekday afternoon visit, although Seng said that occupancy has reached "up to 30%."

If that is the case, the Pangu is faring far better than dozens of other newly opened hotels here.

It might simply be a glut of luxury.

"Everything that the developers are building is 'luxury' or 'imperial,' luxury apartments, luxury shopping mall, luxury hotels, but this is not what the Chinese people need or can afford," said Hu Xingdou, an economics professor at the Beijing Institute of Technology.

Pangu overlooks 2008 Summer Olympic landmarks like the "Bird's Nest" and the "Water Cube," and the new Regent Hotel boasts a panoramic view of the Forbidden City. The Park Hyatt opened in December on the upper floors of a new skyscraper. It touts itself as the highest hotel in Beijing, with 360-degree views from a 66th-floor restaurant.

Adjacent to the Summer Palace is the new Aman hotel, part of which occupies original imperial guesthouses. The cheapest room is $480 in the off-season.

"You had so many new hotels opening in the Olympic lead-up and even afterwards. [Even] if it was business as usual and we didn't have a financial crisis, this would have been a tough year," said Damien Little, a director of the hotel consulting firm Horwath Asia Pacific.

His firm counted 126 hotel openings in Beijing last year, adding 29,000 rooms. Hotels that missed their deadlines for completion are still opening.

Even the Olympics were disappointing. Despite advance word that all rooms would be sold out during the games, hotels were only 67% occupied during August, the Olympic month, according to STR Global, a hotel research firm.

China's tourism business was also badly hurt by the government's decision to sharply limit the number of foreign visitors during the Olympics, making it difficult for many people to get visas.

"The visas were a debacle. It was a real slap in the face to the hotels," said Ian Billard, a business advisory services manager at the U.S.-China Business Council. "You're now talking about 10 to 30% occupancy in hotels that were counting on 70 to 80%."

Perhaps the only relief for Beijing's beleaguered hotel industry is the fact that the most feared competitor, the Mandarin Oriental, will not open any time soon. The hotel, in the China Central Television compound co-designed by architect Rem Koolhaas, was gutted in a spectacular fire this month.

"Nobody wants to say it, but that's one less hotel," Little said.

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barbara.demick@latimes.com

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