June 16, 2008
Luster Returns to China’s Hawaii
By John Ruwitch and Xie Heng
With a tropical climate and unspoiled, palm-fringed beaches, Hainan Island has all the ingredients to become one of the top Asian tourist resorts.
For years, the 48-story tower that is the tallest building in Hainan Province gathered dust as a half-built skeleton like hundreds of other ill-fated construction projects caught in one of the nastiest property bubbles in China.
Now, construction of the tower is almost finished and the plush Haikou Master hotel and serviced apartments inside it are symbols of the island's efforts to recover from a meltdown in the early 1990s after a wave of speculation pushed property into the stratosphere.
"Sales are going very well," said a real estate agent, Hong Weibin, as he showed a new luxury flat in the complex.
Almost all of the 16 million square meters, or 172 million square feet, worth of construction left unfinished after the crash has either been completed or bulldozed, and investors are returning to Hainan.
The anything-goes development model is gone, replaced by an intense focus on forging the island in southeastern China into a tourist destination to rival Thai beach resorts.
Top resorts are opening in droves. The island is planning to broaden a visa exemption program, open duty-free shops, improve infrastructure, build airports, expand air links and promote non- Chinese language studies.
"Tourism is the industry in Hainan with the most distinguished features, the most potential and the most competitiveness," Vice Governor Chen Cheng of Hainan said last month after unveiling a strategic blueprint for development.
Ian Zheng, managing director of the Pacific Alliance Asia Opportunity Fund, said Hainan offered an attractive investment opportunity.
"I really don't foresee any big, material risks," said Zheng, whose fund has a $150 million stake in the group that owns the main Hainan airports and is also invested in a Beijing property firm working in Hainan.
If the island's azure coast does not immediately attract more international travelers, then the fast-expanding pool of mainland Chinese tourists is expected to prop up the industry.
The potentially huge Chinese market is a major draw for the resorts, which hope to leverage on the millions of people who have benefited from the Chinese economic boom and are increasingly adopting Western lifestyles and aspirations.
Last month, the Ritz-Carlton, the luxury arm of the world's number three hotel operator, and the Banyan Tree opened resorts in Sanya, a city where the island's premier beach resorts are located. The Mandarin Oriental plans to open a resort there later this year.
"Some of the estimates I've seen suggest 450 million middle- class Chinese in 10 years from now," said Peter Pedersen, general manager of the Banyan Tree Sanya resort. "I think Sanya has a huge potential."
It marks a huge change for Hainan, which until recently has been mainly known in China as a place for cheap package tours.
"Sanya is one of the real new tropical destinations in Asia, and in China in particular of course it is the only tropical island," Pedersen said.
"It's becoming more and more in demand for both the local market and the international tourist market," he said, standing on the top of one of his resort's individual pool villas, which go for about 5,000 yuan, or $740, a night. "It makes a perfect spot."
A test-tube for development after becoming the youngest and economically freest Chinese province when it was separated from Guangdong Province in 1988, the Hainan economy revved into a frenzy to the point where officials even tried to sell the city's main park to developers.
After the initial boom turned to bust, Hainan languished while other coastal provinces blossomed, Now, Hainan finally seems to be finding its feet, but analysts and investors warn that imbalances and friction could upset the island's revival.
In Haikou, the capital, about 60 percent of new flats are bought as second homes by people who are not from Hainan, a problem that Mayor Xu Tangxian acknowledged.
"There are some areas where the homes are all sold, but there are no lights on at night," Xu said in an interview.
While most tourists to Hainan are mainland Chinese, 18 million last year against 750,000 international visitors, the government is working to attract affluent foreigners, who it hopes will improve the island's reputation and coffers.
The goal is to "within five years, attract 20 famous international hotel management groups, and make the number of five star, international-standard resorts rise to 60 or more," the director of the provincial tourism bureau, Zhang Qi, said last month.
As developers try to take advantage of the tourism boom, problems are emerging.
In the township of Longqiao, about a 40-minute drive from Haikou, rust red earth is tilled in long, wide swaths across the low hills: golfing fairways in the making.
Residents say officials convinced them to sell their land for a golf course. In April, when a rumor circulated that the government had sold the land to the golf course developer for some 10 times what the residents were paid, they became irate.
An angry mob flipped a police car. Later, when a crowd gathered in a nearby schoolyard, the police fired tear gas, witnesses said.
In Sanya, some say bottlenecks and corruption are starting to take a toll. One Western investor said he was having trouble getting a project off the ground because of "off the charts" graft.
"The permit process has taken months longer than we expected," he said, asking not to be identified for fear of further complicating his project.
Yet despite the hassles, the bullishness about Hainan's natural prospects in tourism is die-hard.
"I think what you see in Sanya is only the tip of the iceberg," said Pedersen of the Banyan Tree. "The island of Hainan is still very big. You have beaches more or less all the way up to the capital, Haikou."
"The island is 350 kilometers in diameter," or about 210 miles, he added. "The sky's the limit here."
Originally published by Reuters.
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