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Lhasa Resort Paradise for Real Estate Property Speculators
By Email[Thursday, November 04, 2010 12:40]
By Gabriel Lafitte

Lamborghinis in Lhasa? Bentleys on the Barkhor, Rolls Royces in Ramoche, Maseratis parked at the Mentsee Khang? Lincoln Continentals lined up in front of the Potala?

If Chengdu-based property tycoon Deng Hong succeeds in his plan to turn Lhasa into a world resort destination, his signature collections of luxury car brands, proof of his magnetic powers of wealth creation, may soon be on display. Deng Hong is famous for showing off his status symbols, his acquisition of the most glamorous and expensive cars on earth, at the resort hotels he builds. In today's China such display works wonders. Far from responding with ridicule or envy at such crass displays of a tycoon's wealth, to Chinese it signals the highest success, a success that breeds success, something one would want to be associated with.

Deng Hong made his $660 million in personal wealth (Hurun richest 500 in China list, 2010) turning a remote corner of Tibet into a global destination attracting millions of tourists a year. He took the nine stockaded Tibetan villages of the Dzitsa degu valley, at the easternmost edge of Amdo, directly north of Chengdu, and made it a tourist paradise. He and his global partners, the London-based InterContinental hotel chain, made the crystalline waters, forested slopes, disappearing pandas, UNESCO World Heritage protected landscapes and quaint Tibetan villagers into an irresistible package for tourists, both Chinese and international, seeking a fairyland paradise on earth. Now four million people a year come to Jiuzhaigou, as it is now branded, its Chinese name a direct translation from Dzitsa degu, the nine Tibetan villages with their protective stockade fences.

What Deng Hong did for Jiuzhaigou, together with InterContinental's global marketing and reservation system, he is now about to do for Lhasa. A bold entrepreneur with all the right connections, anything Deng Hong does is on
a dramatic scale. Lhasa has never seen anything like this, the InterContinental Lhasa Resort Paradise, scheduled to open in 2012, with 2000 rooms. It will also feature a shopping mall selling luxury imports, conference halls and a vast exhibition centre ideally suited for spectacular displays of China's success in transforming Tibet.

Deng Hong revealed the secret of his magnetic ability to create wealth to a Washington Post reporter in 2002, not so long after returning to China from the U.S. Because, as he said, making money in China is easier, especially if you have the right connections.


The Washington Post article, In China, the rich seek to become the ‘big rich’, explains Deng Hong's rise beginning when he migrated to the US, bought property in Hawaii and Silicon Valley before returning to China because, as he told the Washington Post, “ becoming ‘big rich’ in China was easier than in the United States. He was right: At last count he owned 35 cars, including a Ferrari, a Lamborghini, some jeeps, a Corvette, several 600 series Mercedes-Benzes and a fat Lincoln Continental. He recently purchased the rights to develop 100 square miles of land next door to one of China’s national parks [Jiuzhaigou]. Many of China’s wealthiest people are members of the Communist Party or are relatives or
friends of party members and have parlayed their connections into cash.

Deng is an example. His father was an officer in China’s air force. Deng, in addition to his military background, has assiduously cultivated ties with the city government of Chengdu. Ask him which is more important, his relationship to other businessmen or to the government, and he does not hesitate: ‘I really don’t have anything to do with my fellow businessmen,’ he said, echoing other well-off Chinese. ‘My business depends on the government.’ One of his senior executives is the former deputy mayor of Chengdu. For his development project next to the national park in western Sichuan, he has hired retired government officials. Deng had to rely on government ties to win approval to develop that site, 100 square miles of land next to one of china’s last remaining wilderness areas, Jiu Zhai Gou. Deng plans to build 100 vacation homes, a five-star hotel and a golf course. Each vacation home will sell for at least $300,000, he said.

Since then Deng Hong has built tourist resorts not only in Jiuzhaigou and Chengdu, but also shopping malls and convention centres in Chengdu, and he has steadily risen in personal net wealth, in the Hurun top 500 richest Chinese annual rankings, leaping from $220 million in personal wealth in 2008 to $660 million in 2010. Forbes magazine ranks his wealth similarly.

Not only does Deng Hong claim impeccable connections to power and thus to all the business the state can direct his way, plus access to loans from the state-owned banking system; he has now formalised his power connections, boasting membership of the national people's Congress, and the CPCC, the official “consultative committee” filled with the newly rich and powerful.

What does this mean for Lhasa? Never before has there been private Chinese investment in Tibet on such a scale. Is this a turning point, signaling that the decades of official funding, of infrastructure construction, highway, railway, tunnel and bridge, power plant and hydro dam construction, is at last about to take off, and Tibet is finally attracting big private money, and with it, big employment opportunities for a fresh wave of immigrants? Is this the economic take-off China's leaders have long sought in Tibet, a self-sustaining wealth creation engine capable of pulling in from provinces all over China skilled and disciplined hospitality industry workers to staff a labour-intensive
industry?

Why is his InterContinental Resort Lhasa Paradise such a sure bet? At first sight, it seems a big gamble. Lhasa, Tibet's sacred city, has attracted almost no big hotels or global hospitality brands since Holiday Inn pulled out over a decade ago, having discovered the hard way that the hotel existed not for its owners, nor its' customers, but for the immigrant Chinese staff, for whom it was the proverbial iron rice bowl. The best thing to have come from Holiday Inn's unhappy experience was the hilarious memoir by manager Alec le Sueur, The Hotel on the Roof of the World, a Fawlty Towers in real life.

Until now. InterContinental is back, not with its Holiday Inn brand but as InterContinental. However it is not the London-based operator that bears the risks of attracting tourists to a city in chronic lockdown, repression, fear and suspicion. InterContinental will enjoy a management contract, a portion of revenues earned, and opportunity to build its brand across China. But it will not own the glass and concrete, and can if necessary walk away again.

Deng Hong, as property owner and developer, would seem to be taking a far greater risk. Will international tourists flock to a big hotel on the edge of Lhasa, complete with own mall of boutique shops, exhibition halls and conference centres? What will happen to the hotel if Tibetan resentment at being treated with racist contempt boils over yet again, and Chinese authorities bundle all tourists out of Tibet, as they did in 1987 and 2008? Even at times when all is stable, at least on the tourist surface, will bed occupancy be profitable when nearly all tourists come only in summer?

Why is Deng Hong so confident? Is it because his conglomerate is engaged in so many booming fields? The Hurun Rich List itemises them: property IT retail energy finance restaurant Industrial manufacturing Household appliances, venture capital, Mining. But property is the core, a sure bet given his impeccable connections in the party-state, at provincial and national levels.

This is the classic path to wealth accumulation in China, enabling cheap and preferential access to land, which can be leveraged into an asset earning spectacularly, with profit retained for the next bold move. That's how Deng Hong made it to both the Forbes and Hurun rich lists.

Will international visitors flock to Lhasa, still in repressive lockdown,
with fear and suspicion palpable on the heavily patrolled streets? Jiuzhaigou is a crystalline landscape gem, nine Tibetan villages in a postcard landscape, with World Heritage badging. Lhasa, however, has seen several sweeps of tourists expelled amid security crackdowns every time it becomes too apparent that ordinary Tibetans dislike their holiest pilgrimage sites overrun with happy snappers. Has Deng Hong overreached?

If we assume he needs to fill those 2000 beds with foreign tourists, we assume wrong. The party-state can direct conferences, work groups, and official meetings to venues it prefers, where cadres will be well cared for. In Lhasa, an extra 2000 star rated rooms makes the project almost too big to fail. The Tibet tourism master plan for 2010-2020 serves as an implicit guarantee to property developers that they cannot fail, that official guests can be sent year-round to fill the rooms. In winter, the InterContinental Resort will be a world unto itself, with little reason to go outdoors or encounter Tibetans. Guests will arrive in Lhasa by train or plane, all heated and pressurised to cancel ground reality of Tibet. Shark's fins and prawns will be flown in daily.

In June 2010, when InterContinental announced its Lhasa resort, it said:
“Due to its unique location and expansive meeting facilities InterContinental Resort Lhasa Paradise is being positioned as a destination for both leisure travellers and for the meeting, incentive travel, conference, and exhibition market.” A party-state keen to stage displays of its successes in Tibet will now have its exhibition space. The business of China is inside business. And it all boosts China's statistics on the new prosperity of Tibet. It cannot fail.

Much that could not fail did fail, in the US and Europe, especially in overheated property speculation bubbles. In China, real estate prices have shot up, and this has happened in Lhasa too. Ever since China legislated to make urban property a commodity that can be sold, bought, and owned outright, the property market has boomed. Lhasa Municipality found itself the owner of old estates confiscated as long ago as 1959, such as the Jamyang Shepa building demolished in 2009 for one of the new hotels. What had been a crumbling, unwanted liability suddenly became a valuable asset; its sale one of the few sources of revenue for the Municipality, which, under central rules, is forbidden to borrow capital. Lhasa Municipality has become a property developer, abandoning its decade of heritage protection of buildings declared to be of historic value.

Throughout China, local governments have sought ways to participate and profit from the real estate boom. They sought ways to get round central restrictions on borrowing, so they could access the cheap credit Beijing ordered its biggest banks to extend, to finance fast-track stimulus projects to boost demand at a time when China's exports were depressed by the global financial crisis. Many local governments did find ways to borrow and get into the property development business themselves, including many pet projects that are likely to fail commercially, leaving many non-performing loans on the books of the big banks in years to come.

Lhasa's construction boom has been accelerating for over a decade, financed by direct funding from Beijing. Lhasa is outgrowing its valley and needs more room. Lhasa Municipality has become a property speculator, not only a seller of Tibetan land but also, behind the scenes, a developer with stakes in major projects. This is something new, and it could extend well beyond the hotel sector. Lhasa Municipality controls a huge area, far beyond Lhasa city, a long way into the countryside, including many historic monasteries, hot springs suitable for spa development and other potential tourist attractions. The Municipality also controls the intensively farmed urban fringe where Chinese immigrants lease land from Tibetans to grow glasshouse vegetable crops. This land too, under the new urban land ownership laws, could be coercively acquired by Lhasa Municipality for nominal compensation, and sold to developers for a huge profit, as happens to peasants close to cities all over China.

Holiday Inn, an InterContinental brand, was the first internationally-managed hotel in Lhasa, and not a success, except for fuelling Alec le Sueur's Fawlty Tower classic. Lhasa 2012, when the resort opens, is very different to the iron rice bowl Holiday Inn of the 1980s, which operated like a government work unit. Now InterContinental is back, in a big way, with a 2000 room resort, a world unto itself that owes very little to its location in Tibet.

InterContinental is confident it can survive any pressure and pop up like a balloon. International tourists may not be their core business, but they add a lot to profitability, and that does open InterContinental and the other global operators to moral pressure to do the right thing by Tibetans.



This article, by Tibet researcher Gabriel Lafitte, is taken from a more
detailed analysis of all four international hotel construction projects in
Lhasa, published in Tibetan Review, November and December 2010 editions. A
version of this report was published at
:http://blogs.ft.com/beyond-brics/2010/10/12/china-rich-list-loses-billionaires-to-philanthropy/#comments


The views expressed in this piece are that of the author and the publication of the piece on this website does not necessarily reflect their endorsement by the website.
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