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"On my part, I remain committed to the process of dialogue. It is my firm belief that dialogue and a willingness to look with honesty and clarity at the reality of Tibet can lead us to a viable solution."

Opinion: Lhasa Resort Paradise for Real Estate Property Speculators

November 5, 2010

Gabriel Lafitte
Phayul
November 4, 2010

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
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