Guests enjoying Lunar New Year tea at Shanghai’s Bulgari Hotel may not be aware that the ultra-luxurious destination will soon have a new owner. In a move to revitalize its assets and repay debts, Overseas Chinese Town Asia Holdings (OCT Asia) recently announced the sale of the 5-star hotel.
The sale by OCT Asia, a state-owned operator of tourism businesses, is indicative of the evolving economic landscape in Shanghai, a city often regarded as a barometer of China’s economic climate.
After a public tender launched in October, building materials maker Jiangsu Jinfeng Cement Group emerged as the successful bidder for the luxury hotel. The $344 million sale is expected to be completed by the end of June.
East-Meets-West Luxury
The Bulgari Hotel Shanghai, which opened in 2018, is situated just minutes from the Shanghai City Centre, on the banks of Shanghai’s Suzhou Creek. It is one of nine Bulgari-operated hotels globally, and the second in China.Known for its ultra-luxurious accommodations, rates at the hotel range from $828 per room up to around $27,000 for the most expensive suite at the establishment. The hotel, close to the historic Bund waterfront area, boasts Italian designer furnishings and a 25-meter swimming pool.
The hotel’s website offers a tempting description of its Lunar New Year tea, with treats ranging from king crab and foie gras to jasmine tea chocolate mousse with yuzu, red velvet cake, and orange profiteroles, in “an East-meets-West celebration of colour and flavour made with the world’s finest ingredients.”
Hit Hard by Pandemic
However, the hotel has faced challenges exacerbated by the three-year impact of the pandemic on the hospitality industry.Zhao Huanyan, an analyst at Huamei Consulting Group, told Chinese financial media, “Bulgari Hotel’s positioning is different from ordinary five-star hotels; it aims to showcase the luxury brand; hence its pricing has always been high. However, the three-year impact of the pandemic on the hotel accommodation business is significant, especially the sharp decline in the occupancy rate of high-priced hotels.”
The hotel’s financial woes were reflected in the announcement by OCT Asia, which reported a year-on-year decrease of 43.5 percent in revenue, amounting to $19.69 million in 2022. The company’s after-tax loss for the same period surpassed $7.31 million, more than four times the previous year’s loss.
OCT Asia’s financial challenges were evident in the first half of 2023, as the company suffered a net loss of $29 million. Revenue slumped by 78 percent from a year ago, mainly due to a decline in property development income.
Burdened by a $19 million cumulative after-tax loss from the Bulgari Hotel and Residences since 2020, OCT aims to refresh its portfolio and repay debts.
Whether the hotel will continue to use the iconic Bulgari name, is contingent on negotiation and agreement between the new owner and the luxury goods maker.
OCT: From Mud Flats to Luxury Hotels
OCT is a state enterprise under the direct management of the CCP’s Assets Supervision and Administration Commission of the State Council. Headquartered in Shenzhen, it has cultivated a business landscape primarily centered around culture, tourism, real estate, and electronic technology.OCT’s origins trace back to the 1980s, to a mud flat farm established to accommodate returning overseas Chinese. The enterprise eventually became an industrial zone featuring industrial, commercial trade, tourism, real estate, and cultural and artistic facilities.
In 1986, it was rebranded as Overseas Chinese Town Enterprises. Pioneering the theme park landscape in China, OCT opened the country’s first theme park, “Splendid China,” in 1997. In 2000, it expanded its footprint, venturing into the high-end residential sector with the introduction of its Portofino Town brand. It subsequently extended its presence to Beijing and Shanghai.
Financial Woes Hit Shanghai
Political commentator Ji Da spoke with the Chinese edition of The Epoch Times, emphasizing the significance of Shanghai as China’s economic showcase and leader. The recent sale of the Shanghai Bulgari Hotel conveys a clear message to the public, he said.He remarked: “The current economic downturn in Shanghai is widely reported, and many once prosperous areas have entered a decline. The transfer of the Shanghai Bulgari Hotel signifies a changing era [which] is reflected in the exodus of foreign personnel and foreign capital.”
In late November, Lao Man, a prominent financial analyst in China, published a widely circulated article titled “How Bad is Shanghai’s Economy,” shedding light on the city’s economic stagnation.
According to Mr. Lao, Shanghai—once hailed as China’s financial center—has in recent times seen a deposit growth of just 0.1 percent for non-banking financial institutions. This dismal increase falls below the national average of 0.8 percent, bringing it perilously close to negative values.
Data from Shanghai’s tax bureau revealed that in the first three quarters of 2023, the city’s tax revenue grew only a minuscule 2.84 percent year on year. The tax revenue growth lags significantly behind the national average of 11.9 percent.
Not long after Mr. Lao’s article, CCP leader Xi Jinping visited Shanghai on a much-publicized inspection tour, visiting sites such as the Shanghai Futures Exchange and the Technology Innovation Park.
The Nov. 29 visit was portrayed in media accounts as a sign of the CCP’s overtures to the private sector, and Shanghai’s efforts “in strengthening its competitiveness as an international financial center,” as state media Xinhua described it.
Analysts Told To Avoid Negative Commentary
Meanwhile, foreign media reported in late November that China International Capital Corp (CICC)—China’s third-largest investment bank—had imposed strict restrictions on analysts, forbidding them from making bearish statements about the Chinese economy.An internal memo obtained by Bloomberg in November revealed that CICC analysts have been prohibited from publicly and privately discussing or publishing negative assessments of the Chinese economy. Employees were also advised against wearing luxury brands and disclosing compensation details to third parties.
In September, Colliers International, a Canada-based investment management company, released a report on the Shanghai office market. The report showed that in the third quarter of 2023, occupied office space had declined, market demand had not recovered as expected, and rents continued to fall, as companies terminated leases and relocated.
The report anticipated that the oversupply would persist into 2024, putting further pressure on rents throughout the city. Further, the report revealed a rising vacancy rate, reaching 19 percent expected to increase to 21.6 percent for all of 2023. With rents projected to decrease by 4.4 percentage points over the year, and over 20 percent of its office space vacant, Shanghai now resembles a third-tier city.
Growing Pessimism
A September 2023 report by the American Chamber of Commerce in Shanghai (AmCham Shanghai) revealed growing pessimism about geopolitics, United States–China relations, and China’s poor economy.“2023 was supposed to be the year investor confidence and optimism bounced back after years of Covid disruptions and restrictions,” the report said. However, it continued, “The rebound has not materialized and business sentiment has continued to deteriorate.”
