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Shangri-La Hotel, Hangzhou Blazed Path for Joint Ventures; In 1985
It Was First Chinese Hotel Partly Owned and Managed
 by a Private Company
By Bob Quick, The Santa Fe New Mexican
Knight Ridder/Tribune Business News

Mar. 26, 2006 - The Hangzhou Hotel, the first in China partly owned and managed by the growing Hong Kong-based Shangri-La chain, has been leading the way for a long time with information about running a joint venture in China.

But first a little background.

The eastern Chinese city of Hangzhou is a tourist destination with numerous hotels to accommodate visitors.

The original Hangzhou Hotel, the city's largest and best, was built with Soviet help in the mid-1950s and opened in 1956 as an official government enterprise of the People's Republic of China.

Another hotel, the Xiling, went up next door in 1962. President Nixon stayed there a decade later during his historic visit to China, the first ever by a U.S. president while in office.

In 1985, as China moved to permit private business to operate in the country, Shangri-La International Hotels entered into a joint venture with the Zhejiang Tourism Group, a provincial government enterprise, to invest in and manage a Chinese hotel. It was Shangri-La's first move into the Chinese hotel market.

(The Shangri-La venture in Hangzhou was similar to the Hotel Santa Fe, which is 51 percent owned by Picuris Pueblo and 49 percent by a non-Indian partnership that provides the property's management.)

Shangri-La provided $20 million to renovate the original hotel and took over management of the enterprise. The Hangzhou and Xiling hotels were merged, forming the Shangri-La Hotel, Hangzhou. It was the first Chinese hotel partly owned and managed by a private company.

In 1986, in an interview for a story by this reporter that appeared in Hong Kong's South China Morning Post, general manager Wolf Dieter Flecker said the Hangzhou Hotel provided valuable experience for Shangri-La as it planned more hotel ventures in China.

Among new policies implemented by Flecker was one that allowed hotel management to dismiss an employee if he or she was not performing satisfactorily. This had not been possible under the old regime. Workers enjoyed what was called the "iron rice bowl," or permanent employment.

"For 30 years (since the Chinese Communist takeover of China in 1949), there had been no dismissals in China," said Zhao Kanghua, one of the hotel's managers at the time of the joint venture. "We were the first place in Zhejiang Province to do such a thing."

The Shangri-La Hotel, Hangzhou succeeded, and from 1986 to 1990, the joint-venture group opened three hotels in Beijing. Shangri-La now has 19 hotels in China, including the newly expanded Pudong Shangri-La Shanghai, with almost 1,000 rooms and suites. The company plans to have a total of 30 hotels in China by 2008.

"We're growing very, very rapidly," said Michael Monks, a South African who is the current general manager of the Shangri-La Hotel, Hangzhou.

In an interview, Monks discussed Shangri-La's successes and also some matters of concern, including employment issues at the Hangzhou hotel.

"The labor force is a problem," Monks said. "The concept of service is one that is difficult at best, and the Chinese one-child policy is one that has very successfully bred a line of princes and princesses. From the moment they're born, they're spoiled."

That makes it difficult for them to understand that they need to provide service to hotel guests, he added.

The ambitions of such employees also has been a concern, Monks added. Such workers expect to be managers in six months, and within a year, "they expect to take my job," Monks said with a laugh.

The size of Shangri-La's work force in China continues to grow, and the hotel group expects to employ 50,000 workers by 2010. All staff undergo the Shangri-La Care training program within six months of joining the company.

Shangri-La also has opened the Shangri-La Academy Beijing, which offers certificate and diploma programs in all areas of hotel administration. As a result of this focus on employee training, the chain boasts of having one of the lowest staff-turnover rates in the industry, a hotel spokeswoman said.

In Hangzhou, the hotel is responsible not only for current employees but also for the welfare of about 120 retired workers. That arrangement was accepted by both sides when the joint venture was signed back in 1985.

"We have to provide them housing and medical treatment," Monks said, adding the hotel converted four villas on hotel property into accommodations for the retirees.

But Shangri-La hopes not to have to provide such services in the future. "The state is now beginning to take that on," he said. In the meantime, "we're still very involved with them."


Copyright (c) 2006, The Santa Fe New Mexican

Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail HongKong:0069, HongKong:0583,

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