The economic situation in China is getting much more difficult for many companies, and the crack down on corruption is having a material impact on development as well as hotels and other areas where corrupt politicians spent their payoffs. The result is good for the US real estate business and other industries. It had been the case until recently that many Chinese developers wanted only five star hotels or big name brands. They were cashing in on the money flow that came with corruption. Those in a position to collect payoffs would dine out, go to the best hotels and take their girlfriends to the best resorts. The banks would provide unending funding for these developments and to have a major hotel as part of a mixed use project became common. When I traveled to China a year ago to meet with hotel developers, it was invariably about five start properties, and the more luxurious the more they wanted it. Financing was no problem and there was a trend away from the big brands to try to differentiate themselves. The hotels once open often did not make a real return but they were status symbols. We were there to discuss management contracts, not ownership, as ownership made no economic sense.

Now with the crackdown on corruption, there is a major pull back by the people collecting the payoffs to not be seen out flashing the money the way they used to do. The big expensive hotels and the hookers are all having a much more difficult time finding business. The money flow to the developers has dried up. The failure to understand how to best operate the luxury hotels and make money is now come home to roost.

This pull back of funding, and the rapid rise in labor costs has made it difficult for many businesses, not just hospitality, to make any profits. There has been a major move of low cost factories to other places like Sri Lanka, Vietnam and others. The huge profits machine has slowed materially in China and this, combined with the crackdown has led to many entrepreneurs looking for places to move capital.