The capital is giving Shanghai - China's premier business city - a run for its money. KAISER KUO reports.

Beijing's travel and hospitality sectors are in high gear, preparing the city for the flood of visitors expected for the 2008 Olympic Games and the rapidly-expanding number of business travellers to the capital.

MasterCard International's semi-annual MasterIndex of Travel survey found China to be the top Asia-Pacific business travel destination, with 23 per cent of those surveyed visiting the mainland in the first half of 2004.

Total inbound tourism has grown by 12 per cent annually over the last five years, and business travel alone is expected to continue growing at above 10 per cent for at least the next decade. About 25 per cent of inbound visitors to China are business travellers, but business travel accounts for 43 per cent of the total market worth: US$5 billion of an estimated US$11.7 billion market. Chinese tourism authorities are naturally eager to court business travel, as profits are considerably higher than for leisure travel. China Southern International Travel general manager, Mr Liu Juquan, was recently quoted in the Chinese state media as saying profit margins for business travel run at 20 to 30 per cent, compared to six per cent typically for other types of travel.

But it is Shanghai, not Beijing, that enjoys the reputation as China's premier business city. Shanghai is, after all, home to representative offices of 60 per cent of Fortune 500 companies, and reports a whopping 58 per cent of inbound visitors were business travellers in 2003. Beijing's lower percentage of business travellers, estimated to be as low as only 10 per cent, is offset by a greater number of inbound visitors. In 2002, Beijing saw 3.1 million foreign visitors, compared with Shanghai's 2.7 million. As home to many of the nation's must-see sights - the Forbidden City, Summer Palace and Great Wall - and as an important business city in its own right with top-flight facilities and infrastructure, Beijing is giving Shanghai a real run.

The top Asian markets for inbound travel to Beijing - and to China more generally - are still Japan and South Korea.

New Ark International Travel's Beijing Overseas Travel Service vice-general manager, Mr Zhang Peigen, said: "We're seeing declining business traffic from Singapore and Thailand, and not going after that business because margins tend to be low.

"European countries like Germany, France and Italy are still strong markets. The US is our biggest client outside Asia. Different agencies will focus on different countries. Our traditional clients are western Europe and the US."

Mr Zhang is sanguine about the future for Beijing business travel. So is the hospitality industry in Beijing. In preparation for anticipated growth in business travel, the Beijing Tourism Administration has been pushing for increases in the number of star-rated hotels, and has suggested the total number will leap from the current 601 (as of September) to 800 before the Games starts in 2008. At the end of September, Beijing had 33 five-star hotels and 68 four-star hotels.

According to one industry source, of the nearly 200 star-rated hotels that will be built between now and 2008, roughly 10 per cent will be four- or five-star. These will include a Westin property comprising 500 guestrooms and a Ritz-Carlton with 256 rooms already under way in Beijing's Central Business District.

Airport capacity at Beijing Capital International Airport continues to expand and is expected to reach planned capacity of 60 million passengers a year in 2015 - the year a second planned airport is slated to begin operation. Air carriers from major business travel markets have lined up, meanwhile, to open new routes to China's capital. In recent months, Delta Air Lines, American Airlines and Continental Airlines have all applied for direct flights to Beijing, hoping to grab share in a market United Airlines and Northwest Airlines have traditionally dominated. Hong Kong's Cathay Pacific and Dragonair are expected to increase routes following the inking of an agreement with Beijing in September.

Perhaps the most significant trend in China's business travel industry in recent years is the increasingly active participation of major international travel players. Since 2001, China has allowed foreign travel agencies to establish joint ventures with Chinese partners, and many major agencies have already partnered large domestic tour operators, most notably American Express with CITS in January 2002, Carlson Wagonlit with China Air Service, German giant TUI - the largest European tour operator - with Guangzhou China Travel Service, BTI International with Jin Jiang International (which operates hotels, transportation services and travel agencies), and most recently Flight Centre, the largest Australian travel agency group, which opened a joint venture in Beijing in co-operation with China Comfort Travel, China's third largest operator. These joint ventures target MNCs for business travel services - visa applications, air ticketing, hotel, meeting arrangements - and often bring with them substantial customer bases that are inaccessible to domestic operators.

BTI Jin Jiang China account manager, Ms Grace Yao, said: "The big three (BTI, Carlson Wagonlit and Amex) are already trading in total volume of more than RMB1 billion (about US$120 million)."

Under its World Trade Organization obligations, China is required to open its travel industry to wholly foreign-owned services by December 31, 2005. Two years ahead of schedule, Beijing approved the establishment of the first such travel service, JALPAK International China, which is owned and operated by Japan Airlines. But many foreign tour operators prefer to partner established Chinese companies, which have local knowledge and can smooth operations due to special relationships with relevant officials. Ironically, the factors that hold back the development of the capital as a destination for business travel are byproducts of the city's conspicuous success in economic development: traffic and pollution. While city planners frantically build new subway lines that will nearly double existing subway and light rail mileage to 200km before the Olympics kicks off, they realise things will get worse before they can get better: 1,000 new cars make their way onto Beijing's already jam-packed roads every single day. Still, traffic snarls and smog do not substantially diminish Beijing's importance as the political centre of a nation where business remains nearly inseparable from politics.