The 2007 marriage between China's Diaoyutai State Guesthouse and the Nevada-based MGM Resorts International laid down the groundwork for a successful push into the luxury hotel market. The Beijing hotel from which the mainland company takes its name is famous for having received more than 1,300 senior leaders and dignitaries from around the world.

The Sino-United States joint venture Diaoyutai MGM Hospitality integrated Western business culture into their traditional hotel operations. Now, the joint venture partners are aiming to replicate their success in the hotel market with forays into a broader range of commercial property.

"MGM Resorts wants to be in China to gain exposure for its brand in China and to Asia. Diaoyutai also wants to exploit their brand and expand its reach," said William Scott, executive director and general manager of Diaoyutai MGM.

Established six years ago, the joint venture opened its first hotel, MGM Grand Sanya, early last year. Ten more hotels are scheduled to open over the next five years under four brands - Diaoyutai, Bellagio, MGM Grand and Skylofts.

The Diaoyutai Boutique Chengdu, in Kuanzhai Alley - a stylish precinct with more than 300 years of history - will open by the end of this year. The Diaoyutai Beijing Lama Temple, in historic Guozijian Street, opposite the ancient Imperial Academy, is scheduled to open next year. Diaoyutai MGM has so far signed 11 projects in eight cities.

Scott, who is also executive vice-president of corporate strategy at MGM Resorts, said the joint venture would continue to seek opportunities in major cities such as Beijing, Shanghai and Sanya, as well as Guangdong province.

"We want to be in major cities, having hotels in gateway cities," he said. Liu Yaning, deputy general manager of Diaoyutai MGM, said the competition would become fiercer in the high-end hotel market in major cities, but the joint venture was well-positioned to target the niche market. The joint venture partners have made the most of the Diaoyutai legacy, providing guests with a grand touch of state-level hospitality.

This is all part of the experience at the venture's hotels, said Liu, who was head of International Exchanges and Co-operation of the Administration at Diaoyutai State Guesthouse, under the Ministry of Foreign Affairs, before joining Diaoyutai MGM.

"From Queen Elizabeth II to [British] Prime Minister David Cameron, and many senior leaders, they know Diaoyutai State Guesthouse," he said of the hotel that opened in Beijing's Haidian district in 1959. "But if you asked an [ordinary] foreigner, he might not know."

Hotels managed under the venture have employed chefs and desk staff who worked for Diaoyutai State Guesthouse serving senior leaders. Under the partners' diversification plans, Diaoyutai MGM in July signed on to develop two new projects in Kunming and Ningbo.

Scott said the Kunming project would include a hotel and apartments, while the Ningbo project, at the planning stage, would also be a mixed-use project with hotel, retail and office properties. "In the United States, MGM Resorts has broad expertise in retail, restaurants and entertainment, and all of these translate to China," Scott said.

Aside from being a byword for state-level hospitality, the Diaoyutai State Guesthouse is famed for its service of coffee, liquor and state banquet cuisine. The state guesthouse also had broad experience in conventions and events, Scott said. With mainlanders now having more money in their pockets, they have a need for high-end experiences with the joint venture's hotels taking on the role of a social centre.

"The consumption habits of Chinese people are changing, and they are demanding more entertainment experiences," Liu said. Kenneth Feng, senior vice-president of MGM International, said the joint venture would continue to look for opportunities for mixed-use projects in second-tier cities in the mainland because land in first-tier cities was becoming harder to find and more expensive.

Currently, Diaoyutai MGM plays a management role in the hotel and mixed-use projects, but Feng said the company would also consider making investments. "If opportunities come, we are looking for profit," he said. Macau casino operator MGM China, 51 per cent owned by MGM Resorts, went public in Hong Kong in 2011. Scott said: "We are going to try to grow the business and take advantage of a robust pipeline of development opportunities, and will look for financing opportunities along the way." An initial public offering for Diaoyutai MGM could be a long-term aspiration, Scott said, but the joint venture would make capital decisions that were appropriate to the context.

Source: scmp