In the largest Sino-American business deal ever, China has signed an agreement with an American company providing for a chain of hotels to be established in Peking and other Chinese cities and operated by Intercontinental Hotels Corp.
The estimated $500 million accord was signed in Peking Monday by an agency of the Chinese government and Intercontinental Hotels Corp., a subsidiary of Pan American World Airways.
Intercontinental agreed to rise financing in Western capital markets on behalf of the Chinese. China in turn agreed to have the American company manage and operate the projected hotels with combined total of 5,000 rooms.
Several Communist countries in Eastern Europe have acquired Intercontinental franchises, but have refused to let the U.S. firm manage their hotels. The issue of management was partly responsible for the collapse of negotiations between Intercontinental and the Russians for the construction of several hotels in Moscow.
For a country regarded as one of the most insular on earth, Peking's deal with Intercontinental reprsents a daring departure. It also reflects the new policy of opening China to the world pursued by the new Peking leadership
Intercontinental has also agreed to design and built the hotels, which will be owned to China.
Intercontinental officials would not disclose details of the agreement. Paul Shelline, chairman and chief executive officer, said Intercontinental has been "authorized" to help the Chinese raise funds for the construction.
"This can be done," he said. "The Chinese have a good credit."
Intercontinental officials said yesterday they were stunned at the speed at which the usually detail-conscious Chinese endorsed the deal.
"We executed this agreement after only six days in Peking, and that probably beats the record," Shelline said. "This has gone so fast it is going to take a while to sort it all out."
A Hong Kong source with close links to the Chinese government said yesterday the speed was made possible by the purge two years ago of a xenophobic faction led by the wife of the late Chairman Mao Tse-Tung. Her so-called Gang of Four considered tourists a corrupting influence on socialist Chinese.
Sheeline said this was the first time the Peking government had allowed a foreign company to build hotels on its soil, but the Hong Kong source said many other deals are likely to follow. "We are studying everything," the source said, referring to the new, profit-oriented to policies of the post-Mao Chinese government.
An economist here specializing in Chinese affairs said the hotel deal was particularly significant as the first major "shared services" enterprise the Chinese have agreed to. Peking's willingness to operate businesses jointly with foreigners on Chinese soil, instead of their previous insistence on full administrative control once a project is complete, is expected to greatly expand Chinese trade and contact with the outside world.
Sheeline said he would not speculate on how the deal would affect Intercontinental's parent company, Pan American. He noted that any new hotel Pan Am increase its "ought to help Pan Am increase its business." The airline arranged package tours for 2,000 visitors to China this year and has permission to bring in 5,000 in 1979. Pan Am must use Chinese carriers to get tourists into China, however, for it is not allowed to land its own planes in Peking.
An estimated 600,000 tourists, the majority of them overseas Chinese from Hong Kong and Macao, have visited China this year. More than 10,000 American tourists have visited China this year and that number is expected to double before the early 1980s, hotel officials said.
The new Chinese government led by Chairman Hua Kuo-feng and Vice-Chairman Teng Hsiao-ping appear to appreciate the propaganda benefits of showing foreigners how friendly Chinese are and how beautiful is much of the country's scenery. But they are even more interested in using tourism to earn foreign currency that can buy equipment for the nation's underdeveloped industry and army.
The Chinese tourist industry has been plagued by a shortage of competent, English-speaking guides and international standard hotels.
One American who recently returned from a two-week trip through several Chinese cities said space in Peking was so tight that his group was placed in a small hotel usually reserved for delegates to Chinese political gatherings. Men and women in the group had to stay on different floors so they could use the communal showers. The tourist said he met another group in Shanghai that was not allowed to visit Peking at all, despite he fact it was listed on their itinerary.
The Chinese Education Ministry has toughened the lax English curriculum in high schools and has instituted rigorous exams to find the most adept language students to be trained as guides.
Sheeline said that although American and other foreigners are to run the hotels for some time, "We have agreed to train as many Chinese as possible so they can gradually replace us as managers."
Sheeline said "We are talking about first class hotels," similar to the 82 other hotels the company owns or operates throughout the world.
Sheeline and the Hong Kong source said the company had agreed to provide special apparatus to shield the new hotels from often unreliable Chinese consumer services. These extras include an indepedent electric generating system to avoid the frequent urban blackouts, a large laundry to provide regular changes of sheets and towels not now offered by Chinese hotels and a water purification system to eliminate the need for thermoes of boiled water in each room.
Despite enjoying most first class services, the hotel rooms are not expected to have television set, since there are few foreign language programs on Chinese TV.
Sheeline declined to discuss the financing of the construction of the hotels other than to say Intercontinental has proposed that the New York-based Turner Construction Co. do the work.
The Chinese are expected to provide the land, labor and some construction materials. Sheeline indicated the financing would have to take into account Chinese sensitivities about going directly into debt to foreign banks. Peking will collect all revenues from the hotels and pay Intercontinental a management fee, Sheeline said.
Sheeline said he expected at least one hotel of about 1,000 rooms would be built in Peking, the national capital and favorite stop of tourist who wish to see the Great Wall of China and Chairman Mao's mausoleum.
The Hong Kong sources said other cities being considered for new hotels include Shanghai, Canton, Hangchow, and Kweilin. Sheeline added the name of China's largest city, Tientsin.
The architect chosen for the hotel project, and the catalyst for this and several other prospective hotel deals, is Henry Liu, a professor at the Virginia Polytechnic Institute and State University at Blacksburg.
Liu, 45, helped renovate the old Windsor Park Hotel on Connecticut Avenue when the Chinese turned it into their Washington liaison office. He also worked on renovation of Peking United Nations office in New York.
His close connections with the Peking government led to his being authorized by China's General Administration for Travel and Tourism to open preliminary talks with Intercontinental and other U.S. companies. Liu also joined Sheeline and Turner Construction in the week-long Peking talks.