Zhang Yin, a Beijing-based analyst with Hu Jie Investment Advisory Service, seems to think so. Color peppers are a key ingredient in the salad served in four and five star restaurants in China and could be a reliable index for the luxury hotels business. Red peppers are meant of course to spice up food while green peppers add flavor and aroma. In the past few weeks, the price of color peppers have been on the rise since hitting bottom in late 2008 according to the April 26 issue of the CHINA DAILY. According to the article, color pepper vendors in Beijing had the worst year in 2008 despite the Olympic Games, forcing them to dump large quantities every few days because of the lack of demand.

There could be a few flaws in this argument however. First, color peppers are often used in Chinese food so if the sales are rising then maybe everyone is spending more on better food and this would certainly be good for the overall economy. Second, it may be better to take a look at the travel websites like elong or ctrip to see how much it costs to stay at a 4-5 star hotel in a major city. This March, I stayed in the Ritz Carlton Shanghai for only 950 Rmb including breakfast and tax and the hotel occupancy appeared very low. During the May holidays I found an incredible deal on elong for the Crowne Plaza Shenzhen and was able to book a room for only 530 Rmb including breakfast with taxes extra. I don’t really want to ask street vendors the prices for color peppers to determine luxury demand when I can just go to the online sites to see the prices!

I do think that demand for luxury accommodation is stabilizing in China but I doubt that demand is growing very much. Also, there are so many new properties coming into the market that it must at least in the short term depress demand. In the last year for example, there have been 4 new five star hotels in the Futian area of Shenzhen alone – Sheraton, Shangri-La, Ritz Carlton and JW Marriott. A friend of mine stayed in the Ritz property last week and guessed that it could not have been more than 20% occupied. Also, you can still get great rates for many five star properties even in Shanghai as of last week.

I think one can safely say that there is an over supply of mostly everything in China these days given the perfect storm of massive domestic infrastructure spending and the world economic slowdown. Not just factories but office buildings, malls, and yes five star hotels as well. But in China I am reasonably confident that this will be a temporary phenomenon once the demand and supply equation is back in balance. The Chinese are certainly traveling and there is a need for luxury accommodations for some, not just overseas tourists or I-Bankers. The Chinese restaurant at the Ritz Carlton Shenzhen is busy every day despite very high prices but I cannot say the same for the Western one.

So Mr. Yin can check the price of color peppers while I will be doing what I usually do. Speaking to Hotel GM’s and checking the latest best prices on elong and ctrip. So far there are lots of great deals to be had!

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