Deal with Hainan Airlines parent will see building of Gallic lifestyle parks in China

A business cooperation deal struck between Europe's biggest vacation real estate company, Pierre & Vacances-Center Parcs Group and Hainan Airlines Co Ltd parent HNA Tourism Group, will lead first to the construction of three major new holiday parks in China.

The new 60 to 300-hectare-plus sites will aim to bring the French holiday lifestyle to the Chinese market, the two companies said in statements in Paris and Beijing.

Analysts said that in recent months there have been many reports of Chinese companies buying up French companies, either to acquire advanced technology or to enter France's market. However, they added, that this cooperation agreement plans to transplant the famed French lifestyle and leisure concept to the Chinese tourism market.

After the partnership agreement was signed in November 2015 between HNA Tourism Group and PVCP, HNA bought 10 percent of the listed French group's newly issued shares earlier this year for about 25 million euros ($27.88 million).

Subsequently PVCP shares on the Paris stock exchange rose to 40 euros, a 60 percent gain since HNA made its purchase.

Under the terms of the deal, the two companies created a joint venture, HNA PV Tourism Co Ltd in Shanghai, and signed letters of intent for the acquisition of the first three lands and a memorandum of understanding for outbound tourism.

Over the next three years, the joint venture plans to develop a total of five projects, in a new type of tourism destination in China inspired by the Center Parcs concept in Europe.

The first three will be located in Jixian, a county between Beijing and Tianjin, Suzhou's Xiangcheng district and Pinghu in Zhejiang province.

PVCP Chairman and CEO Gerard Bremond said he was confident that his group's business model would be applied in China in tune with local real estate and tourism markets, with the aim of structuring local industries and infrastructure under public-private partnerships.

PVCP will celebrate its 50th anniversary in 2017. It has around 300 sites in Europe, and Center Parcs, a kind of family-oriented holiday camp, is the company's most famous leisure resort brand.

The business model of PVCP is to build a leisure resort and sell cottages and facilities to individuals or institutional investors, then manage them for the account of the new owners and pay the owners annual rental income.

Klaas Hummel, a Dutch real estate investor, is one of the biggest individual European investors in PVCP. He has invested more than 300 million euros in three different Center Parc resorts. In an interview with China Daily, he explained how the business model can bring stable income and long-term return with low risks, as well as hedging the risk of his other real estate investments.

"If you invested in commercial real estate, for example, office building or stores, the return is dependent on the real estate market," he said. "Center Parc generates cash flow from the tourism market, and its scarcity makes it a good hedge."

Because of the slowdown of the economy in Europe and subsequent fluctuations in rental market returns, PVCP intends entering the Chinese market as a way of driving new growth.

According to the National Bureau of Statistics, tourism revenue in China has been rapidly expanding and reached 3.03 trillion yuan, which was about 5 percent of China's gross domestic product (of 61.1 trillion yuan) in 2014. The revenue has increased about fivefold compared to that of 2001.

From 2004 to 2014, China's domestic tourist market continued to grow. According to the Ministry of Public Security China, domestic tourist trips rose from 1.212 billion to 3.611 billion, and the average annual growth rate over 10 years was nearly 12.9 percent.

Total revenue from domestic tourism rose from 769 billion yuan to 3.0312 trillion yuan, and the average annual growth rate for 10 years was nearly 21.4 percent.

PVCP and HNA will not apply the same retail "sell and rent back" business model in the Chinese market at first. Instead, in a first phase, they will pre-finance the first developments through institutional investors like HNA Group and others, aiming to profit from the short period leisure travel market, because "in the Chinese market, we are lacking good tourist vacation resorts with the right concept and design," according to HNA Group vice-chairman Chen Wenli.

Under the agreement, about 3,000 cottages or apartments will be built before 2020, aimed at Chinese middle and upper-class families, offering short stays and a nature experience contrasting with city life.

There will be numerous sports and leisure activities for adults and children.

"PVCP's concept and its successful operation for 50 years in Europe attracted HNA to cooperate with the French company," said Chen. "I am very confident about the project."