http://www.marketwatch.com/story/chinas-king-of-the-fong-looks-to-west-2010-11-24?pagenumber=2Nov. 25, 2010, 1:18 a.m. EST
China’s King of ‘the Fong’ looks westward
Hong Kong’s bar impresario wants to bring party culture to China’s interior
Hong Kong entertainment magnate Allan Zeman.
Kerry Seed, WSJ.com
By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) — Hong Kong’s billionaire nightlife king Allan Zeman is making a leveraged bet on China’s inland growth story.
Frequently described in the Hong Kong press as the “Father of Lan Kwai Fong” — a famous area of bars and restaurants in the city’s financial district — 62-year-old Zeman is now seeking to create a similar scene in the capital city of Sichuan province, Chengdu.
Boasting a population of 10.5 million, along with a growing status as an electronics hub (it recently attracted iPhone-maker Foxconn to set up new production facilities), Chengdu is seen as gateway that bridges China’s affluent east coast and its poorer inland west.
The region is also a key beneficiary from Beijing’s efforts to coax new investment to the interior, in order to help even out regional income disparities.
Bringing nightlife to China's west
Allan Zeman is exporting his brand of nighttime entertainment to the mainland Chinese city of Chengdu. MarketWatch's Chris Oliver reports.
“The west is like the new south of the old days,” says Zeman, referring to Beijing’s efforts in the 1980s to spark development by designating special economic zones in Guangdong province, which eventually grew into today’s global manufacturing hubs.
Montreal-raised Zeman — who made a fortune exporting women’s fashions and later used cash flow from bars and restaurants to become landlord to Hong Kong’s trendiest party district — sees potential as China looks outward.
Though consumers in Chengdu don’t yet have the spending power of their Hong Kong cousins, he says that salaries are rising, as is the appetite for Western-style entertainment and nightlife among the new generation.
A fact-finding visit to the site at the invitation of Chengdu authorities in 2008 was a perception-changing event for Zeman. Hummers crowded the drop-off bay of the ritzy hotel where he stayed, while a nearby Bentley showroom offered more clues.
“It’s unbelievable: There is strong spending power,” Zeman said, who made the visit on a return journey after attending the opening ceremonies for the Beijing Olympics. “I came away with the idea that this could really work.”
Chengdu’s municipal government had pushed ahead with the development as part of plans for a new financial district, and following its completion, they sought out Zeman in a drive to privatize the site and transfer management to an experienced hand.
He eventually secured a deal to buy most of the 19 buildings on the Chengdu site, and signed options on the remainder. Zeman says he’s actually buying the 550,000 square foot project from its builder, a state-owned construction company.
The collection of three-story buildings are situated along the Jinjiang River, part of the integrated entertainment area that was designed by a Chinese architect.
The site is about one and a half times bigger than the cluster of bars along Hong Kong’s Lan Kwai Fong Street — a lane once known for its flower stalls and spousal match-making. But according to Zeman, the Chengdu project site is already about 90% leased ahead of its formal launch next month.
A new entertainment district takes shape in the western Chinese city of Chengdu, majority-owned and operated by Allan Zeman, who made a name for himself as the king of Hong Kong's trendy bar area, Lan Kwai Fong
Zeman declined to state how much he paid for the site, saying only that it’s part of a long-term investment story.
In signing up tenants, Zeman — who also sits on the board of casino group Wynn Resorts, as well as serving as chairman for his bar and restaurant group Lan Kwai Fong Developments — said he borrowed from his experience with Chinese consumers.
He opted for a mix of different food and beverage operators from Shanghai and Hong Kong, as well as some from Chengdu. The approach was to cater to local tastes. In general, he says, working with the culture can be easier than trying to win consumers over to new preferences too quickly.
The first thing I always recommend to people is to understand your customer, spend some time in the city, observe the habits of the people, what they like, what they don’t,” Zeman says.
He points to a U.S. restaurant chain that opened in July — which he wouldn’t name — as one of the Chengdu tenants that don’t appear have the right approach. He says the restaurant is struggling because its barbecue rib sauce is likely too sweet for local palates, which favor spicy cuisine.
There are successes too. A nightclub run by a Hong Kong group is enjoying wild success and a “license to print money,” Zeman says.
Still, it’s also important to push new experiences. A Halloween-related promotion found traction, he says, because it was tweaked to use ghosts taken from Chinese folklore. Other planned celebrations will highlight both Western and Chinese festivals.
Another thing to remember, Zeman says, is that much of the wealth in China’s “second-tier” cities like Chengdu is tied to factory jobs, rather than the administration and banking sectors that dominate in Beijing and Shanghai.
That means second-tier-city dwellers can be a little dumbfounded when encountering a flashy club or restaurant for the first time. “They are not as exposed to the things the primary cities have,” Zeman said.
And what about spending power?
The average person heading out for a night in Chengdu can’t afford Hong Kong drink prices, which fetch upwards of $12 — or more than the daily wages for many of China’s lowest paid workers — concedes Zeman.
Though this can make things difficult, he says that the pluses and minuses tend to balance out financially, thanks in part to lower leasing costs than in Hong Kong and a more free-spending spirit that permeates Chengdu’s culture. Also, he says, China is sincere about readjusting its economy so that consumer spending accounts about 25% of growth.
Zeman’s bet on Chengdu is also based on a longer-term view of China’s real-estate market, reworking a strategy that underpinned Zeman’s fortunes in Hong Kong.
In 1983, Zeman — himself a teetotaler — opened his first restaurant and bar in the Lan Kwai Fong area inside a former grocery store. It was among a new generation of American-influenced bars to offer an alternative to the buttoned-down, colonial ambience of the city’s watering holes, many of which were then based in hotels.
The following year Zeman bought the building.
“I always felt that as a businessman, if after a couple of years the restaurant doesn’t do well, there is nothing to sell, just tables and chairs,” he said.
He continued to amass property holdings throughout the 1980s, shortly before Hong Kong prices would steal the torch from Japan to become the world’s most expensive — and also before that same Hong Kong market burst in the 1997 Asian financial crisis.
In September, Zeman closed down two towers in the center of Lan Kwai Fong, leaving the location of his original restaurant a vacant shell draped in bamboo scaffolding. A new 25-story tower on the site, scheduled for completion at the end of 2012, will be worth about 3 billion Hong Kong dollars ($386.7 million), Zeman said.
His home and native land
Zeman stirred controversy among Canadian expatriates in 2008 by renouncing his Canadian citizenship to take to take a Hong Kong passport. The move broke hearts in a community which had touted Zeman as being one of Canada’s most successful entrepreneurs in Asia.
Born to Canadian parents, Zeman said he feels no guilt over his decision, as he really lost touch after living abroad for more than 40 years.
Political figures in Hong Kong and Beijing backed the idea, elevating Zeman to among the few Westerners born outside China ever to be granted national identity documents and the visa-free access that goes with them. In October 2009, he attended ceremonies in Tiananmen Square marking the 60th anniversary of the Communist Party.
He says he admires China’s ability to make big decisions and is proud of its economic achievements. For example, he says that by 2015, Hong Kong will be part of a high-speed rail network that will link 400 million people within a two-hour travel radius.
“I’m loving it. I’m living during history,” Zeman says, adding that he speaks Cantonese, the local Chinese dialect in Hong Kong, about as well as he speaks French, the main language in his hometown.
Somewhat ironically, Zeman credits Lan Kwai Fong’s success in part to the exodus of Hong Kongers to foreign-passport-granting havens, such as Vancouver and Sydney, that was sparked by fears Beijing would restrict civil liberties when the British colony reverted to Chinese sovereignty in 1997.
Many of those drawn back to city following a smooth transition to Chinese rule were more accustomed to drinking and socializing in Western bars, thanks to their time overseas.
However, Zeman’s earlier attempts to build out his brand haven’t always been successful. A deal to build a Lan Kwai Fong-style district in Shenzhen, a fast-growing city just outside Hong Kong, fizzled out in the final hours due to legal issues.
He also missed out in Shanghai, where Hong Kong-listed developer Shui On Land transformed a historic area in that city into trendy a bar and restaurant area. For a time, Zeman did operate a club in Shanghai — purportedly once visited by former U.S. President Bill Clinton during a state trip — but he says he eventually pulled out due to a cluttered market that already had too many bars and restaurants.
Putting together something on the scale necessary to create critical mass in places like Shanghai is nearly impossible today, given China’s soaring land prices, Zeman says.
“In order to do a ‘Lan Kwai Fong,’ you need at least 19 blocks,” Zeman said. “Unless you are with the government, it’s hard to own an area.”
Closer political ties may be a factor in boosting some of his recent ventures. In one recent example, Zeman was selected by municipal authorities in the southern city of Guangzhou to replace a German group in overseeing a state-owned shopping mall, slated to open next year and expected to draw between 800,000 and 1 million visitors a day.
Among others under consideration is a Fisherman’s Wharf-style project near the central business district of Hangzhou — an affluent mid-sized city about two hours south of Shanghai. Zeman said he’s in talks with authorities about taking part, potentially as a joint-venture partner or in another ownership structure.
“They showed me the designs, wanted my critique,” Zeman said, adding he will submit a proposal on “a similar kind of concept to Lan Kwai Fong.”
Zeman also says he’s increasing being called upon by Western institutions for views on China. For instance, he recently shared his outlook with a U.S. pension fund that’s considering investing in the region for the first time.
“Suddenly China is the rich relative in the world,” he says.
Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.