Hotel construction in China is booming. In 2011, China had a total of 2 million hotel rooms, and it is projected to reach 5 million by 2016. As of now, 1,700 star-rated hotels are still under construction. Relevant reports indicate that from 2011 to 2013, the number of four- and five-star hotel rooms in Shanghai will increase by 7.2% compared to 2010, while Beijing will see a 5% rise. During the 12th Five-Year Plan period, Xi'an will build 61 new high-star hotels; by 2014, Chengdu will have 47 five-star hotels...
In recent years, the number of high-star hotels has surged, showing an inverse trend between high-star and low-star hotels. This can be seen in the "2011 Q4 Hotel Executive Turnover Statistics Report" released by Mafengwo Tourism Research Institute.The upscale trend of hotels has become evident — but how long will this trend continue? Where does the drive to build higher-star hotels come from?
1. A favorable domestic economic environment
The Institute of International Finance predicts that in 2011, $1.041 trillion in global capital will flow into emerging economies, rising to $1.056 trillion in 2012, with about 40% being foreign direct investment. China accounts for roughly a quarter of the total capital attracted by emerging economies. Singapore’s former Senior Minister Lee Kuan Yew also noted that as long as there is no social unrest, China’s economy should continue to grow at 9%–11% annually and could catch up to the U.S. GDP within 10 years, even surpassing it in 20 years. Compared to the volatile international economic climate, the strong domestic economic environment provides fertile ground for the proliferation of high-star hotels.
2. Non-market factors providing stimulation
A large proportion of China’s five-star hotels have attained their ratings partly due to government guidance. In fact, whether it's the government or enterprises, whether in first-tier or second- and third-tier cities, there is strong enthusiasm for building luxury hotels catering to high-end markets, rather than ordinary hotels serving the general public. Some real estate developers are often required by local governments to construct high-star hotels during large-scale land development to enhance the area’s image, or they proactively build such hotels to elevate the overall quality of the property and boost surrounding property values.
3. Developers mitigating market risks
In recent years, hotel and real estate development has been booming. Companies such as Longfor, Poly, and COFCO are keen on constructing high-star hotels in urban complex developments, while developers like Agile, Zhongxin, and R&F focus on introducing high-star hotels as part of the commercial offerings in high-end residential communities. In 2010, to avoid policy risks, land appreciation transaction taxes, and to improve cash flow, developers like Wanda, R&F, and Country Garden increased investment in high-star hotels across various cities. Among them, Wanda invested 20 billion yuan to capture the hotel industry in 37 first-, second-, and third-tier cities nationwide, aiming to open 38 five-star hotels by 2012.
4. Rising national consumer spending power
Data shows that in 2011, consumer spending among China’s urban and rural residents continued to grow rapidly, with total retail sales of consumer goods reaching 18.1226 trillion yuan, a nominal year-on-year increase of 17.1%. Overall, China is currently in a phase of rapid consumption structure upgrading. Additionally, according to McKinsey’s forecast, by 2015, the number of affluent households in China will rise from 1.6 million in 2008 to 4.4 million. A survey on hotel bookings in Sanya during the 2011 National Day holiday showed that 40% of tourists opted for four- or five-star hotels, reflecting consumers’ growing emphasis on travel quality and indicating a shift in Chinese travel habits and increased spending power.
The continuous increase in the number of high-star hotels has led to market oversupply, and there have also been frequent reports of high-star hotels losing their ratings. In the future, apart from facing fierce market competition, high-star hotels will encounter increasing operational challenges. Ensuring quality, delivering premium services, and improving occupancy rates have become key priorities.