Cheap hotels await China's new sightseers, budget travelers

A twin bed, TV, bathroom, Internet hookup, and a kettle for $44 a night. For Bai Kezhi, a truck salesman on a three-day trip, that's a fair price for a hotel room in China's priciest city.

A frequent business traveler, Mr. Bai has taken a shine to Home Inn, one of many new budget brands now open across the country. It's nothing fancy – and that's the point.

"Home Inn is all over China. Outside and inside the building, it's always the same. So I feel at home," he says.

As China joins the global economic slowdown, its hospitality industry is bracing for tougher times. Luxury hotels that depend largely on foreign guests are already suffering after a miserable summer of visa restrictions followed by Wall Street's implosion.

But in China's budget market, where rooms go for $30 to $50 a night, there is more reason for optimism. The rise of a new middle class, which prizes value over frills when they travel for work and leisure, has spawned a host of hotel chains that didn't exist a decade ago.

Some are branded as motels, even though they don't offer parking. Others lure younger guests with garish décor and discounts. All say they plan to keep expanding next year by pushing into more cities.

"This is a sector that can ride out the [economic] storm quite well.... Your typical domestic low-to-mid level manager will still travel on the back of the Chinese economy," says Andreas Flaig, managing director in China for Jones Lang LaSalle, a property broker and consultancy that tracks hotel revenues.

Even if a softer economy deters some travelers from leaving home, others are likely to trade down from fancier accommodation to stay under budget. So "economic hotels," as these chains are known, are courting thrifty Chinese firms.

"The economy is unpredictable now. Because of the slowdown some companies are cutting their budgets. They used to choose five-star hotels, now they will choose economic hotels. But others will stop travel altogether," says Ye Bingxi, a spokesman for Home Inns, the largest budget chain with more than 400 hotels. Last year it reported 95 percent average occupancy rate, a figure that is now nearer to 85 percent, says Mr. Flaig.

Hotel executives predict more consolidation: Of more than 100 budget brands in operation, over 90 percent of rooms are controlled by five big players. Adding to the woes of smaller operators is a lack of credit from foreign investors who underwrote the rapid expansion of chains like Motel 168 – the numbers in Chinese sound like "one-way road" – that has 160 hotels in 40 cities. Before 2003, it had none.

A shakeout in the industry is inevitable, says Zhou Yubo, director of marketing at Motel 168. "China has a bad habit. In any promising industry what happens is everyone wants a piece of the action," he says.

Before 1999, there wasn't much action. Few Chinese traveled for fun and those that did had to choose between austere government-run guesthouses and pricey Western-style hotels. That year the Chinese government introduced two extra week-long public holidays, known as "golden weeks," to spur domestic travel. The move was designed as an economic stimulus during a regional slowdown.

It worked: More than 100 million Chinese now take vacations during golden weeks, while rising affluence and mobility has lighted a fuse under hospitality spending. Last year, domestic tourism was worth $114 billion, according to Xinhua news agency.

Budget hotels are tapping into the mid-market demand for clean, modern rooms, just as Days Inn and Howard Johnson did in America. But while it took decades for big franchises to edge out mom-and-pop hotels in the US, Chinese chains are racing ahead, using centralized phone and Internet booking to fill rooms.

While car ownership is spreading fast in China, as is a national highway network, most budget travelers go by train or plane to their destination and prefer to stay in cities.

Jenny Zhou and her two friends recently crammed into a $30 room at a Motel 168 in Shanghai. That was after they'd decided to drop $130 each on tickets to see a South Korean boy band concert. Three nights later, ears still ringing, they headed off to catch a train back home to Chengdu – a 36-hour journey. All in all, it was a good trip. "It feels good here. I'd stay here again," she says.