Starred hotels lose shine amid China's austerity drive

The five-star rating, once a halo guaranteeing profits for Chinese luxury hotels, is losing its glamour as the country's ruling party bans consumption in upscale accommodations at public expense.

Chairman Chen Miaolin of the New Century Tourism Group based in east China's Zhejiang province said he had instructed his five four-star New Century Hotels to table their plans for an upgrade to five stars under pressure from shrinking turnover.

Chen, who doubles as the vice president of the China Tourism Association, said that a total of 56 five-star hotels sought to downgrade their ratings to four stars in 2013, while many more lower-rated hotels suspended their applications for the top-notch rating.

The Chinese mainland currently has more than 4,000 starred hotels. Of the total, 680 are rated at five stars.

Citing initial estimates by the association, Chen said that the hotel industry reported a decline of 25 percent in its aggregate business turnover in 2013. About 20 or more hotels were closed down each month.

Another report released by the China Tourist Hotel Association shows that in the first half of 2013, the average lodging rate of China's hotels with three-star ratings or higher dwindled by six percentage points to 53 percent from the same period in the previous year.

The average revenue generated by hotel catering businesses dropped by 17.2 percent, while that of meetings and other events dropped by 17.8 percent. Five-star hotels were worst hit as their total revenues declined by 14 percent, more than all other types of hotels, said the report.

Chen attributed the cold front striking China's luxury hotels to the ban imposed by the Communist Party of China (CPC) on official consumption at five-star hotels at public expense.

Since Xi Jinping took the helm of the CPC in November 2012, the Party has made a series of detailed regulations to uproot bureaucratic and extravagant work styles among government workers, such as requiring officials to travel with smaller entourages, simplifying receptions and practising frugality.

The austerity drive hasn't waned over the past year. As the Chinese Lunar New Year on Jan. 31 approaches, the Party released another notice ordering beefed-up supervision and welcoming tip-offs from citizens and media about excessive spending and gifts before and during the week-long holiday.

Chen didn't expect the drive to deal such a heavy blow to the hotel industry.

He said the New Century Tourism Group, parent group to 64 hotels, including more than 40 with starred ratings, had agreed to provide management services for 75 new hotels once they were put to operation.

Now, a dozen of them have seen their construction suspended. For the others, construction has seriously fallen behind their original schedules, Chen said.

To remedy the situation, Chen said one of his four-star hotels in Tianjin had been shut down and would seek to reopen as a nursing home after the Spring Festival.

Chen was not the only hotel manager in China seeking to reposition his business while the hotel industry struggles.

Yang Xiaowei, a sales manager at Lijingwan International Hotel in Beijing, said that many government organizations had canceled their traditional year-end banquets under the pressure of austerity.

"High-end restaurants and hotels are really suffering, as nearly60 percent of our turnover used to come from governmental departments and state-owned enterprises," said Yang.

Last year, the hotel posted less than four million yuan (655,738 U.S. dollars) in business generated at public expense, compared to over six million yuan in 2012.

But Yang does not see voluntary downgrading as a sustainable solution for luxury hotels to survive.

"We put our bet on private consumption. We have offered more discounts to the public and strived to increase our visibility on the Internet," she said.

Zhang Yan, a sociology researcher with the Shaanxi Provincial Academy of Social Sciences, also agreed that it is time for the Chinese hotel industry to reduce its dependence on public expenses.

"I think the Party's crackdown on corruption and extravagance will advance in the Year of Horse. Luxury hotels and restaurants will have to face the lingering cold air," Zhang said.

"They have to innovate their operations and marketing activities to become more appealing to individual consumers. Meanwhile, as too many hotels exist in the market, mergers and acquisitions are indispensable this year," she said. Enditem (Xinhua correspondents Wei Hui and Wei Donghua from Zhejiang contributed to the story)