Severe Competition in China’s Hotel Industry Ahead of "Double 11" – Experts Analyze Causes

Hotel Illustration: A view of the outdoor pool at Hilton Garden Inn (Clear Lake/NASA). (Lu Xi / Dajiyuan)

November 1, 2024: The hotel industry in China has yet to recover from the economic impact of the pandemic. As "Double 11" approaches, with supply exceeding demand, the industry faces widespread losses, leading to layoffs or shifts in business models as responses. The severe internal competition in the hotel industry, along with the lack of foreign visitors, has drawn attention to the reasons behind these trends.

Intense Competition in the Hotel Industry as "Double 11" Approaches

This year, the Double 11 promotional period began on October 14, about ten days earlier than last year, marking the longest, most elaborate preparation to date. However, while the tourism industry ramps up for the event, underlying concerns remain, which are also evident in the hotel sector.

Tian Jing (a pseudonym), a figure in Shanghai’s hotel industry, told The Epoch Times on November 1 that an analysis by the third-party site Hotel Tech Report (HTR) indicates that the market is weaker than last year, largely due to the economic situation. He noted that travel and meeting budgets have been reduced, with dismal overall figures.

He explained that hotels are widely selling at discounted rates, with rooms originally priced at 500 RMB per night now down to 300 RMB per night, and quality also dropping. "Four- and five-star standards refer only to hardware facilities, not necessarily quality."

Hotels are also forced to share profits with online travel agencies.

Ctrip recently launched a Double 11 “Buy Now, Pay Later” deal, offering a “0 RMB order” feature to compete with Fliggy’s “Huabei Hotel Stash.” Consumers can purchase vouchers and pay upon check-in, with perks such as limited-time red envelopes, no seasonal price increases, and hotel packages.

On October 21, Fliggy sold 100,000 nationwide three-night vouchers for the Kaiyuan hotel chain within ten minutes at 999 RMB (approximately $140 USD) each.

According to a Ctrip insider, when consumers “stash hotel vouchers,” the cash flow goes to the online travel platform, not the hotel group, thus significantly supplementing the platform’s revenue.

According to a recent report by TravelDaily, Ji Qi, founder of Huazhu Group, criticized the excessive discounts offered by hotels this year, saying that offering “the lowest price on the web” to platforms and increasing the proportion of customers from online travel agencies (OTA) ultimately weakens hotel competitiveness.

“Poor Travel” Proves Costly, as Seen in “Golden Week” Data

After the “Golden Week” holiday in early October, state media celebrated the surge in tourist numbers, claiming prosperity in the travel industry. However, industry insiders have voiced contrasting opinions. Some operators told Hong Kong media that due to widespread downgraded consumption, despite increased foot traffic during the holiday, business results were poor, marking possibly the “most dismal Golden Week” ever.

Data from China’s Ministry of Culture and Tourism indicated that 765 million domestic trips were made during the holiday, a 10.2% increase from the same period in 2019, yet spending only increased by 7.9%. Bloomberg calculated based on the ministry’s data that per-trip spending actually declined by 2.1% compared to 2019.

According to Fliggy, bookings for high-end hotels during this year’s Golden Week holiday increased nearly 40% from the same period last year, yet the average booking price dropped by about 6%.

Tian Jing told Dajiyuan that budget travel has become popular, and while average hotels are less affected, high-end international hotels, such as those managed by Hilton and Marriott, are hit hardest.

“They’re under significant pressure. Owners pay these management companies, and they used to bring foreign clientele. Now, with that clientele gone, owners are terminating these partnerships and managing the hotels independently. Management companies are the first to suffer.”

Why Expand Amid Competition?

While the Chinese hotel market faces a price war, some reports indicate that hotels are still expanding rapidly.

Southern Metropolis Daily reported earlier this year that Banyan Tree Group announced 19 new hotel and residential projects in various countries to celebrate its 30th anniversary, with over half of these projects in China. Similarly, Hilton and InterContinental recently announced that the number of hotels they operate in China has reached 600 and 700, respectively.

Regarding hotel expansion, Shanghai industry insider Tian Jing explained that some projects that were planned for launch during the pandemic are now reopening.

China analyst Wang He told The Epoch Times that he is not optimistic about hotel expansion. “Hotels rely on tourism, but people are trying to save money. Prices will inevitably remain low. Under such circumstances, large-scale hotel construction is absurd.”

According to Sohu Travel, as of March 31, 2024, Huazhu Group’s Huazhu China had 9,684 operating hotels, covering 1,290 cities nationwide, an increase of 158 cities year-on-year. However, the 2023 Annual Development Report on China Hotel Management Companies (Groups) showed that among the eight domestically listed hotel groups, only four had a market value exceeding 10 billion RMB: Huazhu Group, Jinjiang Hotels, BTG Hotels, and Atour Hotels. These groups have expanded since 2019, but their revenue has fluctuated, with all but Huazhu Group seeing declines in profitability.

A report by the Chinese Academy of Tourism, under the Ministry of Culture and Tourism, released on February 1, stated that the number of hotels managed by the top 60 hotel groups in China increased from 33,500 in 2019 to 58,000 in 2022, with a 73.1% increase in hotels and 55.7% increase in rooms. However, in 2023, many hotel groups opted to sell assets and shift toward asset-light models, while others pursued mergers to strengthen competitiveness.

Overseas economist David Huang told The Epoch Times that overexpansion and capital-driven growth have resulted in oversupply concentrated in certain areas, with a trend of homogeneity. Over the past decade, the industry has misled investors with empty promises rather than genuine operational capability.

Surviving in the “Sorrowful” Competitive Landscape

In late September, a hotel industry insider from Changsha posted a video saying that this year’s (2024) business situation was “sorrowful,” far worse than last year. “It’s brutal.”

“I’m at Pozi Street, near May 1st Square in Changsha. This place used to be packed with people, but now it’s empty. Yesterday, hotel rooms were priced at just over 80 RMB, around 90 RMB, or a little over 100 RMB per night, but the occupancy rate is still below 60%. At a prime location like May 1st Square, with prices this low, we can barely cover the rent. When you add labor, utilities, and platform commissions, there’s nothing left. I don’t know how we’ll survive.”

Tian Jing told The Epoch Times that domestic hotels are surviving by cutting staff, disbanding teams for events, and outsourcing food services. “Revenue minus costs. If one business area isn’t doing well, they stop that area, and the costs disappear.”

He also noted that the industry already struggles to attract workers. “Salaries are low, making it hard to attract young people. Many don’t want to work in hotels anymore; it’s mostly older men and women. As a result, hotels outsource labor, relying heavily on flexible staffing. Full-time staff have become temporary workers.”

David Huang commented that China’s hotel industry is experiencing competition mainly due to an imbalance between supply and demand. Over the past decade, excessive optimism about economic growth led to the establishment of mid- to high-end and luxury hotels, drawing large amounts of domestic and foreign investment. However, following the trade war in 2018 and the pandemic, tourism demand has significantly contracted.

At the same time, consumer spending has downgraded severely, with a shift toward budget options like short-term rentals, guesthouses, and other low-cost alternatives. This change has left upscale hotels unable to adapt, resulting in fierce competition within the industry.

Huang believes that for China’s hotel industry to survive, it must adopt localization and differentiation strategies to offer tailored services to domestic tourists, such as wellness-focused services. However, this approach is also challenging. The second option is to strengthen partnerships with digital platforms, but e-commerce platforms are monopolized and often exploit customers without integrity. Finally, cost optimization—reducing staff, cutting expenses, and outsourcing equipment—can help but is not a long-term solution. The industry is expected to undergo a major shake-up, with most hotels likely to close within three to five years.

Visa-Free Policies Have Been Implemented, So Why Aren’t Foreigners Coming?

Despite the CCP’s introduction of a series of unilateral visa-free policies this year, the results have been underwhelming.

Data from the China Tourism Academy released on July 1 showed that the number of foreign entries into China in the first quarter of this year only recovered to 58.2% of the same period in 2019.

The authorities attributed the limited number of foreign visitors to factors like high international travel costs, strained international relations, increased geopolitical tensions, crowded domestic tourist destinations, limited service awareness for inbound tourists, and poor travel convenience in China.

David Huang noted that the lack of foreign visitors is a persistent challenge for the hotel industry, driven by strained relationships between China and the Western world since the 2018 U.S.-China trade war, tensions with the U.S. and Europe, and China’s support of Russia during the Russia-Ukraine conflict. These factors have led to heightened hostility from the West. Furthermore, China’s strict zero-COVID policy in previous years led to a steep decline in foreign tourism, business, study, and investment. Although Beijing has relaxed visa restrictions to encourage international tourism, the results have been minimal. Anti-Japanese and anti-American propaganda, violent incidents targeting foreigners, and the overall environment have also had a negative impact.

Foreigners arriving in China face challenges with payment systems, accommodation, booking attractions, and even finding hotels authorized to host them. On July 25, the Ministry of Commerce and six other departments issued a joint notice requiring local authorities to address obstacles hindering international travelers from staying at hotels.

Wang He noted that foreigners no longer come to China because of deeper concerns, not just visa issues. Technical barriers, such as the inability to use international credit cards or certain apps in China, also play a role. Additionally, the strict COVID lockdown policies over the past three years left Westerners disillusioned, questioning how the CCP could confine people to their homes for months. “Westerners feel a deep psychological distance from the CCP and are withdrawing from China. As a result, the number of Western tourists to China has plummeted, and it has yet to recover.”

Editor: Gao Jing