During this year's week-long May Day holiday, most budget hotels in major tourist cities were fully booked in advance, while many four- and five-star hotels had to offer discounts to lure customers.

It is difficult to believe that budget hotels were unheard of in China until recently.

According to Zhang Jun, assistant director of the China Hotel Association, the budget hotel concept was introduced to the country just a few years ago.

The term refers to hotels that provide limited but professional services, and satisfy customers' basic accommodation needs with reasonable prices.

Unlike star-rated hotels, budget hotels do not provide business or entertainment facilities such as business centers, conference halls, swimming pools and fitness centers. Their major features are economical price, cleanliness, safety and convenience.

In foreign markets like the European Union and the United States, the budget hotel is a major business model, accounting for 70 percent of the hotel industry.

For example, the international hotel giant Accor has 71 Ibis inns in Paris, a city with a population of about 4 million.

But in China, where the population tops 1.3 billion, the number of budget hotels is relatively small. According to the China Hotel Association, China has some 300,000 hotels, of which more than 8,800 are star-rated hotels. However, only a few dozen are standard budget hotels.

"The budget hotel sector is now starting to grow, as international brands are entering the market and domestic ones expand quickly," said Zhang Jun.

He said both the luxury hotel and budget hotel models could make profits in China. However, the luxury hotel sector, targeting white-collar travelers and group or corporate travel, is already fully developed with little space for further growth.

The budget hotel sector, which taps the growing number of business travelers and tourists who want economical but comfortable accommodation in cities, has much more room to develop.

"It is a trend and the budget hotel sector is going to boom, its growth driven by consumer demand," Zhang said.

Among Chinese who are traveling more but still keeping a fairly tight rein on expenditures, budget hotels are more easily accepted than expensive star hotels or cheap, small inns with poor service, he said.

Meanwhile, the withdrawal of state-owned assets from the service sector, the restructuring of small, non-standard hotels, and the government's promotion of the accommodation industry will all hasten the development of the budget hotel sector.

Recognizing the huge market potential, domestic budget hotel chains, including Jinjiang Inn and Home Inn, began to speed up their expansions last year.

Shanghai Jinjiang Inn Investment and Management Co. Ltd., part of the Jinjiang Group, announced its ambitious strategy earlier this year.

The company plans to open 200 Jinjiang Inn budget hotels in all major cities around the country in three to five years, and increase its total inn numbers to 1,000.

When the time is ripe, the group plans to explore the Southeast Asian market, eventually building Jinjiang Inn into an internationally known brand.

Company sources said the Jinjiang Group has raised 300 million yuan (US$36 million) to invest in the development of its Jinjiang Inn subsidiary.

As the first domestic budget hotel chain, Jinjiang brought the international concept to China in the late 1990s. It found many people traveled to cities for business or leisure, but could not find good, inexpensive accommodation. The first Jinjiang Inn was opened in Shanghai in 1997.

The hotel chain provides spacious single, double and family rooms and suites. All rooms are equipped with an air conditioner, shower, television, IDD and DDD telephone access, and a smoke detector.

Each inn has a service center that provides 24-hour service for guests, including flight and train bookings, safe deposit boxes, business typing, fax and photocopying.

Rooms are priced between 138 and 198 yuan (US$17 to US$24) per day.

Jinjiang Inns are becoming increasingly popular with domestic and foreign guests. To meet demand, the company has opened 33 Jinjiang Inns, mainly in Shanghai, Jiangsu and Zhejiang provinces in east China.

Room reservation rates are as high as 95 percent, and some inns have achieved 100 percent bookings.

"Our future development will focus on four regions," said Xu Zurong, general manager of the company.

These are the Yangtze River Delta, Chongqing and Chengdu in the southwest, Guangdong and Fujian in the south, and Beijing, Tianjin and Shenyang in the north.

At the beginning of the year, Jinjiang Inn opened its first hotel in Shijingshan District in Beijing, edging into China's northern market.

Two more inns will be opened in the capital later this year, Xu said.

Another domestic budget hotel brand, Home Inn, co-developed by Ctrip.com and the Capital Tourism Group, also plans to expand its chain this year.

Domestic brands are not the only ones keen to grow. The budget hotel market is also attracting the attention of foreign companies.

On May 27, Beijing Tianrui Hotel joined the Super 8 franchise, the budget brand of the US-based Cendant Hotel Group. The Super 8 chain was developed in the United States and Canada, where it runs a total of 2,082 hotels with 126,302 rooms.

Steven A. Rudnitsky, chairman and chief executive officer of Cendant Hotel Group, said the lack of quality economical, mid-scale hotels presents a substantial opportunity for franchising the Super 8 brand in China.

"Other major hotel companies have focused principally on developing luxury hotels," he said. "Our business will be based on serving the growing middle class, especially domestic consumers who have discovered the benefit and flexibility of traveling the country on its growing network of highways."

The foreign giant plans to develop more than 55 Super 8 hotels in China during the next five years. Cendant believes its network of Super 8 hotels in China will generate nearly US$150 million in gross revenue during the first five years.

Also this year, the international hotel giant Accor opened its first Ibis budget hotel in Tianjin with an investment of 35 million yuan (US$4.2 million), and on May 25 Intercontinental signed management agreements with nine hotel owners. Two of the deals were for its budget hotel brand Holiday Inn Express in Xi'an and Zhengzhou.

Industry analysts believe the entry of foreign brands will help the sector develop professional management standards.

But as both domestic players and their foreign counterparts expand, stiff competition in the sector is unavoidable, the analysts said.

"At present, domestic brands have more advantages, I think," said Zhang Jun from the hotel association.

The current market is mainly in big cities, he said. With further development, hotel groups will turn their focus to second- or third-tier cities, which have a larger demand for budget hotels. Domestic companies are more familiar with the market and their targeted customers in these cities.

The budget hotel model also requires less investment, so foreign groups' advantages in technology and capital are less useful, Zhang said.

However, domestic hotel groups still need to improve their management to fight off more experienced foreign rivals.

Zhang said that currently the development of the sector is based on the restructuring of existing small hotels. He expects that some 10,000 small and medium-sized hotels will be restructured into budget hotels through mergers and franchising in the next five to 10 years.

(China Daily June 24, 2004)