Barriers to hotel chain development in China

Ray Pine

By 2020 China will become the world's number one tourist destination,with annual arrivals of 130 million. This is quite an incredible considering that China's international tourism industry only got underway in 1979 as a result of the Open Door Policy. Just 20 years later, in 1999 China attracted 27 million international visitors and its stock of hotels stood at 7,035, with 890,000 rooms. China's stock of hotel properties will need to expand very significantly to meet the demand of expected growth in arrivals.
At the same time China's own increasingly affluent population is traveling more and more within the country, adding to the need for additional hotels. Affluence has resulted from continual average annual economic growth in China of 9.8%between 1979 and 1997. Even with a predicted slowdown annual growth should still average 7% over the next 10 years. Such a dynamic economy stimulates more internal business travel,and those business travelers need hotel rooms. Concurrently changed government policies have loosened travel restrictions, introduced a strict 5-day working week and annual holidays of 3 weeks, swelling the already massive leisure tourism movements. The end result was 719 million domestic travelers in 1999.
China's entry to the World Trade Organization (WTO) will possibly be the most significant event since the Open Door Policy. Internally China is working to improve its legal system, liberalize foreign investment restrictions and echance the legal rights and privileges of foreign investors. Continuing its work to encourage tourism,the government has provided about US$97 million to upgrade infrastructure including roads, seaports and airports as well as upgrading tourist sites for future visitors. Externally ,in preparation to take maximum opportunity of the WTO situation, multinational corporatins contracted foreign direct investments totaling US$38 billion during the first nine months of 2000,28% up on the same period in the previous year. Those multinationals include the world's top hotel firms, many of whom already have a foothold in this potentially massive market.
The barriers to hotel chain growth in China have some particular aspects in both external and internal obstacles,which influence not only the development of indigenous hotel companies, but also multinational hotel companies. This paper will identify and discuss some of these barriers.