Apr

9

Up until about a few years ago, I was quite afraid of going to cities smaller than 3rd tier. The reason was simply that there were no good places to stay The following concerns are among the tops.

1) room hygiene: linens, towels, floor, and toilet were not clean;
2) bad smells: smoke residual was everywhere, and worse, most sewage pipes in the bathroom release strong smells;
3) bed comfort: nearly all beds were hard solid;
4) disturbance: often girls would call on the phone or at the door asking whether a massage was needed in the middle of the night.

These seem largely changing in recent years.

To better understand some of the changes, one perhaps needs some brief knowledge of the history.

Before 1980, in any city, there were generally only a couple large hotels, and they were only for official events or dignitaries and did not receive normal travelers. There were many smaller places (which were termed as traveler's communes), usually with 2-4 beds in a room. They generally only received business travelers who carried a letter of recommendation from their respective state enterprises. When received, one only got one bed in a room shared with other total strangers. How were the conditions? Well, one would really thank god if he got a bed. During this time, travel was largely discouraged. If one had to travel, he had to find friends or relatives to stay with.

Since the 80s when the country was opening up, big foreign hotels started to operate modern hotels in first/second tier cities. These were only to receive foreign travelers. The Chinese could not afford them, nor were they allowed in. They were strictly guarded by some kind of police. Most of these foreign hotels (like Sheraton, Hilton, Crown Plaza etc.) were given 5-star ratings.

Since the late 80s, seeing what a hotel could really be like, many local governments and state enterprises started building their own modern hotels. But they were really mimicking the surfaces — the amenities and services were really not that good. These were generally given 3-4 stars. To compete with the foreign ones, they offered cheaper rates (if a foreign one charged 1000RMB/night for instance, the domestic ones would charge 300-600RMB). To be more attractive, they generally operated full-service massage parlors in the hotels. And up until the late 90s, most rich Chinese stayed at these ones. And, these are the ones that have my concerned problems listed above.

Though since long many Chinese could stay at the foreign hotels, up until mid-2000, the standards of the foreign hotels were not spread much to places below 3rd tier cities.

In the recent couple of years, there happen to be many private hotels, usually with 20-40 rooms each, across the country, even in very remote county-level towns. Among them, some have really high quality amenities (you name it) in the rooms, which could nearly compare with those in a typical 5-star foreign hotel in China (keep in mind that 5-stars are not that equal here). And the rates are really low.

As an example, in a town where typical real-estate price is 4000RMB per square-meter, a 25 square-meter room in a 4-star domestic hotel (which is most likely not too comfortable) costs about 600RMB. The similar-sized but nicer room in the private hotel costs about 100RMB. The difference from the big hotels is that the private hotels don't have dinning rooms, bars, business centers, conference halls etc, but they do offer mini-bars and broadband/wifi (or even computers) in the room.

How much is 100RMB? Today, the cost of gasoline is 8.2RMB per liter. So to drive a mid-size car for 100 kilometers would cost about 60RMB for the gas. Now nearly all highways in China are toll roads, which charge 40RMB per 100 kilometers (set by the government). So to drive the car on a highway costs 100RMB per 100 kilometers just for the two expenses. In a tourist town, a bottle of 300ml domestic beer in a nicer bar costs 30RMB, a small cup of freshly-made locally-produced coffee also costs 30RMB.

How to make economic senses for the hotels? The property cost today of the room is 25 x 4000RMB = 100,000RMB. A rough estimate for the decoration and furnishing is about 80,000RMB, yielding total initial cost of 180,000RMB. The fill-rate, though a wild guess, can be assumed as 50% in a town near some tourist attractions. So the annual income is 360 x 0.5 x 100RMB = 18,000RMB, 10% of the initial investments.

How could the owners consider that a good business? The big bet is the upward real-estate market and a booming tourism in the country. It has been long that many people invested in many units in a building and kept them empty for years. The rental from a 50 square-meter flat (double the size of the hotel room, but of course with much poorer decoration) in a similar town could be 500RMB per month. The reasoning for opening a hotel is that it takes advantage of the booming real-estate plus the booming tourism. It could also be that some owners are real-estate developers and the initial real-estate cost for the hotel was only on paper.

More on Chinese Hotels:

In China, one US dollar is exchanged for 6.3RMB (or CNY, or Yuan) at banks, which have a limit for a maximum of US$10K per day per person, and US$50K per year per person (accumulative of all bank transactions in the country). In the black market, the figure runs to 7RMB per dollar.

Ordinary wage for a waitress-type job is about 1000RMB per month plus room and board.

Stays at hotels are strictly controlled. The Ministry of Public Security (central police department) requires that each occupant present his/her ID card. Hotel personnel said that they have to transmit the copy of the ID cards to the local police station immediately. I don't know about a formal law as to where foreigners are not allowed, but it does appear that passport (even Chinese) is not accepted somewhere, and one has to hand in the domestic ID card.

There are a growing number of economy hotel chains now (being part of the revolution). A famous one (and the pioneer) is the Home Inns which is traded on the Nasdaq. The rooms are very nice and clean, and have basically everything you would need. Home Inns is very popular and has a high occupancy. These hotels generally buy very old buildings in good locations (mostly downtown) and fully renovate them. Rates are also good, generally below 200RMB. These chains have not penetrated to places below 3rd tier cities.


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