Chinese five-star hotels downgrade to stay in business

About 60 five-star hotels have requested the Chinese National Tourism Administration’s (CNTA) to downgrade their rating to four stars. A number of four-star hotels in China’s business cities have postponed investments to prevent an upgrading to five stars.

These unusual developments in China have two motives. First, the Chinese government has issued new regulations that bans extensive spendings of party officials at five-star establishments. President Xi Jinping has coincided with a clampdown on lavish spending and an emphasis on frugality, with massive effect on China’s hotel business.

The other reason is overcapacity, combined with a slowdown in demand. According to market research the hotel industry’s annual growth rate was 9.3 percent in the five years preceding 2014. But now growth is slowing. The industry suffered a 25 percent revenue decline last year and some 20 hotels were forced to close every month.

 China’s mainland hosts more than 4,000 starred hotels, 680 of which have qualified for the CNTA top rating. The China Tourist Hotel Association states that a new international-brand hotel is built every four days.