Room at the inn

Michael Schwarz, associate director of international hotel consultants HVS Global Hospitality Services in Beijing, says it will take time for equilibrium to be restored in these markets.

"There was a lot of development going on prior to these events and a number of hotels have come on stream in the last 24 months and occupancy rates have come down somewhat," he says.

Despite this some 44 percent of the 323,194 hotel rooms under construction in China - as of the last quarter of 2010 - were in the upscale and luxury sectors with less than 10 percent in the economy sector, according to Lodging Econometrics.

Kevin Murphy, president and chief executive of Asiawide Hospitality Solutions, who chaired and organized the conference in Macao, says while the five-star market might be saturated, hotel developers are often caught in a Catch 22 situation.

"The market should now be led by the budget and mid-range sector but the bulk of hotel development in the pipeline under construction is still in the luxury end," he says.

"Developers are caught in a bind. Because of the rising cost of the land in some of the major cities, the only budget hotel that might work in a major city would be a big one but since the land is expensive, such bigger sites are not necessarily available. It is a bit of a Catch 22 situation."

The hotels market has been transformed over the past 30 years. The first international branded hotel was the Jianguo Hotel in Beijing in 1982 by the The Hongkong and Shanghai Hotels group, who now operate Peninsula hotels around Asia.

After a State Council initiative in 1984 to promote the development of international hotels, the famous Holiday Inn Lidu was opened in Beijing 1984 and the Sheraton Great Wall a year later, also in the capital.

According to the China National Tourism Association (CNTA) there were some 300,000 hotels in China in 2009 but only 5 percent are officially classified or rated by the government.

Those not classified include not just smaller local hotels but some of the international chains which regard their brands as a sufficient badge of quality.

The number of officially classified hotels in China grew by 141 percent from 6,029 in 2000 to 14,520 last year, according to the CNTA.

Rene Schmitt, now 67, managed the Kempinski Hotel in Beijing, one of the first major European hotel brands to open in China in the early 1990s.

He says international hotels in China were then just for foreigners on business.

"You only had foreigners in the hotel. Less than one percent was Chinese at that time. Not many Chinese had much money in those days. Now it would be nearly half Chinese," he says.

Schmitt still has offices at the Beijing Lufthansa Center on Liangmaqiao Road, adjacent to the Kempinksi, but is now president and chief executive of Beijing Tangram Hotels Management Co. His company aims to build up to 300 mid-scale hotels throughout China over the next five years.

"China has developed so fast, much faster than any other country I have ever seen. It has grown ten times faster than the US has ever done. There is no other country that can match this speed of development," he says.

One of the interesting sectors of the market in China is the budget hotel sector that is dominated by Chinese brands such as Green Tree Inns, Home Inns, Jin Jiang Inns, Rujia and Motel 168.

Both Home Inns and China Lodging Group, which owns HanTing, have submitted bids but they are both believed to be below the $1 billion asking price.

These budget operators will benefit from the phenomenal growth in Chinese tourism.

The number of domestic travelers reached 2.1 billion last year, an increase of 11 percent on 2009, according to a recent report by global management consultants McKinsey & Co.

Humphreys from CBRE Asia says there is too much focus on Chinese traveling abroad and not enough on the Chinese domestic business and leisure traveler.

"What is driving this are the huge domestic travel figures. All the talk is on the 40 million who go overseas and not on the 990 million people in China who travel for leisure," he says.

A leading player in the lower and middle market sector is Singaporean