Beijing: China's hotel industry is grappling with unprecedented challenges as consumer spending tightens amid a faltering economy. Even during traditionally high-demand periods like the National Day holiday and November’s "Double 11" shopping festival, aggressive price wars and declining revenues highlight a consumption downgrade that has left many hotels struggling to stay afloat.

A Dismal "Golden Week"
The National Day holiday from October 1 to October 7, once known as the "Golden Week," was labeled by industry professionals as "the worst Golden Week" in history. Despite a 10.2% rise in domestic travelers compared to 2019, according to China’s Ministry of Culture and Tourism, spending increased by just 7.9%. This discrepancy reflects a significant tightening of consumer budgets.

Upscale hotel bookings during the week rose nearly 40% year-on-year, but the average booking price dropped by 6%, data from Fliggy, a Chinese travel agency, revealed. Some hoteliers warned that aggressive price cuts could undermine the industry’s sustainability.

One hotel owner in Changsha lamented on social media, "At these rates, even in prime locations, we can’t cover basic expenses like rent, labor, and utilities. The deficit is unsustainable."

"Double 11" Price Wars
The challenges persisted into November’s "Double 11" holiday, where major online travel agencies launched steep discounts. Fliggy sold 100,000 three-night hotel packages for 999 yuan ($140) within minutes. Meanwhile, C-trip introduced a "Zero Yuan Order" promotion to attract budget-conscious travelers.

Ji Qi, founder of H World Group, which manages 10,000 hotels globally, cautioned against excessive discounting, warning it could damage competitiveness. Hotel employees in Shanghai echoed these concerns, noting declining room rates—down from 500 yuan ($70) to 300 yuan ($42) per night—and a corresponding drop in service quality at four- and five-star properties.

Overexpansion Amid Weak Demand
Despite declining consumer spending, China’s hotel industry is expanding rapidly. Huazhu China, a subsidiary of H World Group, operated nearly 9,700 hotels across 1,290 cities as of March 31, 2024, marking a 158-city increase from the previous year. Critics argue this overexpansion exacerbates the industry’s woes.

"The industry is trapped in a cycle of over-expansion and capital-driven growth," said Chinese-American economist Davy J. Wong. "Hotels are clustering in certain areas, leading to excessive competition." Wong predicts that many hotels could face bankruptcy within the next three to five years.

The rise of budget accommodations, homestays, and short-term rentals is also disrupting the traditional hotel model. High-end hotels, heavily reliant on capital investment, are finding it increasingly difficult to compete with lower-cost alternatives.

Geopolitical and Post-Pandemic Challenges
External factors have compounded the hotel industry’s struggles. Since the China-U.S. trade war began in 2018, the decline in foreign tourists has strained the sector. Geopolitical tensions with the U.S. and Europe, coupled with China's support for Russia in the Ukraine war, have tarnished its image in Western markets.

The lingering effects of China’s strict three-year zero-COVID policy have further deterred foreign visitors. Visa-free entry policies aimed at revitalizing inbound tourism have yielded little success.

"The problem isn’t visas—it’s perception," said Wang He, a U.S.-based China affairs observer. "The lockdowns and anti-foreign sentiment during the pandemic have pushed Westerners away, and they’re not coming back."

Outlook for the Hotel Industry
Experts warn that the challenges facing China's hotel industry are structural and unlikely to resolve without significant reforms. "To survive, hotels must focus on cutting costs, diversifying offerings, and aligning with shifting consumer preferences," said Wong.

With no immediate turnaround in sight, industry professionals fear a prolonged period of consolidation, layoffs, and closures as the sector grapples with the realities of an economically cautious domestic market and a diminished international presence.