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13 Mar, 2015

Chinese frugality drive takes toll on luxury hotel revenues

By Cao Yin

Beijing, (China Daily) 2015-03-11 – Five dozen luxury hotels in Beijing lost money in the past few years as tough policies and regulations took effect against government corruption and waste of public funds, an insider from the capital’s tourism authority said during the annual legislative session.

Beijing saw 60 five-star hotels fall into deficit last year, and the vacancy rate climbed to 40 percent, according to Duan Qiang, chairman of Beijing Tourism Group and a deputy to the National People’s Congress.

Meanwhile, the prices of rooms at these hotels declined in every quarter of 2014, Duan said.

“The deficit and the falling room prices are closely related to the country’s anti-graft policies and the ‘eight-point rules’,” he said.

The eight-point rules, first issued in December 2012, ban public servants from misusing funds in eight areas, including meals and the personal use of government vehicles.

In the past, around 70 percent of luxury hotels’ revenues were tied to government departments, and about 15 percent of that was paid directly by the administrations, he said.

“In other words, most consumption in the hotels involved people who invited officials there,” he said. “This has been going down markedly since the harsher policies and rules were pushed.”

To maintain operations and improve business, the hotels now provide services with preferential prices for ordinary people, Duan said.

“Residents often thought five-star hotels were mainly used to hold meetings, and only officials could afford them by spending public funds, but now they can also enjoy the services,” he said. “The number of people who used hotel accommodations, in fact, has not been reduced. The business losses came mainly because of big price cuts,” he said.

Although meals paid for with public funds have declined, some deputies said monitoring that spending remains a challenge, as some luxury venues operate out of public view. Without the eyes and reports of regular customers, it’s hard for disciplinary officers to track.

Zheng Weiyong, a deputy to the NPC from Guizhou province, said the private establishments have shown that the anti-graft fight and enforcement of the eight-point rules still have a long way to go.

Beijing is not the only city to see revenue declines at luxury hotels. Chains in Xi’an, Guilin and Changchun also say their main clients for holidays are no longer government officials but ordinary citizens.

A hotel in Changchun, Jilin province, said they have tried to do their business in other ways, such as providing family programs and activities especially for kids.