Carlyle Group LP, the world's second-largest private-equity firm, acquired a controlling stake of 49 percent in China's Mandarin Hotel Holdings Ltd to tap the country's mid-tier hotel market.

Carlyle Asia Partners III, a buyout fund with US$2.6 billion, will be the largest shareholder of the closely held hotel chain, it said in a statement yesterday. The Washington-based firm didn't give the amount of the investment.

"We see good potential in the mid-tier hotel sector, which is less volatile, as luxury travelers tend to trend down when the economy isn't good," Eric Zhang, managing director of the Carlyle fund, said in a phone interview from Hong Kong yesterday. "We are now one of the first movers in the mid-end hotel sector, and we are very confident it will be the leader of the sector in the future."

International five-star hotel operators, including Marriott International Inc and Hilton Worldwide Inc, have been expanding in China, the world's third-largest tourism spot.

Carlyle has spent about US$4 billion in over 60 deals in China. In 2007 it invested in New Century, China's second-largest hotel group that develops luxury hotels in less affluent cities, Zhang said.

Zhang said revenue growth of China's mid-tier hotels may be in the mid-teens in the next three to five years.

Mandarin, which operates 25 hotels in six Chinese cities, owns the Crystal Orange Hotel and Orange Hotel brands. It plans to open its first hotel in Shanghai by the end of the year, said Wu Hai, founder and CEO of Mandarin, in a phone interview.

"With this kind of fund, we can expand to other cities, especially those well-developed," Wu said.