By Su Min and Wu Li

"The year of 2007 witnessed the sharp increase in investment in China's economic hotels. Although the cost of economic hotels will keep increasing consistently in the future and a temporary imbalance has also emerged in partial market, there still exists a large room for development for China's economic hotels." Han Ming, Chairman of China Hotel Association, said on the 2008 Summit of the Development of China's Economic Hotels held a few days ago.

Since the birth of Jinjiang Inn, China's first economic hotel brand in a full sense, in 1997, China's economic hotels have been developing increasingly during the past twelve years, and have became a fresh troop in the hotel industry. 2008 Survey Report on China's Economic Hotels issued recently by China Hotel Association showed that the supply in China's economic hotel market kept a rapid growth momentum in 2007, and the top ten enterprises had opened 1080 hotels with 135,896 rooms, up 125 percent and 123 percent respectively compared with 2006; and Home Inn and Jinjiang Inn have their presence in 29 provinces, autonomous regions and cities.

The year 2007 is also such a year that the foreign investment and the added financing on China's economic hotels are enlarged rapidly, and the investment and financing show a concentrated increase. As surveyed, there were 5 + enterprises whose investment and financing exceeded 50 million US Dollars, and it was estimated that the newly introduced capital into the entire economic hotel market reached 400 to 500 million US Dollars for the whole year. Pushed by the capital, the market expansion mode of enterprises is also developing from self-generating mode to integrated mode.

The overall operation in the economic hotel market is steady, but imbalance occurs in partial market. Compared with the one in 2006, the average room price of economic hotels was RMB 190 yuan, increased by 13 percent in 2007; the average occupancy rate was 82 percent, decreased a small 0.4 percent. However, in such popular areas of economic hotels as Beijing, Shanghai and the entire East China, the occupancy rate has experienced a more significant decrease of 4 to 5 percent. Due to the difference in the location selection, orientation and service specialty for various enterprises, even in the same city, a structural imbalance between the lack of effective supply and the increasingly sliding-down occupancy rate still exists. What need to be explained is that although the occupancy rate of economic hotels had lowered a bit in 2007, the average occupancy rate of 82 percent was still much higher than 60 percent, the rate of star-rated hotels in the same period.

The continuously elevated operating cost of enterprises and the variance emergence on market expectation is another sharp characteristic of the economic hotels in 2007. In 2007, the average amount of investment on the newly opened economic hotels increased by 18 percent compared with 2006, the average growth rate of property lease cost went up by 29 percent, while the growth scope of the operating revenue was only 11 percent, so the enterprises' profit earning space was further compressed and the payoff period was extended correspondingly. Due to the overquick expansion and the relatively short of professional managerial talents and such property suitable for operation, such a contradiction also restricted the development of economic hotels, especially the lease price of partial property had exceeded far the upper limit of the "operation economy" for economic hotels in 2007.

Therefore, some enterprises adjusted the pace of expansion and the orientation of development correspondingly. Seeking brand differentiation and deepening product innovation have become a major trend in China's economic hotels in 2007. In order to meet the future demand of seeking brand differentiation and customization in the economic hotel market, enterprises endeavor to dig the brand connotation and elevate service quality while developing segmented brands. For instance, Jinjiang Inn will launch one or two brands to segment the economic hotel market in the second half of this year, and such segment brands do not simply simulate Jinjiang Inn pattern, but are such brand new hotel products with simplified flow, integrated system, innovative management and intent to be built up for consumers.