The Jin Jiang Inn in the heart of Shanghai's Puxi district, five minutes from People's Square, offers clean, simple and spacious rooms. Just like its sister hotels scattered throughout Shanghai and beyond, the beds are big and comfortable. There is a water cooler, internet access and a first rate shower with glorious pressure. And, at about US$25 per night, it is cheap.
That's the whole point of the Jin Jiang chain: to provide reliable and affordable accommodation.
It is a budget hotel chain of a type unique to China that is attracting investors from around the world. Home Inns made US$109 million from its NASDAQ listing in October and as CHINA ECONOMIC REVIEW went to press in December Jin Jiang International Hotels had just closed sales on a Hong Kong offering expected to raise more than US$300 million.
Other chains like Motel 168 and 7 Days Inn are all cashing in.
Room for growth
There are plenty of guesthouses in China of wildly diverging quality but rooms at branded budget hotels make up a still tiny fraction of the total. On the other hand, given that the chains out there are proving profitable, the industry is well poised for a boom. However, this could ultimately prove its undoing.
As in every other industry in China with low entry barriers, sooner or later the problem will be one of oversupply, says UBS analyst Eric Wong.
When that happens, the brand strength of the budget hotels will be tested, as will their ability to make the shift from a cheap alternative to the foreign luxury operations into value added facilities with strong brands.
Local operators have an edge. They can more easily navigate the multiple deals needed to set up hotel networks in various cities and have the contacts and local understanding to provide basic services. Foreign operators are just not nimble enough to navigate hundreds of contracts.
"I think the foreigners will have a hard time catching up," said Wong.
Although it may be impossible to say just how much room for expansion there is, since accurate studies on occupancy at guesthouses are not readily available, budget hotels in China may have a clear road ahead.
Recent crackdowns on real estate developments by the central government do not apply to them since most are leased properties and Chinese people are generally still unwilling to splash out on luxury.
But, if these chains continue to make money, they will be imitated. "Profitable industries are soon swarmed with market players," Wong said.
In the long term, that may take away from the attractiveness of the sector since oversupply will force some of them to move up the value chain to differentiate their brands while other, less savvy players will remain empty.
In developed economies there are no strictly "budget" hotel chains. The ones that do start to make headway are generally absorbed by larger operators or created as secondary brands with fewer services, but still head and shoulders above the likes of Jin Jiang or Home Inns.
For now and in China, however, there are hundreds of millions of prospective customers with low-but-growing incomes and a liking for a simple bed.