China’s drive for frugality is taking a huge toll on the country’s five-star hotels

The rating used to signify prestige and guarantee high profits for these accommodations, but now, those profits are declining. According to a report from the China Tourist Hotel Association, total revenues of five-star hotels dropped by 14 percent during the first half of 2013.

Business leaders are already taking action. Chen Miaolin, Chairman of New Century Tourism Group based in East China’s Zhejiang province has opted to delay plans to upgrade his five four-star New Century Hotels to five stars. Chen, who also serves as vice president of the China Tourism Association, said that other lower-rated hotels have done the same, and that 56 five-star hotels even sought to lower their ratings last year.

Chen said that the business decline is the result of the Communist Party of China’s (CPC’s) recent ban on official spending at five-star hotels at public expense. The entire Chinese hospitality industry felt the pinch last year, with 20 or more hotels closing down each month. The industry also reported a 25 percent decrease in its aggregate business turnover in 2013.

Jing’An Shangri-La Hotel, Shanghai