Longer-term management contracts are needed as operators and investors have different perceptions of risks and rewards of business

　　China's middle classes are spending a growing portion of their hard-earned cash on travel, both domestically and internationally. Australia alone welcomed 650,000 Chinese visitors last year, where they spent more per person than tourists from any other country.

　　Within China, domestic tourism nights are now close to two visitor nights per capita per year, and if China's domestic and outbound tourism follows the growth pattern seen previously in Asia's newly industrialised economies, then this boom has a long way to run.

　　Unsurprisingly, the major global hotel brands and many new and boutique players are all working hard to expand their presence in the market, with the dual aim of profiting from the domestic tourism boom and raising brand recognition amongst Chinese travellers as they head overseas in greater numbers.

　　Despite, or perhaps because of, this rapid growth, some frictions have emerged between the brands that operate hotels and the developers and investors who construct and own the majority of properties. Essentially, operators and investors have very different perceptions of the risk and rewards in the hotel business, and this mix is further complicated by the even greater distortion in value perceptions held by many local governments in China.

　　Of course deals are being done and hotels are being constructed and the big operators are expanding their chains across China. The concern is not that this hotel boom will end in the short term, but that mismatched expectations will create long-term frictions that may impact on the financial sustainability of the hotel sector.

　　Put simply, many investors feel that in the current market they, or the initial project developer, are taking a disproportionate share of the risk inherent in any business venture. Many believe that hotel operators simply want to ensure a guaranteed financial return and don't place enough emphasis on maximising either short-term cash flow or long-term site value.

　　From the operators' point of view, they are adding the most value to a site, while investors reap most of the financial returns. In addition, many hotel brands are concerned that prime sites are not being offered to them, but only less attractive ones suitable for lower-grade operators.