China’s budget hotel industry, with prices around 200 yuan (US$25) a night, has started to develop rapidly. With more and more investors entering the industry, greater competition has given rise of smaller market segments as hotels strive to differentiate themselves from each other.

Merrylin Holdings Limited, a leading company in China’s hospitality and dining industries, has launched a new budget hotel chain YotelQQ, which targets younger consumers, and another brand that targets at both domestic and international tourists. Merrylin is the owner of the Motel 160 budget hotel chain. This is the company’s first expansion to smaller market segment after Morgan Stanley invested into Merrylin’s budget hotel business.

Merrylin and Dazhong Transport jointly established the Motel 168 Chain Hotel in 2002 with registered capital of 15 million yuan (US$1.875 million). Motel 168 is characterized by its “168 yuan per night” prices. The company also launched a high-profile Motel 268 label with focus on self-service. The Motel label now owns 40 hotels across the country.

The launching of the two new brands is in effort to further strengthen the company’s share of the market and target different segments of the market. YotelQQ is characterized by simple design with only 50 guest rooms. It started a trial operation in August and September of this year. Currently, there are only two YotelQQ in Beijing and Jinhua district, at around 100 yuan (US$12.5) per night.

Ease Hotel is another new brand targeted at tourists, characterized by Chinese décor and style as well as services for business travelers. There are currently four Ease Hotels located in Shenzhen, Guangzhou, Beijing and Shanghai, which cost around 300 yuan (US$37.5) per night.

Many budget hotel operators have started to employ diverse strategies and pricing strategies to penetrate different segments. America’s budget hotel chain Super 8 Hotel offers different décor and prices in different regions, ranging from 100 yuan to 300 yuan (US$12.5-37.5). To reach consumers desiring rooms for 100 yuan to 300 yuan per night, Star Cruises has launched a new hotel label My Inn, with the promotional campaign of 99 yuan per night. Europe’s Youth Hostel Organizations target student and backpackers with simple and cheap hostel services.

Jinjiang Inn, an affiliate of Jinjiang Group, is also seeking greater expansion into this market segment. Apart from expanding the number of hotels, Jinjiang plans to have more brands under the management of Jinjiang Inn. Magnolia Hotel, for example, will be re-positioned to attract business travelers, while the Xinjinjiang Business & Travel Hotel will be re-positioned to attract tourists.

The budget hotel industry is expected to boom with greater domestic and foreign travel. According to the statistics of the National Bureau of Statistics, individual Chinese made 1.21 billion trips within the country in 2005, a sharp increase from 744 million five years ago.