In 2003, the China National Tourism Administration (CNTA) estimated that the mainland had 9,751 star-rated hotels which provided 992,804 rooms.
Fast forward to 2006 and Howarth projects that Shanghai alone will have 20 per cent more rooms, bringing the total room inventory in the city to 8,766 from 7,310 this year. It expects that number to increase by 13 per cent in 2007, 10 per cent in 2008 and another 14 per cent by 2009, taking the total number of rooms to 12,396.
In Beijing, the rush to build hotels in time for the 2008 Olympics will drive up room inventory by 80 per cent from this year to 2009, to a total of 9,300 rooms. The hotel glut will reduce occupancy levels from 73 per cent this year to 60 per cent in 2009, which will then stabilise.
But more hotels will not mean lower costs for guests because increasing demand has bolstered occupancy rates in big cities.
"In peak demand periods, occupancy is around 80 to 90 per cent. Shanghai is running at 80 per cent year to date," said Nigel Summers, a director at Horwath.
Horwath's research shows Shanghai's upper-tier hotels enjoyed 79 per cent average occupancy last year and room rates rose 17 per cent to 1,362 yuan.
"Hotels are now more selective in turning away the lower yield and enjoying the luxury of indulging the higher-paying corporate market," said Adrien Desbaillets, a Horwath consultant.
Roland Jegge, WorldHotels' vice-president Asia Pacific, said average occupancy in Shanghai increased 1.7 per cent to 70.6 per cent in the first quarter this year and average room rate increased nearly 16 per cent to 945 yuan.
Rates are likely to rise further, even as hotel construction booms. "Many luxury properties will come in at a higher level [of room rate]. For example, the Peninsula will set a new ceiling and push the market up. The same thing happened when the Grand Hyatt opened [in Shanghai in 2001]," said Mr Summers.
In Beijing, room supply is projected to grow by 19 per cent next year, to a total of 6,202 rooms, by another 16 per cent in 2007 and 23 per cent in 2008, reaching a total of 8,854 rooms in time for the Olympics' starter's gun.
Room supply will then stabilise at about 9,304 from 2009.
Mr Jegge said that in the first quarter of the year Beijing achieved average occupancy of 75 per cent and average room rate of 751 yuan.
He anticipates that both Shanghai and Beijing will see a similar rate of growth next year. The group has already budgeted a 10 per cent increase for business travel to China next year.