CHINA'S austerity measures and a sluggish rise in tourism from Taiwan is preventing substantial growth in the country's hotel industry. Holiday Inn Worldwide development vice-president Hugh Holmes said some hotels in China saw their food and beverage receipts down as much as 30 per cent due to China's macro-economic controls. This was happening in the bigger cities including Beijing, Guangzhou and Shanghai where dining out was a well-established social custom. Secondary and tertiary markets were less affected by the credit crunch as dining out was not yet popular there. 'Overall, the situation is still on an upward swing,' Mr Holmes said. The food and beverage departments had been greatly affected by the austerity programme, he said. Despite these problems, most of the big cities were performing much stronger than Southeast Asian cities. Major markets such as Beijing and Shanghai had shown better gains in absolute terms because of the higher room rates, while secondary and tertiary markets had been doing best in percentage terms. Mr Holmes said while gross operating profits of hotels in secondary and tertiary cities were increasing, those in major cities were static and hotels had to look at ways to cut costs. There was still strong demand from frequent individual travellers or businessmen, but group and leisure traveller markets were not as strong as expected, he said. The Taiwanese market, in particular, was still in the shadow of the Qiandao Lake incident in which 24 Taiwanese were killed on board a cruise, leading to a ban of several months on mainland-bound tours by Taiwanese authorities last year. The market was dealt another blow with the deteriorating relations across the strait after Taiwan president Lee Teng-hui's visit to the United States. Infrastructure in Guilin and Xian improved but not enough to drag the markets out of their oversupply situation, Mr Holmes said. Guangzhou still suffered from a hotel building glut worsened by the improved infrastructure. Better roads and transport meant more visitors were going there on day trips instead of staying overnight. Markets in Shanghai and Beijing were still quite strong, Mr Holmes said, and those in Urumuqi and Zhengzhou were doing well. An ING Barings report said Shanghai experienced a drop in hotel occupancy rate across the board this year because of a slowdown in overseas travellers. Long-term tenants were seeking cheaper office space and local demand was shrinking on the back of the macro-economic measures. The report said the average occupancy rate of four-and five-star hotels in the premier financial centre was expected to be 75 per cent next year from 70 per cent, but the gains would soon be wiped out in 1997 and 1998 due to an oversupply in Pudong. Mr Holmes expected stability in China's hotel industry.