RESTAURANT owner City Chiu Chow (Holdings) is making a move into the hotels business in an $85 million deal in Huizhou, Guangdong province. It is spending $26.5 million taking a controlling stake in a joint venture managing an 88-room hotel on the shore of the Xihu Lake. It plans to spend a further $58 million renovating it and building a 200-room four-star hotel next door. The move will be funded by the placement of 30.4 million shares at $1.28 each currently owned by controlling shareholders, raising $36 million. The new shares represent a 20 per cent increase in the company's issued capital. The right to operate the Huizhou Xihu Xiang Ge Li La Hotel for 30 years will also involve monthly license payments. The hotel is described as tourist-class, with management rights owned by the Huizhou Xihu China Travel Agency. The hotel has a Chiu Chow restaurant which the company will manage. Mahjong and sauna facilities will be added. Construction of the new hotel is planned for 1996. Chairman Cheng Hop-fai hinted at expansion plans outside its existing business in March, with China as the main focus. The firm is best known for its claim to be the largest Chiu Chow restaurant chain in Hong Kong. It announced plans nine months ago to set up a restaurant in Guangdong, its first outside the territory. Yesterday Mr Cheng said the hotel move was driven by the belief that personal incomes in China would keep rising, increasing demand for up-market hotels and relatively expensive eating places. ''We are extremely confident about our management ability in the area of hotel operations as it represents a diversification which is consistent with the scope of the company's business activities.'' The placement is at a 3.8 per cent discount to the closing price of $1.33 a share on August 26. The shares were suspended on August 27. Expansion plans have been consuming the company's funds since its listing in October last year. The shares in the $48.7 million float were priced at $1.28 each - the same price used in the placement announced yesterday. No details were given about the investors taking up the new shares.