With American and European hotel companies now well represented in China's gateway cities, the search is on for new frontiers. The next stop: tertiary cities for inbound visitors and places everywhere for so-called outbound tourists—native Chinese—to stay.

The strategy for the first goal entails expanding known brands into cities likely to attract more businesspeople than tourists. "(In years past) there was no reason to visit Tianjin," said Thomas McConnell, senior managing director with Cushman & Wakefield Inc. "Now there are three or four hotels there."

The second goal presents a bigger challenge. Native Chinese are accustomed to staying in no-name hotels operated by the government, independent owners or some combination of the two. "It's probably the biggest opportunity for the American and European brands," McConnell said. But those hotels are not easily refurbished, and operators of newly built hotels still must win over their audience.

The good news, according to Deloitte's new HotelBenchmark Survey on China, is that the rapidly rising Chinese middle class is sophisticated and brand aware. And with only 10 percent of Chinese hotels branded, there is plenty of opportunity for brand expansion. Accor opened an Ibis hotel in Beijing earlier in the year and plans two more openings next year.

In one way or another, all major brands are pursuing expansion in China and elsewhere in Asia, driven by the greater growth rate available there than in American and European markets, explained Sean Hennessey, president of Lodging Investment Advisors L.L.C. Also attractive are greater profits because of lower labor costs.

Challenges with development, however, remain significant, ranging from winning local partner buy-in to the length of time it can take to plan the project and even transporting materials cost effectively. Operators are now seeking to institute management training of local staff, a long-term investment that should eventually pay off, Hennessey noted.

By Suzann D. Silverman, Editor-in-Chief