U.K.-BASED InterContinental Hotels Group expects China to account for up to a third of the company's global expansion over the next three years, which involves adding up to 60,000 net new rooms.

Much of the growth in China will be spurred by domestic travel partly linked to the mainland's massive road building scheme, said the group's chief executive Andrew Cosslett.

With its booming economy, China is at the core of London-listed InterContinental's development plans in the Asia-Pacific region, and will likely become its third-largest market in 10 years after the United States and the U.K., said Cosslett.

"We have a very clear focus in China. There is definitely going to be very significant growth in the chain hotels sector in that market, driven by rising domestic tourism."

The world's largest hotel operator by number of rooms, which owns the high-end InterContinental, Crowne Plaza and Holiday Inn brands, is aiming to manage 125 hotels in China by the end of 2008, a near threefold rise from the current 47, an increase of about 16,000 rooms for China alone. The thrust of its China strategy will be tapping into the mass market via its Holiday Inn chain.

Cosslett attributes the thrust for the rapid growth in China's hotel industry to a surge in domestic travel, underpinned by the country's massive road building projects.

"We're seeing a lot of parallels in China with the United States in the 1950s, when major cities were linked up by what became the world's largest road network," said Cosslett.

The Chinese Government expects highways to span 85,000 kilometers by the year 2020, up from 34,300 kilometers currently as part of a scheme to connect all cities with a population of over 200,000 people with highways.

"The road building will be a huge driver of hotel demand,' said Cosslett.

What is more, Chinese families are starting to take more car touring holidays, a relatively new trend.

The mass market Holiday Inn chain, which represents the bulk of InterContinental's current and future portfolio in China, is preparing to tap a surge in domestic travelers, said Cosslett.

Chinese nationals already account for over 70 percent of Holiday Inn's customer base in China.

"The majority of our international competitors tend to focus on the upper end of the hotel market. So that gives us an opportunity to focus on this segment in the country."

The low proportion of branded hotel rooms in China, either by local or international hotel chains, further underscores the growth opportunities for InterContinental in the mass hotel market.

"The Chinese market will follow the world pattern of a gradual migration towards the branded sector," said Cosslett. "As people get used to seeing higher service standards, they will likely transfer their loyalties to branded hotels."

He said he wouldn't be surprised if the proportion of unbranded to branded hotels declines to 75 percent in 10 years from 90 percent currently.

Worldwide, the proportion of unbranded to branded hotels fell to 63 percent from about 80 percent over the past decade.

InterContinental's expansion in China comes amid a global expansion for the company, which expects a net growth of 50,000-60,000 rooms to its network in three years. It currently has 540,000 hotel rooms worldwide in 3,578 hotels that operate under InterContinental's seven brands.

The push for new capacity follows a change in company strategy, which is shifting from owning hotels to franchised or managed operations. But franchising won't be part of InterContinental's strategy in China as local operators have yet to meet the group's standards. "We don't franchise in China because of cultural and commercial issues, but I think it can happen one day."

For Cosslett, InterContinental's biggest challenge in China will be to find suitable employees to fill an expected 30,000 additional positions opening up as a result of the expansion. It currently has 16,000 workers on its payroll.

Editor: Wing