Consumers in China plan to pay up when it comes to hotels, a Morgan Stanley survey found in late January.

The research points to growing demand for high-end and luxury hotels in China now that the country has ended domestic travel restrictions — and a Covid wave has passed.

“Consumers appear more willing to increase spending on hotel accommodation for their trips vs. pre-Covid, with 20% citing it as their top travel expense compared to 17% each in 2017 and 2020,” Morgan Stanley analysts said.

The report released Tuesday cited a proprietary survey from Jan. 29 to 31 of about 2,000 consumers across China’s larger cities in 19 provinces.

The report said that “37% of the consumers prefer higher star-rated hotels, up from 18% in 2020, with higher-income consumers showing even stronger appetites for luxury hotel stays (47% vs. 31% in 2020).”

“Mentions of budget hotels and mid-range hotels fell universally.”

Consumers’ penchant to save soared to record highs during the pandemic. Retail sales lagged overall economic growth in China in the face of uncertainty about future income.

Morgan Stanley said the survey found a similarly muted appetite for shopping, despite it ranking as the top expense for travelers. The shopping budget for travelers was 9,405 yuan ($1,387), slightly higher than in 2020 but still well below the 2017 level of 13,782 yuan, according to surveys over the past few years.

“The majority of the consumers expect to keep their overall spending unchanged in the next six months (70% vs. 73% last month),” the report said.

But 24% of respondents said they planned to spend more to “upgrade their lifestyles” — an attitude that typically results in buying higher quality products. That’s up from 20% a month ago, the report said.

“The increase in the number of consumers looking to upgrade their lifestyle with higher spend is universal.”

Per capita disposable income in China grew by 2.9% in 2022 to 36,883 ($5,439) when excluding price factors, according to the National Bureau of Statistics. For urban households, disposable incomes rose more than $1,000 above the national level, the data showed.

Back in September, UBS analyst Xin Chen and a team said they expected that after Covid passed, people in China would pay up for hotels.

“The growing mid-/high-income population in China will fuel continued growth in demand for upscale hotels,” the UBS report said. “At present, the number of upscale and luxury hotel guest room contribution and brand penetration rate in China are both lower than in North America.”

It may be an opportunity for international brands.

“We believe it will be challenging for China hotel groups to enter the upscale market,” UBS said.

“China’s hotel groups are still exploring the upscale hotel market, and we think acquisition of established overseas upscale brands may be their best option, and that founding joint ventures with real estate developers could provide property management resources for expansion into the upscale hotel market.”

InterContinental Hotels Group announced this week it signed two hotel deals in Shanghai, including the first hotel in Greater China under its luxury Vignette Collection brand. The hotels are set to open in the first half of 2024, according to a release.

InterContinental, Marriott International and Wyndham Hotels & Resorts are due to release earnings later this month.

Hilton Worldwide Holdings said in its fourth-quarter earnings report overnight that an industry measure of revenue for China showed business was still down by 37% compared to 2019 levels. China’s Covid controls also prevented the company from expanding as much as it had planned in the fourth quarter.

“You’re already starting to see significant travel within China in terms of uptick,” Hilton Worldwide CEO Christopher J. Nassetta said in an earnings call.

“And we expect, particularly in the second half of the year, you’re going to have a big tailwind from that,” he said, according to a StreetAccount transcript.

“There continues to be broader pent-up demand across all segments. I mean, you could argue in the leisure side … people have been doing a lot of it, but we don’t see them slowing down.”

— CNBC’s Michael Bloom contributed to this report.