Being the member of WTO the Chinese government revised the rigid policies and made the transition to more flexible policies, which were an attempt towards providing equal opportunity to the foreign and domestic competitors in the hotel industry. The Government in shape of the provision of legal, tax and regulatory support supports the entry in the industry. Domestic hotels are promised an end to tax breaks for foreign investors and other changes designed to standardize corporate incentives. The tax preference provision to the foreign direct investment has attracted a massive number of investors in the hospitality industry. The foreign companies have offered a generous tax holiday of 10%-15% in China as compared to the base rate of 33% (whereas domestic companies are generally taxed at 33%). All this led to increased investor confidence in the Chinese market. The adoption of flexible and open arms policy for the foreign investors in the hospitality industry by the Chinese government flooded the Chinese hotel industry with the foreign investors. According to an estimate by the National Tourism Administration of China, the number of five-star hotels in China became five folds i.e. 282 as compared to 57 in 1997 with four-star hotels becoming double in number to 386. With the increasing demand for the hotel industry the internationally famous chains such as Six Continents, which has about 40 Holiday Inns, Crown Plaza and Intercontinental hotels in China and Hong Kong. The number of these well-known hotels is expected to increase in future due to the Olympics to be held in China in 2008. The Chinese government has applied a controlled competition culture which against the liberalization provided by the WTO which lifts most of the regulations from the trade amp. commerce (Yoost, 2005). Many assets in commercial and industrial sectors are state-owned. This, in turn, gives rise to the problem of hidden state regulation imposition of the government on the foreign investors. This strengthens the view that China does not practice liberty in Business. Some of the sectors of the economy are like the hotel industry is still protected by the government.