Chen didn't expect the drive to deal such a heavy blow to the hotel industry.

He said the New Century Tourism Group, parent group to 64 hotels, including more than 40 with starred ratings, had agreed to provide management services for 75 new hotels once they were put to operation.

Now, a dozen of them have seen their construction suspended. For the others, construction has seriously fallen behind their original schedules, Chen said.

To remedy the situation, Chen said one of his four-star hotels in Tianjin had been shut down and would seek to reopen as a nursing home after the Spring Festival.

Chen was not the only hotel manager in China seeking to reposition his business while the hotel industry struggles.

Yang Xiaowei, a sales manager at Lijingwan International Hotel in Beijing, said that many government organizations had canceled their traditional year-end banquets under the pressure of austerity.

"High-end restaurants and hotels are really suffering, as nearly 60 percent of our turnover used to come from governmental departments and state-owned enterprises," said Yang.

Last year, the hotel posted less than four million yuan ($655,738) in business generated at public expense, compared to over six million yuan in 2012.

But Yang does not see voluntary downgrading as a sustainable solution for luxury hotels to survive.

"We put our bet on private consumption. We have offered more discounts to the public and strived to increase our visibility on the Internet," she said.

Zhang Yan, a sociology researcher with the Shaanxi Provincial Academy of Social Sciences, also agreed that it is time for the Chinese hotel industry to reduce its dependence on public expenses.

"I think the Party's crackdown on corruption and extravagance will advance in the Year of Horse. Luxury hotels and restaurants will have to face the lingering cold air," Zhang said.

"They have to innovate their operations and marketing activities to become more appealing to individual consumers. Meanwhile, as too many hotels exist in the market, mergers and acquisitions are indispensable this year," she said.