Reform of stat-owned hotels is the developing tendency of Chinese tourism and hotel industries and the necessary method to enhance the operation and management level and international competitive competence of Chinese hotel industry. MBO is one of the important methods adopted for Chinese industry structural adjustment and state-owned assets reconstruction and one of the three policies of state-out & private-in for Chinese enterprise reorganization, besides the methods of foreign capital merger and private enterprise's acquisition of state-owned enterprise. The article will make study on the reform of state-owned hotels in China from the viewpoint of MBO.

I. About MBO
Management Buyout or MBO for short, as a form of leverage buyout, means that the management class of a target company purchases the stock of a target enterprise by financing and the form of leverage buyout to acquire the power to control the target enterprise and transform the corporate ownership structure, control pattern and corporate asset structure and therefore reorganize its own company and acquire expected profit. MBO is a fresh merger method that develops based on the traditional merger theory in 1970s and emphasizes on the boosting of management value of an enterprise by human capital.

II. Significance of MBO on the reform of sate-owned hotels in China
1. Adjust the asset structure of state-owned hotels and optimize hotel operation and management mechanism
The reform of state-owned hotels under the master plan of the state aims to adjust the asset structure of state-owned hotels, reduce the share of state-owned assets among total assets of the hotel and improve the operation energy of state-owned hotels by the application of enterprise-oriented reconstruction. The reduction of the share of state-owned assets means the increase of non-state assets and the sate-owned assets are transferred in certain way. For management buyout, the relevant assets of the state-owned hotel are transferred to the management class via MBO who has made contribution to the operation and management of the hotel, which not only realize the transfer of state-owned assets, optimize the asset structure of the hotel and activate the hotel operation and management mechanism, but also avoid big change of the leadership because the state-owned assets are transferred to the employees of the hotel, which does good for the stability and development of the hotel.

2. Realize the transfer of state-owned assets and enhance hotel operation efficiency
With the application of MBO to state-owned hotels, state-owned assets can be effectively transferred and withdrawn and the asset structure is therefore optimized. After MBO, hotel management class can further implement internal reform and element reorganization and carry out high-profit business. It is possible to make debt service with normal cash flow and by selling part of assets, reduce financial cost and the ratio of liability and relieve burden of the hotel.

3. Promote the innovation of hotel operation and management and improve the operation and management level
After MBO, hotel is no longer owned alone by the state and other owners will carry out supervision and lodge higher requirement on the operation and management of the hotel, which further bind the behavior of managers and require the management class to carry out continuous innovation on hotel operation and management to maintain the market competence and business profit of the hotel and promote the level of hotel operation and management.

4. Inspire the enthusiasm of employees and pool talents for hotels
After a state-owned hotel implements MBO, operators and managers of the hotel will not only own some share of the hotel but also are closely related with the profit, which greatly inspire their enthusiasm to carry out operation and management innovation and expand hotel potential. The hotel has attracted them to stay there as a host and exert their capability for the realization of their dream and the development of the hotel.

III. Two Barriers Against the Implementation of MBO in China
1. Ideological barrier
Quite a few people believe that the implementation of MBO in state-owned hotels means the loss of state-owned assets and therefore oppose the reform of state-owned hotels by MBO. Frankly speaking, in the course of the reform of state-owned enterprises in China, indeed there exists the matter of the loss of state-owned assets during the implementation of MBO. However, if you make an in-dept study, you will find the loss is not caused by MBO but the unreasonable pricing of state-owned assets during the implementation of MBO. Therefore, as long as the assets of state-owned hotels to be transferred can be evaluated and priced reasonably and correctly, they will withdraw from these hotels after the implementation of MBO and transform into cash or other tangible assets with no reduction of state-owned assets in totality and only the change of form.

2. Legal barrier
Truly, present Chinese legal system on MBO is immature and incomplete and will block the MBO reform of state-owned hotels. Considering present laws, codes and regulations in China, it is perfectly possible and legal for the management class to become the transferee of the state-owned assets of an enterprise. For example, as the Article 2 of the Provisional Procedures for the Management of Enterprises' Property Right Transfer specifies: the procedures are applicable to the transfer-with-compensation of enterprise' state-owned property right held by any state-owned assets supervision and management institution or enterprise to a legal person, natural person or any other organization home or abroad. The management class as the natural person is of course in the name list of such transferees. However, Article 46 of the Regulations on Stock Issuing and Transaction Management specifies: any individual should not hold the common stock of more than 5‰ of a listed company issued externally, which evidently disqualify the natural person as the transferee of a listed company by MBO. Besides the legal limitation on MBO purchaser, there are limitations on financing and anti-purchase policies. Therefore, state-owned hotels expect big difficulty for MBO reform.

IV. Problems for State-owned Hotels to Implement MBO
1. Assets pricing
The key matter for state-owned hotels to implement MBO is the evaluation of state-owned assets. Too low evaluation will bring the loss of state-owned assets, while too high evaluation will affect the enthusiasm and purchase capability of the management class. The evaluation of assets of any state-owned hotel involves a series matters like the original value and the carrying value of fixed assets, assets, debt, financial claim, liabilities, intangible and tangible assets and other assets of hotel. Asset evaluation meets difficulty to make clearance of these relationships. Simplified operation may cause improper solution of these relationships, incorrect asset evaluation and other new matters. Therefore, we should comprehensively consider the interests of relevant entities like the state and individual, especially guarantee the efficient protection of state-owned assets and carry out just and scientific evaluation and pricing for state-owned assets of the hotel to lay a solid foundation for the success of MBO reform.

2. Capital support
Though the management class is the purchaser when the state-owned hotel implements MBO, they are likely not to afford to buy it. That is to say, the hotel management class can only buy state-owned assets by financing. However, at present, there is little financing tool and narrow financing channel in domestic capital market and it is difficult for the management class to gather the huge capital as needed. Thus, how to provide capital support for the management class is a specific and important matter to be solved to guarantee the successful implementation of MBO.

3. Information asymmetry
The hotel management class, as the purchaser during the implementation of MBO, is familiar with the operation and finance of the hotel and is possible to obtain profit illegally in practice by making use of information asymmetry arising out of common matters existing in Chinese state-owned enterprises like poor supervision and owner omission. Information asymmetry between the hotel management class and the government scares governments to decide a MBO reform and makes them afraid of any possible loss of state-owned assets.

4. Lack of professionals
MBO is fresh to hotel management class and expects no comprehensive professional talents. Governments are lack of experience in this field and it is also fresh for them to implement the MBO reform in state-owned hotels. Perhaps, they may seek for assistance from MBO agencies. However, since that MBO has just a short history in China and is still in the experiment and exploration stage, MBO agencies also lack of experienced and enough professionals. Especially for the hotel industry, they have little practice experience and can not meet the demand of state-owned hotels on the implementation of MBO.

V. Policies for State-owned Hotels to Implement MBO
1. Establish reasonable hotel asset purchasing price assessment system
Governments are concerned about the matter of any possible loss of state-owned assets during the implementation of MBO in a hotel, while the hotel management class may have their zest and purchase capability influenced by the purchase price of hotel assets and the asset value. Therefore, it is necessary to establish a reasonable and just purchase rice assessment system, which is the basic task for state-owned hotels to implement MBO reform and the focus to standardize the purchase of the management class. Too low pricing will cause the loss of state-owned assets and impair the interest of the state. Thus, it is required to establish the reasonable and just price assessment system for MBO. For example, a professional asset assessment team may be set up to assess comprehensively the asset status, financial status and business potential of the hotel, compare the profitability of the hotel and fix the price according to its potential and competence. In the meantime, it shall consider comprehensively the reasonable compensation for the management class, acknowledge the value of human capital of the hotel management class and materialize the principle of distribution based on elements. It is not allowed to make evaluation according to the net assets of the hotel and adopt the system that the price of state-owned assets should not be lower than that of net assets, which will tempt the management class to decrease profit fictitiously and reduce ledger net assets. Thus, the pricing of hotel's state-owned assets should allow the comprehensive consideration of various factors but the copy of the system.

2. Set up and upgrade the financial support and service system
The hotel industry is an asset-intensive industry and the implementation of MBO in state-owned hotels needs abundant purchasing capital. To hotel management class, it is difficult for them to collect enough capital to purchase the state-owned assets of a hotel. Therefore, it is fairly important to set up and upgrade the financial support and service system for state-owned hotels to implement MBO. Governments may open the loan policy to the management class and offer reasonable preferential items on loan application, loan amount and repayment term with the guarantee that the loan should be applied in the purchase. Also, a MBO foundation may be developed to supply purchasing capital to the management class by means of fund. Under the circumstances of China's entry to WTO, the entry of foreign MBO fund may also be permitted to enrich the source of purchase capital of the management class and provide capital guarantee for state-owned hotels to implement MBO. Trust is another method that is operational, safe and legal. In a word, for the success of the implementation of MBO, financial system reform and innovation are required to promote the development of financial market, develop more types of financial tools and expand the financing channel for hotel management class.

3. Train positively professional talents to implement MBO
MBO provides a brand-new concept and method for the reform of Chinese state-owned hotels but lacks relevant professionals and practice experience due to its short history in China, which means a big challenge for MBO reform of state-owned hotels. In the course of the implement of MBO, state-owned hotels can develop and introduce talents. In one hand, talents can be selected from hotels and receive relevant trainings on MBO; in the other hand, professionals can be introduced in from MBO agencies to speed the implementation of the talent program. However, due to the particularity of the hotel industry, talents from the agencies may lack of knowledge on this point and are difficult to undertake hotel MBO singly. Therefore, it is necessary to combine them with hotel professionals and absorb practice experience on talent introduction and expertise of hotel employees to cultivate MBO professionals needed by hotel reform, which shall provide talent support for MBO reform, speed up hotel reform and cut process cost.