As suggested by the strategic management literature, foreign-invested firms with superior technology and managerial skills are likely to generate productivity spillovers that may benefit local firms. In this article, we examine productivity spillovers in the context of the hotel industry. Using panel data from star-rated hotels in China’s major cities from 2001 to 2012, we model the labor productivity of domestic hotels as dependent on degree of foreign hotel presence in the city and on other control variables. Our results confirm the existence of productivity spillovers in China’s hotel industry and suggest that the presence of foreign capital is associated with higher labor productivity among domestic hotels. Moreover, the magnitude of these spillovers increases along with the productivity gap between domestic and foreign-invested hotels. Finally, we present several policy implications based on the econometric estimation results.