I think it IS a form of discrimination. A foreigner should be allowed to stay wherever they like, unless in a sensitive military area etc, and that rule would apply in many countries.

I don't think it is the two star hotel itself that is discriminating though. I'm sure many of these cheaper Chinese hotels would like to have foreign guests.

These hotels have to abide by the regulations even if they appear to be racist and discriminatory. If a receptionist/manager etc at these types of hotel were
to allow foreigners to stay unregistered and the local authorities found out I'm guessing that individual could be in serious trouble.

It's no good blaming the individual small hotel owners. I know foreigners who verbally abused hotel owners even after they gave the foreigner a long explanation why they could not stay there.

It is fairly stupid and pointless to blame the individual hotels, it is the SYSTEM that is the problem like a lot of things in China.

Mr Caring should just move on, and btw having a Chinese wife won't help you one bit in regard to this problem.