Download Business China 30 Jul 2001

Business China 30 Jul 2001
China: A golden opportunity
Beijing has won the Olympic Games' most prestigious award -- hosting the event. Now China will be under pressure to
prove itself worthy
China is having a good year. Accession into the World Trading Organisation seems closer than ever, with final entry
expected in early 2002. And on July 13th the country won its bid to hold the 2008 Olympic Games in Beijing. The
victory was a political one for China. It sets China's capital alongside other cities that have held the games, and
rewards China's economic success despite its leaders' sundry shortcomings.
When the IOC announced in Moscow that Beijing had beaten its rivals -- Toronto, Paris, Istanbul and Osaka -- the
Chinese government probably met the news with as much relief as excitement. Having lost its bid for the 2000
Olympics to Sydney in part because of the 1989 Beijing Massacre, another failure would have alienated the country as
it tries to enter the global community. Instead, the government gambled and won, this time overcoming human rights
issues centring on the country's Strike Hard campaign -- a crackdown on crime and social dissent that has resulted in
more than 1,700 executions since January.
The controversy continues, some comparing Beijing's 2008 Games with the 1936 Games in Berlin. Indeed, the
government's treatment of human rights is unlikely to improve, and will continue to be scrutinised. Czech officials
plan to establish an international committee to protest the IOC decision, monitor human rights in China and perhaps go
so far as to recommend a worldwide boycott of the 2008 Games if it determines human rights have not improved.
This will put pressure on the government to avoid politically sensitive issues. Perhaps because of this, Taiwan officials
as well as the Dalai Lama supported Beijing's bid. Having won, China is likely to avoid military action against Taiwan
in the next seven years -- especially if it remembers the boycott of the 1980 Games in Moscow after the Soviet Union's
invasion of Afganistan a year earlier. And more media coverage of China may lead to increased focus on the Dalai
Lama and Tibet.
Above and beyond
The political significance of the 2008 event has inspired the central government to invest heavily in preparations. The
allocation of Rmb180bn (US$22bn) for city improvements over the next seven years makes it one of the largest
public-works projects in China, behind the US$30bn Three Gorges Damn, and perhaps the most expensive Olympic
Games ever held. In contrast, Sydney's 2000 Games cost the city less than US$3bn, in part because the city required
less development than will Beijing.
Some of the government's plans are as follows:
* Olympic venues. The city has earmarked US$1.6bn for the building of 22 Olympic venues, including an 80,000-seat
stadium and accommodation for athletes.
* Transportation. Rmb90bn (US$10.9bn) has been allocated for construction of underground railways, light railways
and expressways, and a US$1bn expansion of Beijing International Airport, which involves construction of a third
terminal, two runways and a duty-free shopping arcade, as well as enlargement of the cargo complex.
* Environment. Rmb45bn (US$5.4bn) will go towards environmental protection. According to the city's
Environmental Protection Administration, Beijing's afforested area will increase to 50% by 2008, and 125 sq km of
tree belts will surround the city. And 20,000 city buses are to be converted from diesel fuel to natural gas, and 110
(c) 2001 The Economist Intelligence Unit Ltd.
polluting factories are to move outside the city's fourth ring road.
* Communications. Beijing will invest Rmb30bn (US$3.6bn) to upgrade information services.
* Utilities. Rmb15bn (US$1.8bn) will go towards water, electricity, gas and heating facilities. An additional
Rmb200m (US$24m) will fund a public toilet reconstruction project.
* Tourism. Rmb1.7bn (US$205m) has been designated to protect the city's cultural heritage sites, but may also fund
the clearing of Beijing's older sections in favour of modern buildings. The city plans to double the existing number of
hotels.
Beijing will be counting on foreign investment to help fund these projects. The city has chosen US-based urban design
firm RTKL's plan for an Olympic park. Canadian construction firm SNC-Lavalin has won a US$1.5bn contract to dig
tunnels for Beijing's new 400-km underground railway, with transportation-equipment maker Bombardier, also of
Canada, to provide trains for the underground.
Foreign sponsorship has already begun to bring revenues. US corporations, including General Motors and Xerox,
Dutch beer maker Heineken, Japan's Fuji Film, Australia's telecoms firm Telstra and Taiwan's PC manufacturer Acer
are among 20 corporations that underwrote two-thirds of Beijing's US$20m bid budget. The city can also expect
revenues from the IOC's global sponsors, which include McDonald's, Coca-Cola and Eastman Kodak, and from 10
partners and 10-15 sponsors, expected to bring some US$130m in revenues. Beijing has already signed contracts
worth US$1.2bn for TV rights and Olympic sponsorships.
Short-term fix
The government's proposed projects reflect its desire to demonstrate the country's economic development and
ecological awareness. Official media have called the 2008 Games the "High-tech Olympics" and the "Green
Olympics", as preparations aim to improve Beijing's environment, establish state-of-the-art facilities and lead to larger
city revenues. And they are likely to do so. In all, the government forecasts Games-related fixed- asset investment and
foreign direct investment (FDI) will add 0.3-0.4 percentage points to China's GDP annual growth in the next seven
years.
But the economic impact of the 2008 Games should not be exaggerated. Indeed, if such massive investments are not
carefully managed, Beijing may be left with large debts, as were Montreal and Barcelona after the cities hosted the
1976 and 1992 Games, respectively. At best, Beijing will turn a profit, but according to official calculations, the city
expects total profits to reach only US$19m.
Moreover, the long-term economic gains resulting from the Games are likely to be minimal. China's Games will come
too late to influence the broader economy as did the 1964 Olympic Games in Tokyo, which acted as a catalyst for the
country's post-war reconstruction and launch into manufacturing. China is likely to have been a part of the WTO for
several years by 2008. By opening markets and eliminating trade barriers, membership in the WTO will do much more
to increase China's trade and FDI than the Olympic Games.
(c) 2001 The Economist Intelligence Unit Ltd.