Download Hong Kong and Shanghai

Presented by:
Katy Cheng
Caroline Tsen
Bryan Villamin
Agenda
Introduction
Hong Kong
Shanghai
Conclusion
Q & A
Introduction
• Why China?
– Steady growth of GDP
– Receives the most FDI in the world
– Untapped (amusement park) market
– Strategic move against Vivendi-Universal
• Two viable locations
– Hong Kong
– Shanghai
Agenda
Introduction
Hong Kong
Shanghai
Conclusion
Q & A
Hong Kong
• Agreement Hong Kong SAR Government
– The Walt Disney Company unveiled plans for a proposed Hong
Kong Disneyland announced on 2 Nov 1999 after 1 year of
negotiations
– 126-hectare theme park
• Development Proposal made up of
themed lands
– Fantasy
– Excitement
– Adventure
Hong Kong …cont’d
• Hong Kong Government
– Consist of 2 phases in the proposed plan
• The Phase I include constructing 3-4 Disney themed resort
hotels with up to 2,100 hotel rooms
• 28,000 square-meter retail, dining and entertainment
complex
• Expected to create an estimated 36,000 jobs
• The Phase II agreement also anticipates upon the
completion of Phase I.
• HK$11.9 billion package of infrastructure
– land
– road
Hong Kong …cont’d
• Hong Kong has now become one of the most important
financial centres in the Asia Pacific Region.
• China’s adopting the open door policy
– strong positive impact towards the stability of Hong Kong’s financial
systems in the long run enjoy total flexibility in the movement and the
repatriation of profits
• “One Country, Two Systems” policy
• Hong Kong has undergone very sharp challenges
– Asian Financial Crisis
• Per capita income in Hong Kong averages nearly
US$20,000 per year
Hong Kong – Risks
• Political Risk
– Hong Kong Government
• Based on the estimation of the Government, the projected
economic benefits that will be generated from Hong Kong
Disneyland are huge, despite billions to be invested (HKSAR,
1999b).
• Hong Kong Government has to bear the major investment
costs on land formation and infrastructure in respect of the
Penny’s Bay site where the park is being built.
Hong Kong – Risks …cont’d
• Political Risk
– Hong Kong Government
• the project as a gamble
– the betting is mainly on the Asian economy that
numerous travellers would be attracted to Hong Kong by
the park if the economy in the region is prosperous, and
on China’s in particular
– However, the more the investment costs, the higher the
risk involved
– E.g. Paris Disneyland Experience
» the deal is considered unfair because the total
investment of Walt Disney Company in the project is
only one-tenth of that of the Government (Far
Eastern Economic Review, 1999).
Hong Kong – Risks …cont’d
• Political Risk
– Hong Kong Government
• First, projecting the level and composition of
attendance at the theme park;
• Second, estimating the additional spending of
attendees; and
• Third, assessing the value added or income that
can be derived from such additional spending.
Hong Kong – Risks …cont’d
• Political Risk
– Hong Kong Government
• According to the Financial Services Bureau, the construction
work relies heavily on imported raw material, machinery,
equipment and expatriate professionals and skilled labour
• The projected life of Hong Kong Disneyland is expected to be
40 years in line with the American theme parks because
constant changes have to be introduced to the park over the
intervening period.
Hong Kong – Risks …cont’d
• Transfer Risk
• Transfer problem
– focused on import and export trading market
» Moving good and services between
countries at exchange rates which are
unexpected.
• Translation problem
– creating an international market
– Change in values, culture
Hong Kong – Risks …cont’d
• Transfer Risk
– Foreign Exchange Market
• Effects on direct and indirect on the revenue & cost
– The transaction of locally consumed capital only took up
1/7th of total foreign exchange transactions.
– Based on the calculation of the foreign exchange market,
Hong Kong is one of the four largest.
– In 1992, the daily transaction rate was 600 billion US$,
ranked sixth.
– 3 years later, foreign exchange market transaction had in
creased by 50%, being ranked 5th by the world
Hong Kong – Risks …cont’d
• Transfer Risk
– Taxation
• Hong Kong taxes are among the lowest in the world, and
Hong Kong’s tax regime is simple and predictable
• corporate profits tax rate is 17.5%
• No tax is paid by firms or individuals on foreign-sourced
income
• No tax dividends or bank interest
• no capital gains tax, no VAT or sales tax
• no estate duty tax on non-Hong Kong assets
• Basically, only company profits, salaries and property rental
income are taxable
Agenda
Introduction
Hong Kong
Shanghai
Conclusion
Q & A
Why Shanghai?
• Recognized as the economic leader in
China
• Contributes 5% to China’s GDP
• Highest GDP per capita in the country
• Largest recipient of FDI in the country
• Site of the World Expo in 2010
– making substantial infrastructure
improvements
Shanghai - Risks
• Expropriation: the involuntary transfer of
property, with compensation, from a privately
owned firm to a host country government
• Expropriation risk is mitigated because
the government would take a controlling
equity stake
• No other commercial or multi-lateral
agency partners are involved in the project
Shanghai - Risks …cont’d
• Currency risk is not mitigated because the
Disney park would be conducting transactions in
local currency
– Ticket costs, staff salary, etc
• However, China has maintained a steady
exchange rate for the past 10 years
EXCHANGE RATES Yuan per US dollar
8.3600
8.3400
8.3200
8.3000
8.2800
8.2600
8.2400
Source: Asian
Development Bank
8.2200
1995
1996
1997
1998
1999
2000
2001
2002
Shanghai - Risks …cont’d
• Labour Markets
– Unskilled labour is cheap and plentiful
• Rural workers
– Skilled professionals are in short supply
• Coastal workers
• Unions – labour representatives must be
approved by the state
Shanghai - Risks …cont’d
• Because the project is in the tourism
industry and involves an American cultural
icon, the susceptibility to strikes or
terrorism may be slightly higher than
average
• Political tension in the Korean peninsula
Cheating, Counterfeiting & Corruption
• 50% of the 4 billion contracts signed in
China are fraudulent
• Economic corruption eats up 13% - 17% of
the country’s annual GDP
• Tax evasion accounts for 50% of taxes
due in the private economy, while total
losses from tax evasion are US$12 billion
a year
Source: Gilley, B. 2001, ‘People’s Republic of Cheats’, Far Eastern Economic Review
Cheating, Counterfeiting & Corruption
• Two-thirds of the biggest state firms
produce false accounts
• The underground economy is the
equivalent of 20% of GDP. Some
independent estimates say it’s actually
40% of GDP
• 15 – 20% of the spending on an average
infrastructure or building project is lost to
bribery, fraud, and poor-quality work
Source: Gilley, B. 200, ‘People’s Republic of Cheats’, Far Eastern Economic Review
Shanghai …cont’d
• China is a country with a significant level of risk
for natural disasters, but Shanghai, a coastal
city, experiences a reduced risk of natural
disasters compared to other locations in
mainland China
• Severe Acute Respiratory Syndrome (SARS)
• HIV/AIDS
– Approximately 1.5 million people infected
Source: www.avert.org
Agenda
Introduction
Hong Kong
Shanghai
Conclusion
Q & A
The Hong Kong Disneyland is in
Risk if Disneyland invest in China:
•Competitive Risk
–Shanghai Park vs Hong Kong Park
•SARS Risk
–Effect factors
•Visa
–Access
•Financial Risk
•Tourist Industry
Thank You
Any Questions?