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Beijing Games 2008 -- China Bets Big On The Olympics

Wednesday, 1 Aug 2007 | 2:04 PM ET

China is looking to score big in hosting the Beijing 2008 Olympic Games next August, but the judging may be very tough.

Much has changed about China and Beijing since the International Olympic Committee awarded the games to Beijing in 2001.

It’s unclear how much China is actually spending on the games (Aug. 8-24), but that is par for the course when it comes to Olympic spending. Greece -- which hosted the 2004 games in Athens -- is thought to have spent around $9 billion euros, which at the time was close to $12 billion.

What is known about Beijing 2008 is that 500,000-600,000 visitors are expected during the so-called Olympic month. (The games will be televised by NBC, an affiliate of CNBC.) Seven million tickets will be available to the public. Tourism officials have forecast some $5 billion in revenue. Still, in all likelihood, the games will not be a case study in profit-making.

Nevertheless, it may be a wise investment for what is now the world’s fourth-largest economy (one that grew by more than 10 percent in the second quarter of 2007) and a government awash in hard currency reserves, thanks to an ever-growing trade surplus.

“It’s an international coming-out party for China,” says Steve Yates, senior fellow in Asian Studies at the American Foreign Policy Council.

“Just as it was for Korea a couple of decades ago,” adds Dwight Perkins of Harvard University, where he specializes in the economics of China, referring to the 1988 Seoul Games.

Cost Benefit Analysis

Beijing, China
AP
Beijing, China

The Olympic boom is really a continuation of a bigger national boom that began while Beijing’s makeover was already well underway, as China modernizes at a rapid rate, says Perkins. He estimates investment is equal to about 40 percent of the nation’s $2.4 trillion GDP.

Nonetheless, the Olympics have brought a wave of construction in a city of more than 10,000 square miles, and those projects have been consuming vast amounts of wood, cement and steel, not to mention crude oil and other commodities.

Major infrastructure changes include the construction of a dozen Olympic sports centers, such as the National Stadium, due for completion in March, and 160-acre Olympic Village.

The city just opened a new cross-city subway line and work continues on a light-rail link from the airport, where a massive new terminal is being built, partly to provide a pretty gateway for Olympic visitors. A major theater and office towers are also under construction. Olympic construction – along with the push to eliminate old, substandard housing and to widen streets – will displace an estimated 1.5 million people in a city of 17 million people.

In the private sector, Western hotel companies, for instance, are rushing to develop new properties, adding rooms for visitors. Marriott International, for instance, will have 11 properties open before the games start.

The games have "provided a venue for inevstment in the community," says Edwin Fuller, Managing Director of Marriott Lodging International, who adds "Beijing has never looked so good."

Data on Olympic spending, revenue and even related tourism has always been somewhat sketchy. Barcelona 1992, considered by many one of the more successful games in how it improved the city’s fortunes, dramatically increased tourism such that the city soon vaulted into the top-five-visited European cities. Greek tourism rose 13 percent the year of the 2004 Games, although the Athens games reportedly ran significantly over budget.

In the case of China and its managed economy, the profit and loss ledger will probably never be known, but China watchers are divided over the long-term benefits.

“A lot of the infrastructure they’re putting in will be for use for other things than just the games,” says Perkins, who visits China two or three time a year, most recently in July.

“It’s hard for me to see the big extended benefits,” counters Philip Levy, a resident scholar at the American Enterprise Institute. "They have huge infrastructure needs, but stadiums aren’t at the top of the list."

Advertising Vs. Investment

Television coverage of China will no longer be the stuff of travel or history channels. A very wide door is being opened with the coverage of the Beijing games and the world will be watching, whether the event turns out to be a photo op, an economic opportunity or both for China.

“They want to show they have a modern infrastructure, a well-educated workforce, vast electricity output, and a good home for foreign investment,” says James Nolt, a professor at The New School and a senior fellow at the World Policy Institute, who is also a consultant on China for companies.

China already attracts about $60-$80 billion a year in foreign direct investment. “They’re getting an awful lot without it [the Olympiad],” says Perkins. As a result, he doesn’t think the games will have much of an impact on the investment equation.

But John Rutledge, founder of the private equity firm Rutledge Capital, says inasmuch as China has been “systemically reducing the risk” for foreign direct investment, the games are a natural and irresistible opportunity to attract additional investment.

Risk-Reward Ratio

“They need to keep China growing by 8-10 percent a year for a long time to help keep things stable,” says Rutledge, who is a visiting professor at the Chinese Academy of Sciences in Beijing, as well as en economic consultant for the local government there.

Nolt points to an explosion of commercial industry that needs foreign investment. High profile areas such as autos have seen enormous investment, but allied industries have not. In addition, China -- best known for exporting light industrial products and consumer goods -- is seeking to move up the value chain.

Investment will also be needed to fulfill domestic demand. China has been undergoing a communications revolution of its own and there is now widespread use of cell phones.

China
AP
China

“Many people will be struck by the degree of billboards and colorful advertising,” says Nolt, in illustrating a booming retail sector. “Certainly advertising and marketing firms will be looking at how they tailor the Chinese market.”

That’s true to a point. Per capita income is still only about $2,200, however, and China watchers are quick to point out that there are great regional inequalities.

Risk-Reward Ratio

The games are not without risk for China, at least as far as its reputation and image go.

There's already been a slightly embarrasing moment with the ticket sales. Overwhelming demand shut down the booking system in late October, prompting a move to a lottery-based system for the second phase Dec. 10-30.

That is likely to be the least of it. Two major trouble spots loom -- dissent and the environment.

Water and air quality are a major concern throughout the country and Beijing is a smoggy city.

“The Chinese government is trying hard to address the pollution problem in Beijing,” says Don Wyatt, a professor at Middlebury College.

There’s talk of a building moratorium come January 2008, in essence to let the air clear. The government is expected to take other steps before and during the games, including the reported imposition of tougher auto emission standards in 2008.

Dissent may not be as manageable or predictable. Protests are quite common and how the government responds will be critical.

China watchers agree that the government is sparing no detail, whether it is increasing the monitoring of dissidents, improving public etiquette, hospitality and English-language skills, or even controlling the weather.

That’s right. Beijing is actually experimenting with ways to prevent rain the day of the opening ceremonies.