How Mickey’s magic wand will trump China’s slowdown
Shanghai Disneyland will lead China’s tourism industry growth despite the country’s current economic woes, say analysts.
The theme park, set to open its doors in June, is forecast to attract 11.5 million visitors in the first year of its operation and an annual traffic flow of up to 34 million when it becomes fully operational, according to an analyst report from investment bank China International Capital Corporation.
But it also opens at a time of great uncertainties for the Chinese economy struggling with a deepening slowdown. Premier Li Keqiang announced an economic growth target at a lower range of 6.5 to 7 per cent for 2016, compared to “about 7 per cent” last year, while addressing the National People’s Congress on Saturday.
“China will face tougher problems and challenges in its development this year, so we must be fully prepared to fight a difficult battle,” said Li.
But such economic challenges are unlikely to hold Disney back from waving its magic over China’s tourism industry. Analysts cite the positive track record of its sister resort in Hong Kong. Having opened more than a decade ago, Hong Kong Disneyland saw a substantial 9-12 per cent increase of mainland tourists to Hong Kong in 2006 and 2007, said David Lung Wing-hung, a managing partner in the consumer products and retail sector at Deloitte China.
“Shanghai Disneyland is three times bigger than Hong Kong, so we expect the impact will be even bigger,” said Lung.
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Walt Disney’s CEO, Bob Iger, is similarly upbeat. “We build things to last many years. Disneyland was built 60 years ago and has been through the ups and downs of the US economy for six decades,” Iger said in an interview with CNBC on Wednesday. “So we’re not concerned with the Chinese economy and we’re extremely bullish about the long-term prospects of it.”
The fortunes of the 34 billion yuan park will largely ride the Disney trademark, according to CICC analysts Huang Yaoxin and Guo Haiyan.
“Disney is the unrivalled global leader of the theme park sector, a title that is well illustrated by the fact its five sites across the world contribute 58 per cent of the global top 25 theme parks’ annual traffic flow,” a March CICC report read.
Other factors that will determine its success include the park’s potential to tap into the local market of family visitors, who constitute the driving force for Disneylands worldwide.
“The Yangtze River Delta’s huge population, advanced economy and convenient transportation should lay the foundations for Shanghai Disneyland’s sustained popularity,” said CICC analysts.
The report added that close to 60 per cent of Tokyo Disneyland’s visitors are children aged 4 to 17, making success even more likely for the Shanghai park as China has 200 million children in the same age bracket.
The influx of both domestic and international visitors to the park would not only benefit Disney but also provide opportunities for hotels, airlines, restaurants and other scenic attractions in the area.
Looking back on the Shanghai World Expo in 2010, Deloitte’s Lung said that event alone boosted hotel occupancy rates and rents.
Occupancy rates of hotels in Shanghai shot up from 60 to 80 per cent while tariffs on average spiked 200 yuan to 750 yuan.
On the whole, the outlook for China’s tourism industry is promising as it has been on a steady growth path for the past decade, show government figures. Last year, four billion visits were made within mainland China, making it the world’s largest market for domestic tourism, according to the China National Tourism Administration.
Revenues in the tourism industry have increased 21 per cent since 2005 to reach 3.4 trillion yuan last year.
Lung attributed this to the government’s travel-friendly policies, including entering into visa-free agreements with more countries, upgrading facilities at tourist attractions, and the rise of middle-income groups.
“The tourism industry largely caters to the middle-to-high income classes. Many Chinese cities have seen their numbers boom in the last five years,” said Lung, pointing out that the tourism industry flourishes when per capita income of a country crosses US$5,000.
“Since China’s per capita income is over US$7,000, it’s a mature market,” said Lung. “We’re optimistic the growth in the tourism industry will continue to be quite healthy.”