Chinese developer heavyweights seem blinkered into thinking building theme parks is simply a licence to print money
The current obsession with creating mega sites across the country lacks foundation, and has more to do with ‘me-too-ism’ than business common sense
Two terrible afflictions are known to affect businesses, particularly those in the mainland. The first is “me-too-itis” (want a slice of the action too) the second can be described as mega-ism.
Reports this week suggest that the China Evergrande Group appears to be suffering from both afflictions as it rolls out ambitious plans to invest in China’s theme park burgeoning business.
Evergrande has come a little late in the day but it wants to start with a headline grabbing 50 billion Yuan investment in something called Children’s World, to be built in Hunan, and there are plans for a string of other child-themed parks elsewhere.
Evergrande is joining a clutch of other companies, led by the Wanda group who collectively have some 65 similar projects on the drawing board or under construction, but who find themselves very much in the shadow of the new Disney park in Shanghai.
Not all theme park operators are equal and so home-grown market entrants will not just be competing against Disney, the world’s most successful theme park operator, but also Universal and Six Flags. What is notable about the mainland companies vying for a slice of the action is that, like Evergrande, they tend to be conglomerates that only recently and collectively have discovered the wonders of these parks.
We haven’t quite reached the stage where every self-respecting Chinese conglomerate wants a stake in this business but manifestations of “me-too-itis” abound as companies line up to get into the theme park business.
Everegrande also seems to have the upped the stakes on the mega-ism front with the size of its investment. Its untested concept of a Children’s World is touted as costing almost a third more than Disney spent in Shanghai, similar to the amount being invested by Wanda in its park due to open in Hefei this year.
Wanda’s ebullient boss Wang Jianlin not only boasts that his company will become China’s top theme park operator but it will “ensure Disney is not profitable for 10 to 20 years in this business segment in China”.
Such fighting talk bears all the telling signs of advanced mega-ism. This complaint is manifest when companies convince themselves that biggest is always best while toting around their mega-investments as proof of corporate virility.
The mundane reality is that the mainland’s two fastest growing theme parks are the Chimelong Ocean Kingdom in Zuhai and the Hangzhou Songcheng Park. While some of the newer entrants into this business have been busy shouting about their expenditure, these two parks, low profile by the normal standards of this shouty business, have simply gone about boosting visitor numbers.
Even discounting some of the hype, clearly potential exists on the mainland where demand for new and exciting entertainment is vast.
It is estimated that Chinese parks will be world leaders by 2020 with more than 330 million visitors and revenues of some of US$12 billion, according to the World Travel Market Global Trend Report.
These big numbers beg the question of whether there really is enough profit for the dozens of new theme parks poised to come on stream. As ever, when in doubt in matters of this kind, the usual suspects are rounded up to intone the mantra of China’s growing middle class and its phenomenal spending power.
No one will deny that the world’s largest nation has a lot of money around and there are people who clearly want to spend it.
However the same old argument about seemingly endless consumer demand is trotted out for more or less everything, from automobile purchases, to electronic gadgets to foreign travel and, of course, property purchase.
The fact is that a lot of this great Chinese middle class cash mountain consists of what economists describe as discretionary expenditure that is highly vulnerable to economic downturns and distinctly faddish at the best of times. So although the money is there, it’s not there for all time and most certainly represents nothing like a guarantee of returns.
However it is precisely this area of activity that attracts me-too enthusiasts and mega-itis suffers.
Meanwhile, as The South China Morning Post pointed out on Monday, China Evergrande has a debt to equity ratio of 400 per cent, higher than that of all other mainland major property developers.
Like its local counterparts it is hoping to tie property development into the theme parks, which at least plays to one of its strengths but no one has yet been able to explain what piece of flair and expertise it will be bringing to the theme park experience.
Maybe Hong Kong business got it right, leaving investment and responsibility for theme parks to the government, which owns both of the SAR’s theme parks and has been carrying their losses and investment at the taxpayers’ expense. Mind you the poor old taxpayers might well take another view here.
Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster