November, 1999
  Incentives Deal of the Month
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Mao, Meet Mickey: Hong Kong Lands
$3.55 Billion Disney Park

Somewhere, Mao Tse-Tung must be spinning madly: Hong Kong, the Chinese Special Administrative Region (SAR), is bringing in one of the ultimate symbols of capitalist consumerism - Disneyland. And the SAR is putting up billions of dollars to persuade Mickey Mouse & Co. to set up shop.

In fact, the Hong Kong government is putting up the bulk of the cash to build the park, which SAR officials indicate will involve a total capital investment of US$3.55 billion. The Disney park itself, along with what SAR officials call "a themed hotel resort and associated facilities," will reportedly cost some $1.81 billion. Hong Kong, however, has agreed to fork over an additional $1.74 billion to develop the site at Penny's Bay, according to government officials.

Disney a Minority Stakeholder

The Walt Disney Co. (, in fact, won't even be the majority stakeholder in Hong Kong Disneyland.

The park will be held by a joint venture, Hong Kong International Theme Parks, which will be formed between the Burbank, Calif.-based entertainment colossus and the SAR. Disney will reportedly invest some $314 million in the Hong Kong joint venture, but the company will still retain a 43 percent stake in the project. For its $3.2 billion investment, the Hong Kong government will own the remaining 57 percent stake in the joint venture.

With the deal, Hong Kong joins Paris and Tokyo as the only Disney locations sited outside the United States.

Tung: $18.98 Billion 'A Pretty Good Return'

Clearly, Hong Kong officials are betting billions that bringing in Disney will help rally the SAR's battered economy, which has slumped through a recession that has lasted for 15 months.

"This will mark a new era for Hong Kong," Hong Kong's government leader, Chief Executive Tung Chee-hwa, said in a speech at the project's formal announcement, held inside Government House, the mansion that housed British colonial governors before the SAR's reversion to Chinese control in 1997.

Flanked by Mickey Mouse and a host of other costumed Disney characters, Tung contended that the new park will attract 5 million visitors in its first year of operations and will be drawing 10 million annually after 15 years of operations. That, he asserted, will create thousands of jobs and billions of dollars in Hong Kong business.

In fact, Tung predicted that the theme park over the next 40 years will boost Hong Kong's economy by $18.98 billion - at least if the park meets the SAR chief executive's bullish attendance projections.

"We think it is a pretty good return, . . . representing eight times the original investment that has been made," Tung said.

35,000 Jobs in 20 Years?

Tung also used the project's formal announcement to make specific job projections for the new park and its related developments.

When the park opens in 2005, it will employ 18,400 people, he said. "About 35,000 new jobs," Tung added, "[will be created] over a 20-year period."

In addition, building the park and completing the related infrastructure developments will create another 16,000 construction jobs, Tung asserted.

The infrastructure work related to the park will be considerable, according to government officials. The Penny's Bay site is in a remote area on Lantau Island, which is home to Chep Lap Kok, the new Hong Kong airport. Land reclamation, roads, ferry piers and more will be needed to make the site accessible to the public and fit for housing the host of hotels expected to spring up near the park.

Tung, however, pointed out that "much of this infrastructure would have been undertaken to develop north Lantau for tourism and recreational purposes anyway, even if a Disney theme park were not to be built. The government has a longstanding policy of investing in infrastructure to promote economic development."

Critics: Pay Too Low, Incentives Too High

SAR officials, however, conceded at the announcement that Tung's optimistic projections for the park's economic impact could fall considerably short if attendance falls substantially below the levels the SAR chief executive envisioned.

In addition, some critics in Hong Kong immediately pointed out that most of the Disney park's jobs will be low-skill, low-pay positions. Critics also charged that the SAR government had doled out too many lavish concessions in landing Disney. Disney Vice President Steve Tight, however, defended his company's proportionally small investment in the new Hong Kong park.

In addition to its investment, Disney, he said, would bring to Hong Kong its world-recognized characters and theme park expertise - both of which Tight described as "the best of the best."

Despite the high-profile announcement, Hong Kong Disneyland isn't a totally done deal. The project must still be formally approved by the SAR government's Executive Council, by Hong Kong lawmakers and by Disney's board of directors.

Summer Negotiations Stalled

The project's fate looked iffy only a few months ago, even after more than a year of negotiations between Disney and the SAR.

The two parties, however, couldn't reach a final agreement on financial arrangements for the park by July 1, the deadline to which the two organizations had initially agreed. At that point SAR and Disney officials agreed to extend the time frame for negotiations.

"The negotiation at times has been difficult because both parties want a good deal," Tung explained at the project's announcement.

"Disney needs to be accountable to its shareholders. And for Hong Kong government, we need to be able to strike a deal [that] is acceptable to the six and a half million people of Hong Kong."

Shanghai, which many consider the mainland's equivalent of New York City, was also a major contender for the Disney park. And Disney VP Tight didn't rule out a future Shanghai park. "We don't see this as Hong Kong vs. Shanghai. Clearly, there are opportunities for both," Tight said.

Park Will Mix East and West

Indeed, a large slice of the Hong Kong Disney park's fortunes will be riding on how many visitors the project can draw from the mainland.

With an eye toward the Chinese market, the park will mix East and West, officials say. The Hong Kong park will center on a Magic Kingdom castle that is traditional Disney. Performances, however, will be delivered in both Cantonese, the local Chinese dialect in Hong Kong, and Mandarin, which is the most commonly spoken dialect on the mainland. Performances will also be delivered in English.

Time will tell how that scenario plays with the Asian audience. Critics, however, point out the marketing snafus that besieged the initial incarnation of Disneyland Paris. After incorporating a number of European themes into its newly opened park outside Paris, Disney officials realized that the European audience was looking for "an American experience," as one official put it. With the more Americanized theme, Disneyland Paris began to draw larger European crowds, but only after seeing the inaugural design draw disappointing attendance. (Not to mention French journalists labeling the park as "a cultural Chernobyl."

Analysts: A Modest Short-Term Economic Boost

If it secures all the necessary approvals (which seems likely at this point), the Hong Kong park would mark the consummation of Disney's long-running efforts to gain access to the huge Chinese market.

In 1996, the world's second-largest media conglomerate (trailing only Time Warner) seemed on the verge of announcing a site on the mainland. But then Chinese officials were outraged by Disney's bankrolling the film Kundun (directed by Martin Scorsese), which sympathetically depicted Tibetan Buddhist monks. That resulting brouhaha for a time stalled negotiations. Analysts caution, though, that Hong Kong's economy won't likely get an appreciable short-term economic jolt, even if the Disney parks runs at the peak of best-case scenarios.

Hong Kong-based analysts with Morgan Stanley Dean Witter, for example, say the Disney park will add only some $800 million annually during its construction phase.

A lot of money? You bet. In the larger scheme of things, though, that $800 million will increase the SAR's gross domestic product only by a modest one half of a percentage point, analysts point out.

For sure, that's certainly no Mickey Mouse boost. Alone, however, it surely doesn't look like a quick-fix panacea for the Hong Kong economy.



©1999 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.