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No worries to post-Olympic slowdown

By Liu Jie (China Daily)
Updated: 2008-04-14 09:55

The dream meet for athletes can be poison for economists. Many host countries of previous Olympics have faced economic slowdown after the Games following a growth burst in the run-up to the event. Is China going the same way?

Most economists and financial analysts tell China Business Weekly that the country doesn't need to worry about a post-Olympic slowdown. A growing service industry and a maturing middle class will ensure continued growth. Besides, industries such as those related to environmental protection and renewable energy will generate new and solid investment opportunities.

So does China need to be afraid at all?

"My answer," says Chen Jian, secretary-general of Beijing Olympic Economy Research Association, "is an absolute 'no'."

He points out that the so-called post-Olympic downturn, called "Valley Effect" or "V-low Effect" by experts, is mainly caused by a dramatic increase in investment in the pre-Olympics stage, accompanied by a boom in consumption and revenues. Investment and consumption shrink in the post-Olympic stage, which also comes with the heavy burden of maintenance cost for idle Games venues.

"However, these are impossible in China after 2008," says Chen.

Seung Ho Park, president of non-profit Samsung Economic Research Institute (SERI), says a short-term economic lull right after the Games is expected, but all countries recover thereafter.

"The host gets comprehensive benefits out of the event - in terms of national image, popular enthusiasm and living quality. We should not see it from the economic perspective only," he says, citing Japan and South Korea as examples. Despite experiencing economic downturns immediately after the Olympics, they have evolved into two of the biggest economies in Asia thanks to the Games.

Investment momentum

One of the sponsors of the Beijing Games, Bank of China (BOC), has carried out a study of 12 sessions of the Games spanning 60 years. In nine of these 12 sessions, the hosts' annual GDP growth in eight years after the Olympics was 0.4 to 2.5 percent lower that the eight years running up to the event, showing an economic slowdown after the mother of all sporting meets is commonplace.

Following the Tokyo Olympics in 1964 and Seoul Olympics in 1988, Japanese and South Korean economies slowed by more than 2 percent on a year-on-year basis. Both nations had been enjoying double-digit growth in the run-up to the Olympics.

"Our analysis finds that the deceleration occurs largely in small nations," says Zhu Min, vice-president of BOC, adding the effect of the Games on large nations has been relatively small.

Echoing Zhu, Zhao Jinping, researcher with Development Research Center of the State Council, says Beijing's economy makes up 4 to 5 percent of China's, while Tokyo and Seoul accounted for about 10 percent of Japan's and South Korea's economies.

"So even if Beijing grows at a relatively slower speed, China's progress, in general, is unlikely to slow," says Zhao.

China is also a huge market undergoing rapid development, so there are numerous investment opportunities in any case, such as infrastructure, energy, manufactures and services, which means an economic deceleration due to inadequate investment is an unlikely scenario.

In addition, China will host a series of international events and embark on mega projects right after the Olympics, which may further accelerate the economy. These include the 200 billion yuan Beijing-Shanghai high-speed railway, South-North Water Project, the 2010 World Expo in Shanghai and the 2010 Asian Games in Guangzhou.

Experts also predict that the Olympic Games will mark the beginning of a new chapter for China's tertiary industry, involving tourism, finance, culture, exhibition, sports and real estate sectors. China's service segment now contributes around 30 percent to the nation's GDP, which is far behind the 65-75 percent in developed nations.

Zhao says the service industry can effectively increase job opportunities and enhance living standards. It will also greatly optimize the structure of China's economy and facilitate sustainable and sound development.

Chen predicts the 2008 Olympics will also continue to benefit the country's tourism industry for about a decade after the event. His association forecasts 600,000 foreigners will flood into the capital for the Games. Some 4.5 million foreign tourists are expected to come to Beijing this year, spending a total of $4.8 to $4.9 billion. That number is expected to grow at an average annual rate of 8 to 9 percent, meaning 5 million to 5.3 million foreign tourists may visit the capital in 2010, spending between $5.3 and $5.6 billion.

Tourism boost

Barcelona is a good example of how Olympics boosts tourism. The host city of the 1992 Games spent $7 billion to build its Olympic Center on a virgin beach and developed it into a tourism area, which has become a landmark resort for not only Spain but the entire Europe. The coastal city, which was ranked 16th in the Top Tourism European Cities list in 1992, jumped to the third position after the Games.

Many foreign service operators are confident of China's post-Olympic opportunities. WPP CEO Sir Martine Sorrell declared during his trip to China in October that the advertisement and consulting giant would invest more in China even as some predicted a post-Olympic slowdown.

"WPP is well prepared to tackle the expected 'bump'. The growth will carry on for a number of years," he said. "Maybe others will disappear, get scared and leave, but it will only give us more scope."

Experts say the Olympics do wonders for a nation's image. "It is a chance to showcase China's open, peaceful and transparent progress in all fields, which will enhance investors' confidence in the nation,"says Chen.

SERI's Park stresses that Olympics can provide local corporations a global platform. "It turned Sony, Honda, Korean Air and Samsung into global brands. Many Japanese and South Korean companies began to emerge in the world market following the Tokyo and Seoul Games," says Park. He believes the Beijing Games will have a similar effect on Lenovo, China Mobile, Bank of China and Air China.

Take Yili for example. It's the only dairy sponsor of the Beijing Olympics. "The Games is an opportunity for us to turn from a national to an international brand," says Pan Gang, president of Inner Mongolia Yili Industrial Group. The company currently exports dairy products to 20 countries and regions.

Yili generated an operating revenue of 19.4 billion yuan last year, up 17.56 percent over 2006, with a net profit of 439 million yuan. Its 2008 target for operating revenue is 21.6 billion yuan and a net profit of 600 million yuan.

"We completed restructuring our products structure in the first half of 2007, with high-value and hi-tech products now accounting for 40 percent of Yili's total operation," says Pan, adding the Olympics sponsorship has prompted it to upgrade the product structure.