How To Bait A Mousetrap
Hong Kong hopes Disneyland can revive its tourism industry. But an offshoot of China's biggest travel firm plans to entice thousands of mainlanders to spend most of their yuan in Shenzhen
By PAUL BELDEN
Tony Yu
China Travel International's theme parks in Shenzhen include Window of the World, which features a mini Eiffel Tower. "Disneyland will be a day trip," says CTII executive Michael Ng.
Ever since the news broke that one M. Mouse would be setting up shop in Hong Kong, little has slowed the momentum of the Disney juggernaut. Any doubt or criticism over $3.6-billion Hong Kong Disneyland - be it environmental, economic or just plain philosophical - has been brushed aside like so much fairy dust in a 1940s cartoon. But now comes Hong Kong executive Michael Ng Chi-man with a parallel and, perhaps, more realistic plan. The best way to beat Disneyland, Ng believes, is at its own game.
If Ng is right, the Hong Kong government may look a little, well, Goofy. Disneyland, due to open in 2005, is virtually the government's only concrete hope to arrest a decline in tourism since the 1997 handback to China. Hong Kong is coughing up $1.75 billion in site preparation and infrastructure, but it has promised a huge payoff. The Hong Kong Tourism Board expects Disneyland in its first year of operation to attract 1.4 million new tourists to the Special Administrative Region - a 10% boost in visitor numbers. It also estimates those new tourists will spend more than $1 billion on hotels, food, transport and shopping during their stay. Most of the newcomers will be mainlanders, the commission cheerfully admits.
That's where Ng comes in - and where Hong Kong's troubles may start. Since taking over as executive director of Hong Kong-listed red chip China Travel International Investment Hong Kong (CTII) in November, Ng has been moving quietly to ensure that a "homegrown Disneyland" just over the border in Shenzhen will draw millions of mainland tourists by the time the Hong Kong version opens. In the past six months Ng has channeled more than $150 million into new rides and attractions at CTII's three household-name (at least in China) Shenzhen theme parks: Splendid China, Window of the World and China Folk Culture Villages. More than 60 million people have visited the parks since 1989, when the first one opened. Last year about 4.5 million tourists turned up - a 14% increase over 1999.
"Here's what I believe is going to happen when Disneyland opens," says Ng, tasked with turning around a 40% drop in CTII's profit last year. "BRACKET "Mainland visitors" ] are going to save money by flying into Shenzhen or travelling by train. They are going to use our tour packages to arrange the trips, then they are going to stay at our hotels, visit our theme parks and ride on our bus lines. Disneyland will be a day trip, of course, but almost everything else they do while in the area will profit us."
And not Hong Kong. But might Ng's plans also affect Hong Kong Disneyland? Its managing director, Stephen Tight, isn't exactly shaking in his boots. He believes the companies' respective parks are so different that they'll share the market instead of splitting it. CTII's parks are focused less on thrilling or scaring visitors than on teaching and instructing them: China Folk Culture Villages showcases art, dwellings and customs from ethnic minorities in China; Window of the World features replicas of historic sites such as the Eiffel Tower and the pyramids; Splendid China has miniature versions of the wonders of China. Says Tight: "What we typically find when we open a new park is that we create our own market. We have the proprietary intellectual property - the Disney stories and the Disney characters - and that's mainly what people come to see."
True, but CTII has something that Tight can only dream of: longstanding business connections in the Chinese market. Both CTII and its parent, China Travel Service (Holdings) Hong Kong, are Hong Kong window companies of the mainland's China Travel Service Group. Last month CTII moved to acquire a controlling stake from its parent in more than 300 travel agencies across the mainland. That could be a masterstroke - allowing CTII access to every aspect of a tour package. And it could mean CTII will be able to channel vacationers to its own theme parks at Disney's expense.
"It's a good idea if they can pull it off," says Raymond Jook, head of China research at SBI-E2 Capital Securities. "The market in general likes to see focused companies, and if they can integrate [the travel agencies] into their core business, it will be a huge boost to them." Such expansion is also an option beyond Disney's reach, because Chinese regulations ban foreign investors from taking a controlling stake in domestic travel agencies. "Disneyland can't touch us in this regard," says Ng. "To acquire something like this, you need connections."
You also need tourists - and Ng should have few problems on that score. Last year the travel industry had revenues of $60 billion. That's 5% of China's gross domestic product today, and it is projected to rise to 8% of GDP by 2010. With tourism booming, CTII's Shenzhen parks have been among its best performers in recent years. Then there's the price. Disney intends to charge about $32-$38 per ticket, according to Tight. "That may end up being in the range of half a month's salary for an entire average Chinese family," notes John Ap, director of the hotels and tourism department at Hong Kong Polytechnic University. Splendid China's single-entry ticket fee, by contrast, is about $9.60. "This could hurt [Disney]," Ap adds.
Ng denies that is his intent. A Hong Kong native who grew up in New York, where he earned an MBA from St. John's University, Ng says he is operating in a complementary, not competitive, spirit. "It's like a restaurant," he said. "If you own one restaurant, all right, that's one kind of business. If that restaurant is located on a street on which there are 20 restaurants, is that worse? And don't forget, we also own hotels in Hong Kong and Macau, bus routes, and a Hong Kong travel agency. We are not relying solely on mainland tourism at our theme parks."
If Disney can be said to be pursuing a "field of dreams" development plan - just build a theme park and people will travel from far and wide to see it - Ng's plan might be tagged the "field of reality" model. He's building where people already live - the burgeoning wild Frontier Land of Shenzhen. Given the travel boom in China, it's hard to see how anyone can lose. Except perhaps the Hong Kong taxpayers, who may find that the promised tourist-receipt billions from government investment in Disneyland was just another fairy tale.
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