For China, a sporting chance at fiscal success

SHANGHAI —  The annals of Olympic venues are rife with financial horror stories. All but one of the last 11 host nations had an economic hangover of sorts after the Summer Games ended, according to investment bank Morgan Stanley.

Most Chinese and Western analysts say China, the world’s fourth-largest economy and a key driver of global growth today, will not meet the same fate. Despite having spent a record $43 billion to prepare for the Games that start Friday, Beijing accounts for only a speck of the country’s economy and population. In that sense, experts liken the Olympics’ probable effect on China to Atlanta’s on the United States after the 1996 Games, where there was no economic fallout.

That depends on whether the Beijing Olympics are successful, many economists say, and on this measure there is one big point of difference from Atlanta and most other host cities. Success won’t be gauged by just how well organized the events are or whether there’s little doping among athletes. Rather, in the view of some analysts, it’s what will happen in terms of protests and, most significantly, Beijing’s response to them.

“We are very concerned about how the [Chinese] authorities will handle the protests that will inevitably take place,” said Andy Rothman, a China economist for CLSA Asia-Pacific Markets in Shanghai.

Mishandling of demonstrations would tarnish China’s image and carry broad economic repercussions, including more difficulties for China’s sovereign wealth fund in investing overseas and the potential for Western consumers to boycott Chinese goods. Protests have been a part of the Olympics since the first modern-day version took place in Athens in 1896. But criticisms of China’s authoritarian government, its human rights record and intolerance of dissent have set this year’s demonstrations apart. During the Olympics, Beijing has designated three public parks as “protest zones” for people to vent their grievances, although they will have to get permission in advance from the government.

“I don’t remember any other [host cities] having such areas of protests,” said Karl Lennartz, an Olympic historian from Cologne, Germany, who arrived in Beijing this week. “I’m not sure it’s a good idea.”

The Beijing Olympics are seen by many as a coming-out party for the rising nation, just as the Tokyo (1964) and Seoul (1988) Games were for Japan and South Korea. More than for those countries, economic ascendance for China has come hand in hand with globalization and its opening up to the world. Foreign investments have flooded into the country over the last three decades, with a pause after the government’s bloody crackdown on demonstrators in Beijing’s Tiananmen Square in June 1989.

“If the Olympics are successful, the perception of political risk will continue to be lowered even more,” said Erik Bethel, managing director of ChinaVest, an investment and advisory firm with offices in China and San Francisco. “Foreigners will be interested in moving more money or setting up in China.”

China’s economy has been slowing in recent months amid rising costs, tougher regulations and a global downturn. But the country could actually get a bounce soon after the Games, Bethel believes. The reason: an end to measures that clamped down on businesses and travel in the lead-up to the event.

To make the skies clear and blue for the Games, Beijing ordered a temporary shutdown of hundreds of factories, power plants and coal mines over a large swath of northern China. To tighten security, officials applied stricter visa and customs procedures, severely hampering the movement of goods and people.

The visa restrictions, along with the Sichuan earthquake and tensions in Tibet, cut China’s inbound tourism by 50% in the first half of this year, said Ge Wanjun, general manager of Shanghai Jinjiang Travel Co. “If the news is more positive than negative about China during the Games, it will help lift China’s overall image and promote tourism for China,” he said.

Zheng Jianliang, a shoe manufacturer in Shenzhen, a city more than 1,300 miles south of Beijing, is also counting on a better second half. He says the pre-Olympic cutbacks at chemical plants as well as at synthetic-material and other pollution-emitting factories contributed to soaring production costs and exacerbated the slowdown in his industry.

“Many of our raw materials are the type that would be affected by these environmental cleanup measures,” said the general manager of Shenzhen Dengcanya Shoes Co., rattling off rubber, plastics, leather, color threads and strings as examples. “Everybody is saying that the situation would be better after the Games.”

Chinese manufacturers also can expect to get a little more help from Beijing, which appears to be reorienting its economic policies. For the last year, officials, preoccupied with inflation, moved to restrict bank lending and curb exports and the nation’s swelling trade surplus. But last month, after announcing a modest slowdown in both economic growth and consumer prices, officials signaled that they would ease up on the bank tightening and boost tax rebates for exporters.

“Beijing is increasingly fearful that growth will slow to a level which will not create sufficient new jobs to fuel the rapid rise in living standards,” said Donald Straszheim, a China specialist at Roth Capital Partners in Newport Beach. He called the shift “the biggest policy change in five years.”

Straszheim now expects China’s economic output in the next few quarters to grow at an annual rate of 9%, a still-rapid pace but down from nearly 11% for all of last year. The slowdown, he adds, will be coming largely from weakness in the U.S., Europe and Japan -- not from any post-Olympics hard landing.

With construction delays and cost overruns, Athens spent $12.8 billion in current dollars to host the Summer Games in 2004, straining the budget and economy of Greece, a small nation of 11 million. Montreal, site of the 1976 Olympics, finished paying off its debt only two years ago. Olympic host cities had trouble maintaining spectacular stadiums and facilities that fell into disuse after the Games ended.

Most of China’s $43-billion tab for the Olympics was for the building of subway lines and environmental and other infrastructure projects -- things that will benefit residents and tourism in the future, says Cao Jianhai, an economist at the Chinese Academy of Social Sciences in Beijing. But Cao worries about the sports facilities’ becoming white elephants.

“In China, there’s no such top sports clubs or famous leagues like the NBA or British soccer that can rent these sites and support their frequent use,” Cao said. His bigger concern is Beijing’s overheated real estate market, fueled by an Olympics-induced exuberance that spread to investors in other parts of the country.

“The success in winning the bid to be host city aroused people’s fanatical feelings from top to bottom,” Cao said. “Everyone was optimistic toward the future because of the Games.” Once the Olympics are over, he asked, what will happen to that momentum?

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don.lee@latimes.com