Disney’s launch of its first venture on the Chinese mainland represents a watershed for the country’s theme park and leisure industry. With capital from home and abroad now flooding into this largely unexplored market, fears of yet another bubble are beginning to grow
Tourists wait in the rain on opening day at Disney Shanghai / Photo by IC
“[Disney] really shouldn’t have come to China,” China’s wealthiest man, Wang Jianlin, chairman of Beijing-based Dalian Wanda Group, told State broadcaster CCTV during a May 22 interview. “We [at Wanda] will keep Disney China from turning a profit for the next 10 to 20 years.”
The Walt Disney Corporation finally opened its first venture on the Chinese mainland, Disneyland Shanghai, on June 16. Admitting that the Chinese market is extremely “tough,” chief executive Robert A. Iger declared the resort in Shanghai the “greatest opportunity the company has had since Walt Disney himself bought the land in central Florida” in the 1960s.
Two weeks prior to the opening of Disneyland Shanghai, the gates of the first Wanda Cultural Tourism City were flung open in the hinterland city of Nanchang, capital of Jiangxi Province. Nanchang Wanda City features a theme park, a movie park, an aquarium, a mall and hotels. By 2020, Wanda plans to open 15 such resorts across China and five overseas, displacing Disney, with its six worldwide resorts, as the world’s largest tourist resort operator.
This battle is not merely being fought between Disney and Wanda. In recent years, China has witnessed a theme park boom, with tens of billions of dollars of domestic and foreign investment flooding into the market. The China National Tourism Administration estimates that there are roughly 2,500 theme parks in China already, representing a total investment of over 300 billion yuan (US$45bn). In 2015 alone, 21 theme parks reportedly opened in China, and 20 more are under construction. By contrast, the International Association of Amusement Parks and Attractions estimates that there are around 400 theme parks in the US and 300 in Europe.
This unprecedented explosion in the number of theme parks launched in China has unnerved industry observers, a number of whom have voiced concerns that many of these new ventures lack innovation and cultural appeal. Some are now warning of a looming bubble, as billions of yuan continue to be poured into a saturated, unsustainable and poorly-planned construction boom.
Tourists wait to enter Nanchang Wanda City on its opening day / Photo by IC
Bullish
Speaking to CCTV, Wang Jianlin was dismissive of what is perhaps the world’s single most iconic entertainment and leisure brand. “The craze for Mickey Mouse and Donald Duck, the era of blindly following them has gone,” he said. Claiming that Disney “mainly relies on its iconic animated celebrities,” he accused the company of following an “outdated” and “less innovative” business model.
However, Wang might well have looked on with envy at the excitement and anticipation that accompanied the opening of Disneyland Shanghai. 34 billion yuan (US$5.1bn) were spent building the company’s largest-ever theme park in a suburb of China’s financial center. Its sprawling expanse covers more than 3.9 square kilometers.
To better adapt to the Chinese market, Disney has made efforts to localize its newest venture. The design philosophy, according to Iger, was “authentic Disney and distinctive Chinese.”
Chinese elements incorporated into the design of the park are apparent to any visitor. The tallest tower of Disney’s iconic castle at the center of the resort is laced with lucky clouds, an auspicious Chinese motif, as well as peonies, lotuses and white magnolias – the city flower of Shanghai. Donald Duck can be seen performing tai chi. An area called the Garden of 12 Friends features Disney characters recast as the 12 animals of the Chinese zodiac. Peking opera, shadow plays and stiltwalking have been integrated into the Chinese version of the Broadway show The Lion King, which will be performed in the resort’s Walt Disney Grand Theater.
Given the enormous size of Disney’s initial investment in their Shanghai resort, the company might take 11 years to completely recoup its costs, according to Professor He Jianmin, dean of the tourism department of Shanghai University of Finance and Economics and a national evaluation expert for the Disneyland Shanghai Project.
Meanwhile, Wanda, the company’s selfdeclared chief competitor on the Chinese mainland, has vowed to make life difficult for Disney.
Wanda’s potential bevy of nationwide Wanda City projects represents a bold and risky step for China’s largest commercial property developer, better known for building shopping malls than for creative enterprise. The move is a response to pressure from China’s declining property market, and the company’s 200 billion yuan (US$30bn) investment in its Wanda City ventures, with its next resort scheduled to open in September in Hefei, capital city of Anhui Province, is designed to herald a new era for Wanda.
Compared with Disney, an iconic brand which has dominated the global theme resort industry since the 1960s, Wanda’s disadvantages are conspicuous. Disney built its name recognition over decades through its storytelling and stable of characters who are all household names, attributes that Wanda lacks. To make up for its defects, Wang Jianlin’s company has tried to glean inspiration from traditional Chinese culture.
Nanchang Wanda City, for example, has chosen blue-and-white porcelain as its chief design element, reflecting a major traditional craft industry. Its project in Hefei, meanwhile, will center around a vast building designed to resemble a Fengyang flower drum, a cultural symbol of Anhui Province. Wuxi Wanda City will take local tea culture as its theme, including a building shaped like a huge red teapot.
Despite the company’s attempts to present an image of originality, incidences of intellectual property (IP) infringement have already been recorded at Wanda’s theme parks. Half an hour after the Nanchang park opened, costumed performers dressed as Snow White and Captain America – both Disney properties – were spotted roaming through the park. Stuffed toys that closely resembled characters from DreamWorks’ Kung Fu Panda series were photographed in gift stores. Disney’s official response was withering.
“These illegal and substandard imitations unfortunately disappoint all who expect more,” the company wrote in an email statement, further stating that it was prepared to take action to protect its IP rights.
Knowing it has no hope of matching Disney’s cultural appeal, Wanda has instead tried to compete by undercutting its rival on price and offering a broader range of entertainment and retail opportunities. “A tiger is no match for a pack of wolves,” Wang commented when describing the company’s strategy. “Shanghai has only one Disneyland, but we can have 15 to 20 Wanda Cities at home and abroad.”
Each Wanda City follows a “one-stop” entertainment model, incorporating cinemas, stage shows, bars, food courts, shopping malls and high-end hotels, essentially creating a 24- hour leisure and retail complex. Its pricing is also competitive, with a ticket to Nanchang Wanda City costing 198 yuan (US$30) on weekdays and 248 yuan (US$37) on weekends and holidays, compared to Disneyland Shanghai’s entry fees of 370 yuan (US$56) and 499 yuan (US$75). According to some estimates, a family of three could expect to spend an average of 5,000 yuan (US$752) on a day trip to Disneyland Shanghai.
Another feature of Wanda’s strategy, plans indicate, is the choice of location – exclusively second- and third-tier cities, such as Nanchang, Qingdao, Wuxi, Harbin, Hefei, Xiamen and Chengdu. This targeting of the mid-range consumer market, and decision to avoid direct competition with either Disneyland Shanghai or the planned Universal Studios resort slated to open in Beijing in 2019, possibly indicates that Wanda is not competing as directly with the big hitters as its chairman’s fighting words might indicate.
Concerning the battle between Disney and Wanda, He Jianmin stressed Wanda’s lack of IP production and management experience. “Disney mainly thrives off its cultural originality, its creative productions, while Wanda entered the market more as a real estate developer than an entertainment company. Wang [Jianlin’s] strength is getting land at a low price… Thus he should be prepared to face new problems and challenges if Wanda intends to move towards more creative industries.”
Bird’s eye view of Disney Shanghai / Photo by IC
Sharing
Disney is unlikely to worry as much about competition from Wanda as it might about threats to its market share from longtime international competitors. A number of foreign entertainment giants and local companies are entering China’s theme park market. According to a study by Los Angeles-based consultancy AECOM, 59 such joint ventures are in the pipeline in China, representing a total investment of up to US$23.8 billion.
Universal Studios Beijing is one major example. Six Flags has also announced its plan to open a branch of its iconic theme park in Haiyan City, Zhejiang Province, in 2019. South Korea’s Lotte Group opened an indoor theme park in Shenyang, Liaoning Province, in 2015 and plans to open a second complex in Chengdu in 2017.
Fantawild, a well-known local theme park operator, has stated its intention to expand its holdings from 19 parks to 40 in the next five to 10 years. Other local tourism operators and real estate developers, such as Shenzhen Overseas Chinese Town Holding, Chimlong and Songcheng, have also entered the fray.
One industry insider, who spoke to News- China on condition of anonymity, claimed that the flagging real estate market, rather than a genuine interest in theme parks, explains the boom in investment. “The restrictions on house purchases constitute a major challenge to property developers, forcing them to change their development models,” he said. “Compared to the well-established, saturated market for residential and office property, theme parks are still a new frontier, and will become a vigorous growth engine. Thus, investors have rushed to seize market share.”
While investors may be spending, and spending big, on theme parks, Chinese consumers have proven to be less than enthusiastic. According to Richard Huang, who analyzes China’s entertainment industry for financial services group Nomura in Hong Kong, Chinese nationals spend a mere US$3 per person annually on theme parks, compared with US$58 in the US. Analysts are already predicting that big hitters will quickly force smaller players out of China’s theme park marketplace.
A report by Shenzhen-based consultancy Qianzhan Industry Research Institute indicates that 70 percent of Chinese theme parks are already operating at a loss, with 20 percent breaking even and only 10 percent turning a profit at all. 150 billion yuan (US$22.5bn) is currently tied up in these investments. Many argue that the bubble has already emerged.
Land Use
The biggest distinction between a theme park and an ordinary amusement park lies in the extent to which the proprietor makes use of its own IP, said Chen Jiliang, vice architect- in-chief of Tongji Architectural Design, a well-known, large-scale consultancy that helped design Disneyland Shanghai.
Culture plays an essential role in generating the charm of a theme park, Chen continued. “Every theme park, large or small, will more or less integrate IP into its design. How they present a cultural experience to their tourists determines the quality of the park.”
It is precisely this creativity and cultural distinction, Chen argued, that China’s homegrown theme parks lack, which has resulted in competition between very similar, almost carbon-copy resorts across the country, most of which offer the same amenities and attractions under slightly different branding.
Lacking cultural appeal, theme parks devote their energies to boosting ticket revenues or, Chen told NewsChina, adopting a model colloquially known as “use land to feed the park,” or “Park + Real Estate.”
To the Chinese State, which technically owns all urban land resources in China, the building of leisure facilities is in the interest of the public, meaning that theme park operators can acquire land resources on the cheap. He Jianmin told our reporter that many real estate developers buy land cheaply from local governments ostensibly to build amusement parks, but end up integrating commercial properties into the final development. The theme park, once established, may give housing prices nearby a boost, and developers utilize the profits from these affiliated real estate projects to make up for the inevitable losses incurred by their theme park.
Many developers in fact tend to earmark the bulk of their land for real estate projects. For instance, Wanda built its first outdoor theme park, with a tropical rainforest theme, in Yunnan Province’s Xishuangbanna Dai Autonomous Prefecture. The entire project extends over 5.3 square kilometers, but the park itself only covers 0.61 square kilometers. Three high-end hotels and a large shopping mall surround the diminutive resort. Dining and shopping facilities bring in the bulk of its revenue.
The anonymous insider told NewsChina that theme parks, like hotels, are projects that require huge initial investment that operators cannot expect to recover for a long time. Using real estate sales to “subsidize” theme park projects, he claimed, is a “compromise.”
He Jianmin told our reporter that the majority of Chinese theme parks are short-sighted, profit-seeking projects that can only harm the long-term development of the industry.
“It’s impossible to build a Disneylandstyle, world-class theme park, out of hubris,” he said. “Disney has spent decades exploring its own development model through hard work and trial and error, bit by bit, step by step, until it came to represent over 50 percent of the world’s theme park market.”
He hopes that Disneyland Shanghai will serve as an example for China’s would-be theme park operators. “In order to be more competitive, operators need to foster the spirit of craftsmanship and strive for the best instead of merely pursuing their short-term interests.”