Olympic-Sized Spending and Economic Benefits

Robert Hsu, February 01, 2008

It's been heavily publicized that Beijing has spent an incredible amount over the past seven years -- more than $33 billion, to be exact -- on Olympics-related facilities including sports venues, roads, airport terminals, subway lines and parking accommodations. That's more than 10 times what Athens spent on the 2004 Summer Olympics! And as game time approaches, giant fleets of bulldozers and construction cranes continue to work around the clock, putting the finishing touches on Beijing's new architectural masterpieces.

Many people have asked me if China's capital spending will come to a halt after the 2008 Summer Games. I'll be the first person to admit that the government has spent big money on the Olympics, but it's important to keep the level of spending in perspective. The $33 billion in spending has been spread out over the past seven years, which means that China has spent roughly $5 billion each year. China's total annual construction spending, which includes infrastructure and buildings, is more than $300 billion. So as you can see, the $5 billion or so spent each year on the Olympics is just a drop in the bucket -- less than 2% of China's annual construction costs. Once the Olympics facilities are complete, China still has plenty of spending to do on other construction projects.

I'm especially excited about the new airport terminal that Beijing has built for Olympics athletes and spectators. If you've ever visited the city before, you know that Beijing was in desperate need of a bigger airport. The new terminal, like many newer buildings in China, combines a contemporary Western exterior with a Chinese-accented interior. From the pictures that I've seen so far, the new airport looks impressive, and I'm looking forward to going there in March on my next trip to Beijing.

My favorite Olympics structure, though, is the ultramodern National Aquatic Center, where the swimming events will be held. Shaped like a giant cube, the building gives the illusion that it's made of water bubbles (hence its nickname, the Water Cube). The special exterior is made up of patches of a lightweight transparent teflon called ETFE pillow cladding. The cube-shaped facility complements the round-shaped Bird's Nest Stadium next-door to it. When viewed from the sky, the two buildings are a visually arresting study of contrasts.

The Olympics-related construction projects in Beijing have been making headlines around the world, but interestingly, a similar Olympics infrastructure boom is happening in an out-of-the-way city 1,000 miles east of Beijing.

Qingdao, a pleasant second-tier coastal city known mostly for its popular Tsingtao beer, will host the sailing and windsurfing events for the 2008 Beijing Olympics. In its bid to create the best Olympic sailing regatta ever, Qingdao is sparing no expense to build five new highways, a new stadium, a new hospital, a theater, a new sewage plant, a new sailing port, an international cruise terminal, an Olympic village and countless other projects. These projects are estimated to cost at least $9.1 billion, and Qingdao officials hope that the buildout will put the city on the map.

Considering that sailing and windsurfing aren't exactly the most popular summer Olympic events, it's unlikely that Qingdao's vast spending and construction efforts will generate a worthwhile return. But indirectly, the infrastructure investments have created billions of dollars in real estate wealth because land prices are shooting up throughout the city. Qingdao now has one of the finest infrastructures in the country, and Chinese everywhere are moving there. In the past three years, Qingdao has experienced the biggest increase in property prices of all of China's major cities.

There's an important lesson for investors to learn from Qingdao. The coastal city shows us that many of the economic benefits from China's Olympic spending may not be clear at first. One of these benefits, as we talked about earlier, will be the Olympics' confidence-boosting effect on the Chinese people. In addition, the 2008 Summer Games will serve as a two-week-long advertising campaign for China. Many people around the world are still not aware of how far China has come in the past 20 years. The Beijing Games will change peoples' outdated impressions and perceptions of the country. This two-week-long ad, which will reach billions of viewers around the world, will make a big statement about modern China.

In addition, more than 30,000 journalists will descend upon Beijing to report both the good and the bad of what they see to billions of international readers and viewers. This is a big difference from the past, when China worked hard to shield itself from curious foreign onlookers. Greater transparency during the Olympics could have a long-lasting positive impact on the way China's government deals with the outside world. It will also make China more open to accepting constructive criticism from foreign countries. All of this global attention will provide China with a valuable lesson in public relations, and it will allow the country to grow more publicly into its role as one of the world's rising superpowers.

I hope you've enjoyed this sneak peek into the upcoming Olympics. If you're planning to visit Beijing for the Summer Games -- or for business or pleasure in the coming months -- I have some insider travel tips for you. Check the back page for a visitor's guide to Beijing.

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