You speed along an empty highway, past a little town of rice paddies and vegetable stands, and watch the famous castle rise up as you approach. Black-clad guards in flak jackets clear you ahead of a red steel archway. Next stop: the Shanghai International Tourism and Resorts Zone.
The Disney Shanghai Resort, which takes up about a fifth of the zone, is less than half an hour by car from the financial district of China’s wealthiest and most populous city, but it feels like a kingdom all its own. Six square miles of the zone are vacant, set aside by Chinese authorities as part of a decades-long plan to draw tourists here.
Whether it will be a magic kingdom depends on how shrewdly Shanghai and the Walt Disney Co. build and sell this 5,000-acre playground. China’s economic growth is slowing, and Beijing’s national crackdown on corruption has warned people off of the conspicuous consumption and overbuilding that flourished in the boom years. (It may also depend on the outcome of an investigation China’s anti-corruption agency is making into the activities of Shanghai’s vice mayor, Ai Baojun.)
Disney Chief Executive Officer Robert Iger has called it the greatest opportunity the company has had since Walt Disney himself bought land in Central Florida in the 1960s.
“This is a really big deal, a bona fide effort by Shanghai to turn itself into a world-class tourism destination,” said Dennis Speigel, a theme-park consultant from Cincinnati who has traveled extensively in the region, fresh from a trip here. “They’re counting on Disney to be the driver of that.”
You can tell. Ahead of the park’s opening, the Chinese government just declared a renewed campaign against ripping off branded merchandise — specifically, Disney’s.
The Burbank, California, company, which posted strong financial results last week damped by its international parks — including the Shanghai park, delayed by many months and now slated to open in the spring — has been stung by criticism that it built Disneyland Paris too big and Hong Kong Disneyland too small. The $5.5 billion Shanghai park will open with two hotels, compared with seven in France.
At the same time, Disney could fit one and half more theme parks in the land it has been allocated in the resorts zone, according to Bob Weis, the executive in charge of designing the resort. The contemporary Toy Story Hotel and the more classically themed Shanghai Disneyland Hotel, both along an artificial lake, may be just the start of the resort’s offerings, Weis said in an interview at the company’s August convention for Disney fans.
“I wouldn’t be surprised if you see hotels all along that lake some day,” he said.
Disney’s local partner — the state-owned Shanghai Shendi Group, which will own 57 percent of the resort and contribute about $2.1 billion of the equity — is under pressure to get it right, too, after China’s long orgy of real estate speculation. The only other significant tourism project now under construction in the zone is a luxury shopping mall being built by Value Retail Plc, a U.K.-based developer. It will open next to the Disney resort and be similar to one the company operates near Disneyland Paris. Land for residential construction near the park hasn’t been auctioned since last year, according to Centaline, China’s largest real estate agency. Meanwhile, home prices in Chuansha, Zhoupu and Kangqiao, neighborhoods near the Disney resort, have jumped more than 26 percent this year.
If Disney and Shanghai can strike the right balance, they could transform the place into the Orlando of Asia, said Speigel. Shanghai Jiao Tong University, he noted, recently created the country’s first theme park studies curriculum.
About 70 percent of China’s theme parks lose money, 20 percent break even and 10 percent are profitable, according to Paul Fang, a professor at Jiao Tong who teaches theme park studies.
“Disney Resorts will raise the standards high up for every other theme park and attraction within China,” Fang said. “A significant number of park owners are nervously awaiting, many parks are already undergoing upgrades or re-positioning, and some will not survive, and make way for new and better theme parks down the road.”
Another way to look at it: Disney, betting on China’s rising middle class with its largest foreign investment ever, has a lot of competition.
On the other side of the Huangpu River from Disney’s resort, DreamWorks Animation SKG Inc. and its local partners are building the $2.4 billion Shanghai Dream Center. Scheduled to open in late 2017, it will feature an animation studio, live performance venues and an attraction tentatively called the Kung Fu Panda Experience. Other projects outside the resorts zone include a marine animal park from Chinese developer Haiching Holding Ltd. and a Legoland from U.K.-based Merlin Entertainments, which operates a Madame Tussauds wax museum and an aquarium in the city.
By clustering its attractions with those of Disney and other park operators, “we can offer different promotions with different partners,” boosting attendance, said John Jakobsen, who heads Merlin’s new-openings group. “We all have our own brands and intellectual property.”
Disney says 330 million people with enough disposable income to visit the park, which features the tallest Disney castle in the world and a focus on Chinese culture, live less than three hours from its gates. It notes that the number of upper-middle-class and affluent households in China is expected to grow 18 percent annually between 2012 and 2022, according to McKinsey & Co. estimates. The theme park could be the largest in Asia, topping Tokyo Disneyland’s 17.3 million visitors a year, said Chris Yoshii, vice president for economics in the Asia- Pacific region for the consultancy Aecom. Disney CEO Iger said on a conference call that he had been to Shanghai twice in the past month and was confident in the project and the Chinese economy.
And Disney did get it right in Orlando, the theme-park capital of the world, where it operates four parks and 27 hotels alongside Comcast Corp.’s Universal Studios, SeaWorld Entertainment Inc. and Merlin’s Orlando Eye, among others.
Even if it succeeds, the Shanghai park itself wouldn’t move the needle much on the company’s financials. It could produce $300 million in revenue in fiscal 2016 and break even by 2017, after which it will contribute an increasing but small amount to Disney’s earnings, said Tim Nollen, a Macquarie Capital analyst who rates the stock a buy. But a hit could lead to other opportunities for Disney to expand — into, say, TV production in China, Nollen said.
Building theme parks today is a far more elaborate process than when Walt Disney put up the first Disneyland, in Anaheim, California, in 1955. Disney, who had to sell his second home to help finance the project, regretted not acquiring more property around the park.
“If we could’ve bought more land we would’ve bought it, then we would have control of it and it wouldn’t look like a second-rate Las Vegas around here,” he told employees at Disneyland’s 10th anniversary, according to “Walt and the Promise of Progress City,” a 2011 book about the company.
He didn’t make that mistake again. When he sought to build a second theme park, in Florida, Disney quietly bought up thousands of acres of swampland near Orlando before going public with his plans.
Shanghai, a shipping and trade hub since the 1600s, reinvented itself as China’s financial center in the 1990s, in part by developing reclaimed swampland of its own into a phalanx of modern skyscrapers. Now it has the International Tourism and Resorts Zone and a mandate to bring the tourists to fill it.
“In China they very much like zones,” Brock Larsen, a theme-park designer based in Burbank, observed. “This is the work zone. This is the apartment zone. And this is the play zone.”
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This article was written by Christopher Palmeri and Gregory Turk from Bloomberg and was legally licensed through the NewsCred publisher network.