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November 30, 2000

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Asiaweek Time Asia Now Asiaweek story

NOVEMBER 12, 1999 VOL. 25 NO. 45

Making A Magic Kingdom
It's no fairy story. Disneyland is coming to Hong Kong - adding to the belief the city may be set to regain its old glory

An artist's impression of Hong Kong Disneyland Asiaweek Pictures

It wasn't really about Mickey Mouse. Nor about Donald Duck, Dumbo or any of the other characters in Disney's magical menagerie. The news that Hong Kong is to be the home of the third Disneyland theme park outside the U.S. was all to do with proclaiming to Asia and the world that Hong Kong was finally back in business - that the can-do city is still going to be a force to be reckoned with.

After two years of unbroken gloom, when the value of assets dived, when people lost their jobs by the tens of thousands and when much of the rest of Asia seemed to be leaving Hong Kong behind, along came the Magic Kingdom with a deal that had "feelgood" stamped all over every page. And that was precisely the mood Nov. 2, when Chief Executive Tung Chee-hwa formally announced that an agreement with Disney had been reached.

Under the twinkling chandeliers of the official residence of Hong Kong's former colonial governors and flanked by Mickey Mouse and Minnie Mouse, with beaming Hong Kong government officials and Disney representatives looking on, Tung declared: "Disney's choice of Hong Kong . . . is a vote of confidence in our city and in our future. [It will] enhance our international image as a 'world city' where things do happen." Disney also thinks it has found the right partner. Says chairman and CEO Michael Eisner, who was not in Hong Kong for the announcement: "Following an extensive worldwide review, we came to recognize Hong Kong as a unique city in an extraordinary nation at a remarkable time."

Making A Magic Kingdom
It's no fairy story. Disneyland is coming to Hong Kong
Disney Attractions chief Judson Green on the making of a deal
The ups and downs of Asia's theme parks
Indocam Asia's Husan Pai on how to save Hong Kong

The Week Ahead: Hong Kong's Disneyland An announcement on major theme park expected
Hong Kong on the Thames Tung Chee-hwa wants his city to be the London or New York of Asia. He has a ways to go

Take A Hike (But Don't Get Lost) in Hong Kong The city's not all a concrete jungle. Nearly half the land in Hong Kong has been placed in a total of 21 protected country parks

Eisner's words are likely to provide some comfort for those in Hong Kong who fear the city is losing some of the special cosmopolitan flavor that had once made it such an attractive place to live. Critics believe the government is partly to blame. In his two years in office, Chief Executive Tung has been necessarily careful to demonstrate to the central government in Beijing that Hong Kong is sufficiently "patriotic" to be left alone to get on with its own business. He has succeeded, and Beijing has largely kept its distance. But, for some, the cost of Tung's emphasis on Hong Kong's relationship with the mainland has been that the place has become less international. This was a point taken up by the pro-business and normally pro-government Liberal Party. Revealing the results of a community-wide poll, it warned that expatriates felt they were being marginalized in a city that appeared to be abandoning its traditional policy of accepting and maximising all talents - regardless of ethnic background.

Singapore has been the principal beneficiary of Hong Kong's identity crisis. Thanks to timely economic and financial reforms and shedding some of its nanny-state image, Singapore has stolen much of Hong Kong's limelight and pinched a number of its multinational corporations. This, together with Hong Kong's deteriorating English-language skills, still-high costs and ever-thickening air pollution, had led some in the city to wonder whether the good old days would ever return.

The Disney deal does not come complete with a magic wand to waft away the Special Administrative Region's woes. But even the government's firmest critics agree that the magnitude of the project and the involvement of a brand name such as Disney's will boost local confidence - a vital first step if people are to start spending again and the economy is to be reflated. The cost of the project will be $3.6 billion, not as much as that of the new airport ($20 billion, including associated infrastructure) but still the government's biggest spending commitment since 1997. Says Tung: "This world-class development will mark the beginning of a new era for Hong Kong."

Hong Kong Disneyland, as it will be known, is to be built on 126 hectares of reclaimed land at Penny's Bay, a nondescript inlet on Lantau Island, close to the new Chek Lap Kok airport. Situated about 12 km west of central Hong Kong, the park will be linked to the airport and the urban area by a spur from the existing high-speed rail line to the airport, and by highway and by ferry. Precise details of the attractions have yet to be announced, but there will be few concessions to the fact that this will be the first Disneyland on Chinese soil. Like Disney's two other international theme parks - Tokyo Disneyland and Disneyland Paris - the complex will be a celebration of Americana, seen through the eyes of Hollywood. Main Street USA will lead onto Sleeping Beauty Castle, Fantasyland, Toontown and Adventureland. There will be a fireworks display every night, but subdued enough not to interfere with flights in and out of Chek Lap Kok airport or with residents of Discovery Bay, a middle-class housing enclave along the Lantau coast.

The Chinese element of the attractions is likely to be limited to the language used in the park and on restaurant menus, and in some of the food offered. Mike Rowse, Hong Kong's chief negotiator and its newly appointed commissioner for tourism, says there is a good reason for this. "If people want a Chinese theme park, they will go to China. People come here for a Disney theme park. We hire Disney to run the park, not to teach them how to run the park." That sticks in the throat of people such as Sze Pang-cheung, spokesman for an anti-Disney group called Beware of Mickey. "Our own distinct culture will be eclipsed," he says. "Hong Kong is getting more and more American. Being a multicultural city with a Chinese identity is our biggest attraction, and now we are throwing it away."

With the first of the two phases scheduled to open in 2005, the government estimates Hong Kong Disneyland will attract about 5.2 million visitors in its first year. Of those, 1.4 million are expected to be drawn by the park, rather than by Hong Kong. The entrance fee is likely to be between $32 and $38 - a sum thought to be well within the means of many of the increasingly wealthy mainland Chinese in neighboring Guangdong - a province with a population of more than 70 million. Mainlanders will probably provide a large chunk of the clientele. Sources say the Hong Kong government is working on securing an agreement with the Chinese authorities that would allow mainlanders and Taiwanese visa-free entry to Hong Kong for a limited period. According to government projections, the number of visitors to the park will increase to 10 million after about 15 years.

Under the terms of the agreement, which took a year of hard talks to complete, the Walt Disney Co. and the Hong Kong government will be partners in a new joint venture, Hong Kong International Theme Parks Ltd. Disney will invest $316 million for a 43% share of the company. Says Disney Attractions chairman Judson Green: "The government thought it was important for us to take a stake in the project, and we were happy to do so. But at the same time we felt it was important for the government to play a role as well." That role proved to be much heavier: $418 million for 57% of the company, plus a 25-year loan to Disney of $786 million (at 6.75% interest for the first eight years, declining after that) and a $1.75 billion tab for the formation of the site, road links, ferry piers and other facilities. The government will also arrange $296 million in commercial loans.

Big numbers. And the government and its associates moved quickly to head off criticism that they were simply too big. Chief Secretary for Administration Anson Chan Fang On-sang insisted the park was a sound investment and one Hong Kong could afford. "You cannot put a price on the message that the Walt Disney Co. sends to the world in choosing Hong Kong for its third international theme-park destination," she said. "We have forged a partnership between two of the world's best-known brand names - Hong Kong and Disney." From London, Financial Secretary Donald Tsang Yam-kuen - the man who will have to somehow find all this money - said in a video conference linkup: "Our hotels will benefit. Our tourist industry will benefit. Our airline will benefit. The return is quite remarkable." The Hong Kong Tourist Association chipped in: "[The park] will reinforce our position as Asia's most international and cosmopolitan city, as well as the events and entertainment capital of the region." Government negotiator Rowse stressed that much of the infrastructure cost was already earmarked in major government development plans for Lantau. These included setting aside a further 100 hectares adjoining the Disney site for international-class tourist attractions, possibly with more theme parks.

Meanwhile, the government information service churned out fact sheets that projected a host of economic benefits, some of which it admitted tilted more toward the best-case scenario than in the direction of the world shrugging its shoulders and saying "So what?" The park had the potential to provide Hong Kong with a net economic benefit of up to $19 billion over 40 years, it said. Additional spending by tourists could amount to more than $1 billion in the first year and more than $2 billion by 20 years later. About 16,000 jobs are expected to be created during the construction of Phase 1, with most of them probably going to locals. Around 18,400 new jobs would be established, directly or indirectly, with the opening, rising to 35,800 over 20 years.

Ecologists were angry with the plan, saying it would destroy Lantau as a green lung and cause irreversible damage to the environment. Reclamation work would also threaten marine life, including the Chinese white dolphin. Independent legislator Christine Loh Kung-wai wanted to know where the facts were that supported the optimistic economic conclusions. "This deal is being presented as a fait accompli in the most flashy way to pump up the public-relations value. By the time we get the numbers, people will already have been given the impression it is a great deal." The package has still to be passed by the Legislative Council. There will be some resistance, but it is thought certain to go through.

Equally assured is the fact that Disneyland Hong Kong will bring a vital new element to the tourist industry. For all the appeal of the city as a shopping destination - a characteristic that, anyhow, has been more an image than a reality for years - it is not much of a place for children. That will change with the theme park. Says chief negotiator Rowse: "The one thing missing has been an attraction that would make families sitting down together to plan their holidays think of Hong Kong. We will now be filling that gap."

There was a measure of agreement from archrival Singapore, where Renton de Alwis, head of the National Association of Travel Agents Singapore, said Hong Kong Disneyland would be another attraction in the region for locals looking for theme-park experiences. And it could be a rival to Singapore's tourist industry, which is in the throes of repositioning itself for the beginning of the next century. De Alwis stressed, however, that Singapore was moving toward customizing its attractions to the individual tourist, with less emphasis on mass appeal. Tokyo Disneyland brushed off any challenge from Hong Kong, saying overseas tourists accounted for only 3% to 4% of its visitors.

For the Walt Disney Co., the Hong Kong deal comes at a time of slowing growth, slack earnings, worrying big-ticket purchases such as two $350 million cruise ships and troubles at its ABC television network. The group's net income for the third quarter fell from $415 million to $367 million. On the day Hong Kong Disneyland was announced, Paris Disneyland reported a 46.6% drop in net profits, year on year. This was due mainly to the resumption of royalty payments to the parent Walt Disney Co. The fees were waived five years ago as part of a restructuring of finances at the park, which was facing collapse. The number of visitors remained steady at 12.5 million for the year and the occupancy rates at the park's hotels had nudged up to 82.6%.

As for Hong Kong, does the successfuol wooing of the world's best-known rodent mean that better times are at last on their way? Christopher Wood, strategist for the ABN Amro Asia bank in Hong Kong, believes so. "The problem with Hong Kong as a tourist destination," he says, "is that shopping is expensive, hotels are expensive and the place is polluted. Disney will bring in a segment of tourists that Hong Kong hasn't been getting. But Disney is just one small piece. I have turned positive on Hong Kong in recent months because a lot of other things are going right."

That's also the way William Overholt, regional strategist at Nomura Securities in Hong Kong, sees it. "This place is rebounding," he says. "Things are changing here and in China. The news is getting more positive by the day." Mickey Mouse? Mighty Mouse, more like it.

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