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Clifford Coonan

425 days to go

Everybody knows staging the Olympic Games means enormous political kudos for the host country, offering international legitimacy and a platform to show off everything - from  state-of-the-art stadiums  to  glistening new subway systems.

But staging the Olympics is not cheap, so can Beijing's organisers expect some kind of pay-off from their 180 billion yuan investment?  Will it lead to a big shot in the arm in the shape of international investment or a surge in consumption by local people? What exactly is the Olympic dividend?

Much has been made of how Olympics-related investment in Beijing has mirrored a simmering economic boom in the capital and in the wider country as a whole. Combined with this are vague portents about a post-Olympics slump in investment amid fears that too much effort is focused on the event itself and not enough attention paid to the follow-up.

The mainland economy has been growing by nearly 10 per cent every year for many years now, and there is a widespread belief the Olympics will somehow send  it flying into the stratosphere. However, the Olympics  won't actually make  that much difference to the overall economy, according to a new report by  investment bank JP Morgan.

'The data so far indicates no obvious effect of the upcoming 2008 Beijing Olympics on the economy of China as a whole - indeed, they do not even show a big impact on the economy of Beijing,' researchers at the bank say in the report. 'Hosting the Olympics is more a consequence of the rising economic power of China, than a contributor to faster economic growth.

'The idea that the Olympics might be a turning point for China thus seems to us exaggerated. With the Chinese economy continuing to show strong, healthy and increasingly balanced growth, a post-Olympic slowdown seems unlikely indeed,' it went on.

It's telling to compare the different host cities when looking at the economic impact of hosting the Olympic Games.

When people talk about reaping the Olympic dividend, they tend to talk about Barcelona. The economic boom following the Olympics in 1992 resulted in 20,000 jobs being created.

The games in Beijing are similar to those in Barcelona and Seoul in 1988 because of the large investment in infrastructure and urban redevelopment associated with the games.

Both Los Angeles in 1984 and Atlanta in 1996 were relatively low-investment, commercially run games, which left a small footprint on the two cities. Sydney hosted a great Olympics in 2000, but the long-term economic effect has not been dramatic and some of the stadiums are underutilised.

'We've never put out an actual report on this issue, because ... well, because we simply don't think the Olympics are important at all for China - and because as anyone who has read our published work knows, the popular view that China is somehow desperately propping up growth until the Olympics are over just doesn't stand up to the facts,' says Jonathan Anderson, chief Asia economist at UBS in Hong Kong.

His bank put together a chart starting with the Munich Olympics in 1972 and including all the host cities through to London in 2012, and looks at the ratio of the urban population to that of the whole country. Beijing makes up a tiny percentage of the Chinese population, around 1.1 per cent, which is the lowest ratio for any Olympic Games in the past 30 years and probably the lowest ratio for any Olympic Games in recorded history.

'The only other instance that even came close was Atlanta in 1996, and needless to say the Atlanta Olympics were emphatically not a big deal for the US economy in that year,' says Anderson. 'And our estimates for China put the impact of the 2008 Olympics well behind the decimal point in terms of growth impact as well.'

While investments in fixed assets such as buildings and infrastructure in Beijing grew by nearly 19 per cent last year, it was still a lot lower than the 48.3 per cent seen in Jilin and the 37 per cent in the central province of Henan, which suggests the Olympics are not a major contributor to China growth and investment, says JP Morgan.

'In sum, beyond the 2008 Olympics, we expect the Chinese economy to continue growing at a fast pace,' the researchers at JP Morgan write. Of course, the economic dimension of the Olympic Games does not solely relate to the billions of yuan being spent on the games and the infrastructural developments.

The fact that four billion people around the world are expected to watch the Olympics on television will do an awful lot to put Beijing on the map and presuming the games go well, the event will generate a longer term feel-good factor that can translate into a positive economic impact.

China's image will be enhanced and more people will be aware of the country as a place to do business. This will bring in tourists - research by Visa International shows that nine out of 10 visitors to the games are likely to explore other parts of China. It can encourage people to maybe set up factories in China, if the idea hadn't occurred to them before. The Olympic dividend is a longer term scenario, an important one the Chinese government is happy to reap.

Putting the games in perspective

1 For large economies, the construction of sports facilities in the host city, and the tourists attracted to that city, have not contributed much to growth and investment in the economy as a whole.

2 Indicators, such as GDP and fixed asset investment (FAI), suggest no obvious effect of the 2008 Olympics on China's economy as a whole.

3 Beijing is one of the world's largest cities, but within the mainland's vast economy it is relatively insignificant, contributing only 3.7 per cent of GDP in 2006.

4 Hosting the games is more a consequence of the rising economic power of China, than a contributor to faster economic growth.

5 A post-Olympics slowdown seems unlikely, judging by the mainland's strong, healthy and increasingly balanced growth.

Source: JP Morgan



Shallow impact - 2008 a blip in giant economy