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Disney Hong Kong: Magic is
missing
By Nobuyuki Takahashi
HONG KONG - Disneyland: Where the magic comes to
you.
Tung Chee-hwa, newly sworn in to his second
term as the chief executive of the Hong Kong Special
Administrative Region (SAR), certainly hopes that
phrase is true. He struck a deal with the US-based Walt
Disney Co to build a theme park in the territory; if all
ends up well, it will bring his embattled administration
some badly needed magic. Midway through its development
phase, however, controversy raging around the
multibillion-dollar Hong Kong Disneyland project shows
no signs of diminishing.
Due for completion in
2005, Hong Kong Disneyland will be the Disney Co's
second complex in Asia, along with Tokyo Disney Resort
in the Japanese town of Urayasu. The cost of the Hong
Kong project is estimated at HK$27.7 billion (US$3.55
billion). According to the Hong Kong government,
reclamation work for the park site at Penny's Bay on
Lantau Island is more than 70 percent complete, the
first stage of infrastructure construction is more than
17 percent complete and the project is on budget.
However, local environmentalists claim the
project has run up against at least an additional
HK$1.14 billion in costs, mostly for the cleanup of soil
on the site previously contaminated by the illegal
dumping of dioxins. The cost of that cleanup turned out
to be HK$450 million, 20 times the original government
estimate. As well, the government has come under fire
for the method it chose to conduct the cleanup. The
safest way to decontaminate soil is to do it on the
spot, as transporting it runs the risk of dispersing
toxins into the air. However, contractually constricted
to a tight schedule, the government opted to transport
the waste by sea to a disposal center in Kowloon.
Another HK$673 million has been spent for 3.6
million tons of sea sand for the reclamation works. The
original plan was to reuse the construction waste from
another site in Tseung Kwan O, but that project was
aborted when a seawall at the site collapsed.
Additionally, compensation had to paid to local
fishermen after reclamation work on Lantau reportedly
killed 7 million fish. And these are only the figures
that are visible. Says environmental expert Daphne Ma:
"There are costs - the long-term environmental cost -
that we have no concrete figures on yet, but surely they
will be borne by the future generation."
The
much-delayed agreement with Disney eventually announced
by the government at end of 1999 was provocative. Of a
total cost of HK$25.4 billion, excluding a commercial
loan of HK$2.3 billion, the government would spend
HK$22.9 billion, or 90 percent, and Walt Disney Co would
spend only HK$2.45 billion. However, despite this
initial investment of only 10 percent, Disney stood to
receive 47 percent of the net profit, with the remaining
53 percent going to the government. This magic was made
possible by setting up a holding company, International
Theme Park Ltd, and detaching the infrastructure project
from the profit sharing in the holding company. To avoid
criticism, the government has provided HK$4 billion
worth of subordinated shares in the holding company, but
these cannot be fully converted into common shares until
at least 25 years after the opening.
At the
initial stage, the government claimed that the royalty
fee paid to Walt Disney Co would be similar to what
other international Disneylands in Japan and France pay.
But Tokyo Disney Resort is wholly owned by a 100 percent
Japanese company, Oriental Land, while Euro Disney in
Paris was fully invested by Walt Disney Group, and
neither project involved public funds. Under the final
arrangement, the Hong Kong government will have to pay
royalties, in addition to almost half of the net profit,
to Walt Disney Co consisting of 10 percent of revenues
from admission, 10 percent from participation in events,
5 percent from merchandise, 5 percent from food and
beverages and 5 percent from hotel accommodation.
In Japan, Oriental Land, developer of Tokyo
Disney Resort, bought the park site at an abnormally low
price from the Chiba prefectural government and its
parent company, Mitsui Real Estate, and Keisei Dentetsu
resold the land at a much higher margin to offset
royalty costs, causing suspicions of corruption. In
fact, unlike the huge returns to Disney agreed to by
Hong Kong, Oriental Land is paying a royalty fee to
Disney amounting to 10 percent of admission fees and 5
percent of total revenue. Despite this, many in Japan
claim the contract with Disney is too costly, a
humiliating reminder of unfair trade treaties signed
with the US government in the 19th century.
Although the Hong Kong government is by far the
bigger investor, it will not be allowed to control the
management of the theme park. A wholly owned subsidiary
of Walt Disney Co will control daily operations and get
2 percent of total revenue and 5 percent of net profit.
Apart from the issue of costs and profits, the
project is raising questions about the sovereignty and
autonomy of "Asia's World City". The main reason
negotiations with Walt Disney Co dragged on for nine
months was the US-based firm's demand that it be allowed
to lease the land for 100 years. In the end, however,
the US company managed to override the Sino-British
Joint Declaration and the Hong Kong Basic Law
prohibiting more than 50 years of land lease,
manipulating the interpretation of that clause to
acquire the 126-hectare site for 100 years by dividing
it into two lease contracts.
Chief Secretary
Donald Tsang says the government is expecting at least
10 percent in equity return. But Walt Disney Co is
guaranteed its huge royalty incomes even if the project
is in deficit - in other words, it can be assumed that
the investor of 90 percent of the project will only
share 10 percent of the actual net profit.
The
government emphasizes that the project's spillover
effects on the economy as a whole can outweigh the low
financial returns from the project itself. The official
assessment of the project's contribution to gross
domestic product is a maximum of HK$148 billion in 40
years. But the economic effect on labor, consumption,
service industries and other aspects of the local
economy are under dependent on the business success of a
particular transnational company. Local benefits are
secondary to the needs of Walt Disney Co.
It is
difficult to find a comparable example of lack of public
accountability even in Hong Kong's immediate colonial
pre-handover period of the 1990s. Soon after the
handover by the British to Chinese sovereignty in 1997,
the SAR cabinet led by Tung Chee-hwa, a former
shipping-industry tycoon without experience in politics
or public service, poured HK$120 billion of public funds
into the stock market during the Asian financial crisis
and appointed as its financial secretary the
Asia-Pacific chairman of JP Morgan Chase and Co. In
another, more recent, example of the administration's
big-business mentality, during a ceremony introducing
Hong Kong's new dragon logo, Tung's right-hand man
Donald Tsang crowed: "Our brand is as important to us as
the 'swoosh' is to Nike and the 'golden arches' are to
McDonald's."
Beyond the glitter of brand
management, logos and theme parks, however, there is a
darker side. Investigations have revealed that the Hong
Kong government's business partner, Walt Disney Co, is
employing workers in mainland China under conditions
that do not conform with Chinese laws or international
standards. A labor research organization, CIC, spent 10
months investigating six toy factories, three accessory
factories and two garment factories commissioned by
Disney in Guangdong province. CIC found that most of the
workers were female migrants aged 15-30 from such
less-developed provinces as Sichuan and Hubei, toiling
for 13-16 hours a day for 300-500 yuan (US$36-$60) per
month, in violation of Chinese minimum-wage and
working-hour rules. Meanwhile, Michael D Eisner,
chairman and chief executive officer of Walt Disney Co,
has earned an average of US$146 million a year for each
of the five years since Hong Kong's handover.
The Hong Kong-Disney deal, biased as it is in
favor of a transnational investor to the detriment of
local residents and taxpayers, will in the end only
encourage the astronomical income gap between investors
and the common people of China.
(©2002 Asia
Times Online Co, Ltd. All rights reserved. Please
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