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Budgeting Olympic windfall
2002/04/23

The upcoming 2008 Olympic Games will undoubtedly generate scores of business opportunities and massive earnings for companies around the world, but finding ways to raise the massive funds needed for the Games still remains a question for decision-makers.

Despite an optimistic forecast of a 0.5 to 1 per cent stimulus to the country's economic growth, it is estimated that the grand gathering will demand a huge pool of funds amounting to some 300 billion yuan (US$36.1 billion) in the coming six years before the goal of completing overall infrastructure by 2007 is met.

Beijing's Olympic budget is reportedly more than seven times the size as Sydney's was for 2000, more than five times the projected spending for Athens, Greece, in 2004 and 32 times what Los Angeles spent in 1984.

Huge amounts will be spent on diverting water from southern China to northern China, relocating thousands of polluting factories from Beijing to the hinterlands and improving factories to make them more environmentally friendly. The capital city will also add 400 bus lines and invest US$3.6 billion in high-tech gadgetry, including a digital network capable of HDTV transmission for all Olympic venues.

But a detailed and practical financing plan needs to be mapped out before eager companies can claim a stake in the grand gala.

Among the financing alternatives include mature routine methods which will be introduced to cover the heavy expenses.

These items will include ticket income, corporate sponsorships, television broadcasting rights and marketing and licensing spin-offs, which are expected to cover a minor part of the total price of the grand Games.

Meanwhile, the Chinese Government is preparing to develop a special Olympic lottery to help fund the multi-billion-dollar budget.

And dividends from the International Olympic Committee, amounting to some US$1 billion, will also offer a hand in alleviating the financial burden.

However, income from these channels will only begin to flow after or near the close of the Games in 2008, creating a problem as all the massive spending needs to be accomplished by 2007.

Although public spending from tax income has been promised for the Games, it could be risky to put such heavy pressure on Beijing's fiscal revenues, which are required elsewhere.

Less popular options call for an introduction of private corporate funds, but most infrastructure facilities take a long time to construct and must operate for a long period before they begin generating sound returns, which deters private investors from entering the market.

Support is building among the financial sectors for the introduction of a market-oriented, commercial mode of financing.

"Asset-backed securitization would be the best and most practical choice for the Games to gather enough funds," said He Xiaofeng, deputy director of the Beijing Development Institute at Peking University, the think-tank responsible for developing the financing plan for the 2008 Olympic Games.

Under the group's plan, the municipal government would set up a special institution which would then develop financing portfolios covering a number of investment tools to raise the needed funds.

Although immediate high returns are unlikely, these projects and facilities could generate stable and long-term returns, which would lay a solid basis for the issuing of the bonds and shares and other valuable assets.

To encourage liquidity, the portfolio, which would include municipal bonds, investment funds, infrastructure-backed securities and other options, would be issued and listed on the capital market.

He said relevant laws and regulations would be needed to be adjusted for this scheme to be implemented, but that these measures are still believed to be the most practical and efficient financing method.

"These measures will not only maximize fund channels for the Olympic Games, but also it could diversify investors' channels and spur the growth of China's capital market," the deputy director said, who added that the new attempt could also set the benchmark for China's future financial innovations.

Apart from the construction, transportation and services sectors, financial institutions are also expected to benefit from a range of opportunities.

On the front list would be commercial banks, insurance companies, bond underwriters and accounting firms.

"The massive construction of the Olympic venues and infrastructure facilities will lead to many business opportunities for property insurance firms," said Yuan Changjun, a professor at the University of International Business and Economics.

Meanwhile, billions of visitors and thousands of game players will need life insurance and other insurance services, a virtually untapped market in China, where the insurance system is not as efficient as those in Western countries.

A commercial bank will be selected to act as the agent bank of the Games, through which many financial interactions and product innovations will be introduced to the market.

"A plan is under review to establish an agent bank for the Games," confirmed He of the Beijing Development Institute.

A number of banks, including the four State-owned commercial banks, are now racing for the post, which holds promising profits.

Among these banks, China Construction Bank has been the most aggressive, having clinched a deal to lend 5 billion yuan (US$603 million) for land development in the Olympic Park and with plans to launch an Olympic branch.

"But it is hard to forecast when the bank will get the go-ahead as it also needs the green light from the International Olympic Committee," said He.

A number of international heavyweights in the accounting sector are also competing for the coveted position of chief financial consultant of the Games.

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