China's Economy and the Beijing Olympics
China’s Economy and the Beijing Olympics
Michael F. Martin
Analyst in Asian Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
China will host the 2008 Olympic Summer Games from August 8 to 24, 2008.
Most of the events will be held in the vicinity of Beijing, with selected competitions
held in Hong Kong, Qingdao, Qinhuangdao, Shanghai, Shenyang, and Tianjin. Since the
International Olympic Committee’s decision in July 2001 to select Beijing as the host
for the 2008 Olympics, China has spent billions of dollars for facilities and basic
infrastructure in preparation for the international event. China anticipates that the 2008
Olympics will provide both short-term and long-term direct and indirect benefits to its
economy, as well as enhance the nation’s global image. However, the experience of past
host cities and China’s current economic conditions cast serious doubt that the Games
of the XXIX Olympiad will provide the level of economic growth being anticipated.
This report will not be updated.
China eagerly awaits the commencement of the Games of the XXIX Olympiad on
August 8, 2008 in Beijing. After seven years of preparations, China will host the
preeminent sporting event of the year. In the words of Premier Wen Jiabao, the 2008
Olympic Summer Games provide an opportunity to demonstrate to the world how1
“democratic, open, civilized, friendly, and harmonious” China is. In addition, much like
the two previous Asian hosts for Olympic Summer Games — Japan in 1964 and Korea
in 1988 — China views the 2008 Olympics as a showcase for its modern economy and
a springboard for future economic growth.
To the Chinese government, hosting the Olympics also signifies a turning point in
its economic development. It provides an opportunity to begin the shift from an economy
based on being the assembly platform for global manufacturing to one geared to providing
goods and services for China’s growing and prosperous middle class. The 2010 World
Expo in Shanghai will be a similar opportunity to highlight China’s economic progress.
1 Lee M. Sands, “The 2008 Olympics’ Impact on China,” China Business Review, July-August
In an effort to ensure the success of the 2008 Olympics, the Chinese government has
invested billions of dollars in sports facilities, housing, roads, mass transit systems, and
other infrastructure. China hopes that its investments, when combined with the goodwill
generated by the successful completion of the Olympics, will attract more tourists,
businesses, and investors to China — and foster future economic growth in its wake. In
addition, to counteract possible negative publicity about labor and environmental
conditions in China, the government passed new labor laws and is promoting the 2008
Beijing Olympics as the “Green Olympics.”2
If the post-Olympic economic records of past host cities and nations are any
indication, however, it is uncertain that Beijing and China will see substantial economic
benefits from this summer’s games. Academic research on “mega-events” — such as the
Olympics — has found that their economic benefits generally fail to meet pre-event
expectations, and sometimes fall short of the costs of staging the event. Certain aspects
of China’s current economic circumstances make it more likely that the economic gains
from the 2008 Beijing Olympics could be smaller than some pre-event expectations.
The Economic Impact of Mega-Events
There is a vigorous scholarly debate over the correct method of evaluating the
economic impact of “mega-events,” such as the Olympics.3 It is difficult to disentangle
changes in economic growth, employment, inflation, tourism, and other possible effects
caused by the mega-event from changes caused by other factors (currency appreciation,
fiscal and monetary policy changes, etc.). In addition, certain types of investments related
to mega-events, such as the construction of new stadiums, often fail to generate
significant economic benefits after the mega-event is over. Plus, it is uncertain if
economic activities undertaken as part of the preparation for the mega-event (for example,
the construction of new mass transit lines) might not have taken place even if the mega-
event had not occurred. Also, impact assessments of mega-events frequently ignore the
“opportunity costs” associated with investments made before the event. For example,
assessments often do not consider the possibility that the money spent on the new
Olympic stadium might have generated greater economic benefits if spent on hospitals or
schools. Finally, while the economic gains associated with the construction of new
infrastructure are generally calculated, the economic costs associated with the
displacement of people and business (for example, in the demolition and construction of
new housing for the mega-events) often are not.
Besides the methodological questions associated with assessing the economic effects
of mega-events, there are also serious problems in methodological application. In many
2 There is a separate web page — [http://en.beijing2008.cn/12/12/greenolympics.shtml] — for
Beijing’s “Green Olympics” that includes numerous articles on the various measures taken to
reduce the environmental impact of the 2008 Olympics.
3 For brief discussions of the methodological problems of assessing the economic impact of
mega-events, see Jon Tiegland, “Mega-events and Impacts on Tourism; the Predictions and
Realities of the Lillehammer Olympics,” Impact Assessment and Project Appraisal, December
1999, Vol. 17, No. 4, pp. 305-317; and Jeffrey G. Owen, “Estimating the Cost and Benefit of
Hosting Olympic Games; What Can Beijing Expect from Its 2008 Games?” The Industrial
Geographer, Fall 2005.
cases, the companies or individuals conducting the economic impact assessment prior to
the mega-event have an incentive to overstate the potential gains and understate the
potential costs. In some cases, the assessors present the costs of the mega-event (for
example, the construction cost of new sports facilities) as benefits. In other cases, the
assessors overstate the certainty and size of the “investment multiplier,” the secondary
benefits (for example, increased future tourism) associated with the mega-event.
The Olympic Record
Few studies have been done comparing the pre-event projections of the economic
impact of the Olympics to their post-event reality. A study of the 1994 Winter Olympics
held in Lillehammer, Norway, determined that the pre-event economic impact studies
systematically overstated the potential economic benefits of hosting the event, and that
actual economic gains were comparatively small and short in duration.4 Another study
of the Lillehammer Olympics concluded, “the long-term impacts are marginal and out of
proportion compared to the high costs of hosting the [Olympic] Games.”5
A Bank of China (BoC) study of 12 host countries for Olympic Games over the last
60 years reportedly concluded that nine of the economies — including Japan and South
Korea — experienced declines in their average GDP growth rates in the eight years after
the Olympics when compared to the eight years prior to the Olympics.6 The Chinese press
has run several stories pondering the question, “Will [China] succumb to the so-called
Post-Olympics Effect (POE)?”7
The Cost of the Beijing Olympics
When China originally bid on hosting the 2008 Summer Olympics, it estimated the8
cost at $1.625 billion. Since then, several revised budgets have been released, raising the
official cost to over $2 billion.9 Included in this figure is the expense of building or
renovating 76 stadiums and sport facilities in the seven venues — Beijing, Hong Kong,
Qingdao, Qinhuangdao, Shanghai, Shenyang, and Tianjin — at which events will take
place.
However, these figures only include the direct costs of construction of the Olympic
sports facilities and related venues. According to one estimate, the actual total
construction cost — including the capital spent on non-sport infrastructure — is expected
4 Teigland, op. cit.
5 O.R. Spilling, “Beyond Intermezzo? On the Long-term Industrial Impacts of Mega-events: The
Case of Lillehammer 1994,” Festival Management and Event Tourism, Vol. 5, 1998, pp. 101-122.
6 Liu Jie, “No Worries to Post-Olympic Slowdown,” China Daily, April 14, 2008. The article did
not indicate which host countries did not experience a post-Olympics slowdown.
7 “Will Olympics Become a Watershed in China’s Economy?” MSN, July 20, 2008.
8 “Liu: 13 Billion Yuan Spent on Cost-efficient Olympics,” Press release by Beijing Olympic
Committee, August 1, 2008.
9 Ibid.
to exceed $40 billion.10 By comparison, Greece spent an estimated $16 billion on the
2004 Olympic Summer Games. At a recent press briefing, The Beijing Organizing
Committee for the Games of the XXIX Olympiad (BOCOG) criticized estimates of this
sort, indicating that investments on transportation ($26.2 billion), energy ($10.0 billion),
water resources ($2.4 billion), and the urban environment ($2.5 billion) are to be
considered part of the budget of the city in which the capital outlay took place and not part
of the cost of the Olympics.
The $41.1 billion on non-sport capital investment went to a variety of projects. For
example, in Beijing, 200 miles of roads were refurbished, two additional ring roads
completed, and more than 90 miles of subway and light rail lines were added to the city’s
transportation system. A 9,000 room Olympic Village was also built in Beijing to house
16,000 athletes; it is to be converted into a modern apartment complex after the Olympics
are over. Similar projects were also completed in the other six Olympic venues.
Assessing the Possible Benefits and Costs
In 2007, two Chinese economists, Zhang Yaxiong and Zhao Kun, published a study
of the projected impact of the Beijing Olympics on the economic development of Beijing,
its surrounding areas, and the rest of China.11 According to the authors, “Apart from its
significance as a grand societal gathering, hosting the Olympic Games will greatly
promote investment and consumption.” Their model estimated that Olympics-related
investments in Beijing increased the city’s economic growth by 2.02% between 2002 and
2007, raised the surrounding area’s growth by 0.23%, and advanced the rest of the
nation’s growth by 0.09%.
The paper recounts other studies of the projected impact of the Beijing Olympics on
China’s economy. The authors report that a study by Gu et al. published in Chinese in
2003 predicted that the Olympics will increase Beijing’s economic growth by 5% between
2003 and 2009. A 2005 study by Wei and Yan (also in Chinese) concluded that the
Olympics would increase Beijing’s economic growth by 0.8% from 2005 to 2008.
All of these studies appear to suffer from one or more of the methodological
problems frequently associated with impact analysis of mega-events. In their input-output
analysis, Zhang and Zhao include both sport and non-sport facility investments as part of
the Olympics-related investments — contrary to the stance of the BOCOG — coming up
with a total investment for the 2008 Olympics of 282.53 billion yuan, or $41.3 billion.
According to some analysts, the $41.3 billion in “investments” should be properly
classified as a cost — not a benefit — of the Olympics. The paper also implicitly assumes
that all the investment made would not have been made if China was not hosting the
Olympics. Nor do Zhang and Zhao consider the “opportunity cost” of the Olympics-
related capital outlay. For example, could the money spent on the new “Bird’s
Nest”(National Stadium) or the “Water Cube”(the National Aquatic Center) have been
10 Brad R. Humphreys, “Rings of Gold,” Foreign Policy, August 2008.
11 Zhang Yaxiong and Zhao Kun, “Impact of Beijing Olympic-related Investments on Regional
Economic Growth of China: Interregional Input-Output Approach,” Asian Economic Journal,
instead spent in Beijing on housing, medical facilities, or schools? In addition, the paper
does not attempt to estimate the losses of the people displaced from their homes or places
of employment so that the new Olympic facilities could be built.12
Another significant drawback of the paper is its apparent lack of consideration of
China’s current economic circumstance, particularly its twin problems of overinvestment
and inflation.13 At a time when the Chinese government is concerned that its economy
is overheated, and the rate of inflation is rising (7.1% in June 2008), the expenditures
associated with the 2008 Summer Olympics may be exacerbating the nation’s economic
problems in two ways. First, the direct demand for raw materials, equipment, and labor
to construct the Olympic facilities may be increasing upward pressure on prices. Second,
materials and resources used in constructing Olympic facilities might have been used on
arguably more productive and urgent construction projects.
Given the experiences of past hosts of Olympic Summer Games and the current
economic situation in China, many analysts believe the 2008 Olympics are unlikely to
provide much of a stimulus — or much of a deterrent — for economic growth in Beijing
or the rest of China. Although the Olympics-related capital outlay is seemingly large, it
is small when compared to the annual value of construction in China and the overall size
of China’s economy. During the first half of 2008, the gross value of construction in
China was 2.27 trillion yuan, or $388 billion.14 In addition, China’s economy — 25
trillion yuan ($3.6 trillion) in 2007 — is already growing at over 10% per year. By
comparison, the potential economic impact of the Olympics is small.
It is also unclear if the Olympics will foster greater tourism in China. There are
reports that a stricter visa policy was implemented in the run-up for the Olympics, and
that foreign business travelers have had a difficult time obtaining visas or have had their
multiple entries visa converted into single entry visas. As a result, China’s trade shows
that historically have been crowded with buyers have seen a decline in attendance. While
the visa situation may return to normal after the Olympics have ended, the short-term
effect on China’s exporters has been considerable.15
According to China’s National Tourism Administration, China received nearly 132
million “inbound tourists” — including over 26 million “foreigners” in 2007.16 China’s
domestic tourism has grown over the last decade from 644 million domestic tourists in
12 There is also a class element to the Olympic construction. According to the Centre on Housing
Rights and Evictions, 1.5 million people were displaced between 2000 and 2008 for the
construction of Beijing’s Olympics. Most of the displaced people were low-income workers, ho
will be unable to afford the Olympic apartments to be sold when the Games are over.
13 For more information about China’s current economic problems, see CRS Report RL33524,
China’s Economic Conditions by Wayne M. Morrison.
14 “The Gross Output Value of Construction Rose in the First Half Year,” National Bureau of
Statistics of China, August 1, 2008.
15 Information based on interviews conducted by Dick Nanto, CRS specialist in Industry and
Trade during a research trip in China, July 21-24, 2008.
16 Visitors from Hong Kong, Macau and Taiwan are considered “inbound tourists,’ but not
“foreigners.”
1997 to 1.610 billion in 2007. For Beijing, it is unlikely that the new Olympic facilities
— including the Bird’s Nest and the Water Cube — will dramatically increase tourism
to China’s capital city. Beijing’s tourism bureau reportedly reduced its projection for
August’s foreign visitors from 500,000 to between 400,000 and 450,000 — or about the
same level as last year.17 Just like the case of Lillehammer, Beijing hotels built in
anticipation of a surge in tourism are experiencing unexpectedly high vacancy rates.18
There are some possible unexpected economic benefits that might be attributable to
the 2008 Olympics. U.S. companies operating in China report that the new labor laws are
being enforced. Such changes in labor conditions are unlikely to be reversed after the
Olympics are over. Similarly, while the factories around Beijing that were closed down
to help reduce air pollution during the Olympics will more than likely reopen, the
increased awareness of the sources of pollution may keep China from reverting to its pre-
Olympics status.
It would appear that the potential gains that China may hope to acquire from hosting
the Olympics will be mostly in its public image, prestige, and soft power. In the week
prior to the opening ceremonies, there were some indications that obtaining these gains
may prove problematic. Despite repeated government assurances, the air quality in
Beijing has remained an issue of concern for the athletes. There has also been controversy
over open access to the Internet for journalists covering the Olympics. In addition, there
is a “risk” that protests or demonstrations on human rights in China may detract from the
image the Chinese government wishes to portray in its motto for the 2008 Summer Games
— “One World, One Dream.”
If, once the closing ceremonies are over and the 2008 Beijing Olympics are done,
China has obtained neither the economic nor political gains it sought, it can look ahead
to the 2010 World Expo in Shanghai as another opportunity to showcase its achievements.
Alternatively, the 2010 World Expo could also be a chance to build on the successful
2008 Beijing Olympics. In either case, China will most likely use the next three years to
bolster its global image as an economic and political power.
17 Loretta Chao and Jason Leow, “Beijing’s Luxury Hotels Face a Glut of Rooms — Many New
Projects are Posting Vacancies on Visa Restrictions,” Wall Street Journal, July 21, 2008.
18 Ibid.