Theme Parks Are Multiplying Fast in China. Are They Really There to Make You Happy?

A new campaign to grab land and sell apartments — 90% of the parks don't make money.

By October 2016, China had 123 theme parks.

The data we gathered shows that theme parks here are getting bigger, and going up faster.

Over the past 10 years, you could count China's large and extra-large theme parks on one hand. This year alone, 21 have opened and another 20 are under construction — among them several extra-large, world-class parks: Korea's Lotte World, Oriental Hollywood, Universal Studios.

Next to Disneyland, which is 60 years old, China's theme parks are young. They are also being built dozens of times faster.

Theme parks are big business

Both the property developers who got into China's theme park market early, like Overseas Chinese Town (OCT), and newcomers like Disney and Merlin Entertainments are after the same thing: the money Chinese consumers will spend to buy a little happiness, or a little nostalgia.

That money, and the appetite for entertainment behind it, is what a theme park is built on.

The property firm Colliers International drew a line for this money: "International experience shows that when a country's per capita GDP reaches US$5,000, a mature tourism and resort economy tends to emerge."

In 2015, China's per capita GDP passed US$8,000, and in big cities like Shanghai it had already reached US$15,000. Theme parks follow regional economies, clustering around China's main economic zones: the Pearl River Delta, the Yangtze River Delta, the Beijing-Tianjin-Hebei region and the Bohai Rim are where large and extra-large parks are packed most densely. And Guangdong, Jiangsu and Shandong — the three provinces with the highest regional GDP — happen to have the most parks.

Other people's success is what keeps developers coming, one after another.

Disneyland, popular for 60 years now, is always held up as the gold standard. Last year the brand's parks took in US$16.162 billion. Its 138 million annual visitors spend nearly US$120 each inside the gates.

Disney made no small compromise to get into the Chinese market, handing 57% of the equity to the Chinese government. Even so, Robert Iger still believes Shanghai is "the best opportunity Disney has had since Walt Disney himself bought land in central Florida in the 1960s."

Shanghai Disneyland has staked out the 330 million people living within a three-hour drive as lifelong customers.

Wanda is in this business too, and plans to out-build its rivals with 15 to 20 theme parks in five years. From property to film to tourism, Wanda has been assembling what it calls a closed loop of the culture industry. In Wang Jianlin's words, tourism is not like other industries, which are easily replaced by something newer — it is a "long-lived investment."

Wanda's revenue mix did shift a little in the first half of this year: revenue at its culture group grew 57% and now makes up a quarter of the total. But most of Wanda's money still comes from property.

Which means this supposedly evergreen investment is a continuation of Wanda's old model of using sales to subsidize rentals. It exists to feed the core business.

"Feeding" is a playbook many Chinese developers have run, then and now: get land-use rights cheap, build a theme park at scale, heat up the surrounding district, then cash out through property.

Twenty-seven years ago, Splendid China — built by Shenzhen OCT, one of the oldest and biggest names in the domestic industry, together with Hong Kong's China Travel International Investment — became the template for theme parks for nearly a decade afterwards: show off the nation's grand scenery in miniature. Back then plenty of people who had never set foot in Paris had a photo in the album of themselves posing with the Eiffel Tower, because they had just been to a park like Window of the World.

In 1998, OCT, by then experienced at investing in theme parks, built Shenzhen Happy Valley. This model — theme park development married to real estate — set off a wave of tourism-property investment.

What Wanda is doing now adds one more link to that old, purely commercial-property model. Wang Shu, a director at Horwath HTL, thinks the Wanda Cities built in Nanchang, Harbin and Hefei are pioneering a new development model: "theme park + travel agency + hotel."

The travel agencies Wanda has bought around the country supply 70% of Wanda City's visitors. Days ago the news that Wanda's travel business would be folded into Tongcheng was confirmed. It looks like a reluctant amputation for Wanda, but Tongcheng's strength online, combined with Wanda's offline operations, might send more people through the theme park gates — which is exactly what Wanda wants.

A fast-built park makes a better city calling card than a road

"If you're doing a Disneyland, a Universal Studios, a Six Flags, your biggest tourism resources are population, big cities, transport reach, and how worthless the land is. The land Disney took in Nanhui couldn't even grow crops," Wang Shu said of how theme park sites get chosen.

Besides warming up the market for property developers, theme parks get tied tightly to the record local officials can point to, especially in cities with few tourism resources. The crowds a park draws turn into spending, and spending pulls local industry along. Governments are glad to see well-capitalized developers take land and build parks, and will offer favorable treatment on policy, financing and land.

At the speed parks go up now, the results arrive within a single term in office — and a park, more than a road, looks like the right thing to hang out as the city's calling card.

Wuhu and Zhengzhou, home to Fantawild Adventure, Fantawild Dreamland, Oriental Heritage and water parks, have made China's list of the top 100 cities by GDP several years running, holding year-on-year growth above 10% and 9.3% respectively. In 2014 and 2015, average GDP growth among the top 100 cities was 8.3% and 8.5%. Over the recent Mid-Autumn Festival holiday, Wuhu received 630,700 visitors and took in 683 million yuan in total tourism revenue. Of that, the Fantawild tourist area received 62,800 visitors, and tickets alone brought in 7.69 million yuan.

Those numbers are nowhere near what theme parks have done for Orlando. A city of only 2 million people, Orlando draws more than 60 million visitors a year and more than US$30 billion in revenue, because it has 20 theme parks, Disney World and Universal Studios among them.

If Disney and Universal have anything in common with Chinese developers, it may be that theme parks are not their most profitable business either.

But Disney and Universal use core intellectual property to control the channels and merchandise downstream, while most Chinese developers use theme parks to gather crowds and sell apartments. Beyond rebuilding and expanding the rides they already have, Disney and Universal keep pumping new film material in upstream. Disney spent US$15 billion buying Pixar, Marvel and Lucasfilm one after another; Universal bought the Harry Potter rights from Warner Bros. and acquired DreamWorks.

It works. When Universal opened the Wizarding World of Harry Potter in Orlando, visitor numbers climbed. A sharper example: Universal Studios Japan's attendance last year beat the previous record by 18%, thanks in part to the Harry Potter attractions completing their first full year.

That is probably why Chinese developers all suddenly started talking about IP after 2013. Part of Wanda's obsession with acquisitions is a hunt for IP, a scarce resource — even if you can't feel any of it yet inside a Wanda theme park.

Plenty of developers are deluded that a proven template is enough to build dreams

Grabbing land in the name of a theme park is a developer move seen over and over.

OCT, the earliest in and the market leader, took plenty of upper-tier cities, driving its stakes into Shenzhen, Beijing and Shanghai before 2010. Songcheng Group went instead for tourist cities, opening history-themed parks in Hangzhou, Sanya, Lijiang and Jiuzhaigou one after another. Chimelong's parks are all clustered in the Pearl River Delta. Fantawild and Wanda came later, but they have been taking land quickly in lower-tier cities with good transport, which on a map looks like encircling the big ones.

The rides and the technology were never the hard part, which is how investors came to believe that copying the model means copying the success. Beyond these major developers, the country holds more than 2,800 theme-park-style attractions of every size. They pull people in with rides, then make their money on retail and food.

But 90% of them don't make money, which puts the industry's rule of thumb — refresh 30% of the rides and content every three years — out of reach. To a visitor they feel lifeless, the equipment old, with nothing worth coming for. For copy-paste parks like these, closing is the only ending.

Figures from the China Tourism Economy Research Center show that 80% of theme parks have shut down over the past decade, many declaring failure not long after opening, with more than 400 billion yuan tied up in them. Plenty of these failed projects left behind not just crude taste and dull days out, but large-scale damage to the natural environment.

Running a theme park is a demanding business: team, value chain, process management, interaction management, promoting the experience, customer management — no link can be skipped. You can see how demanding it is in Disney's decades of careful site selection, its recruitment of merchandise and service tenants, and the transport built to serve it.

Once this bubble deflates and the shakeout is over, we will be able to see who is left, and how they make their money.

As a rule, rides take up no more than 50% of a theme park's floor area; the rest has to go to food, retail and the like for the park to stay in the black.

At the same time, though parks have been trending bigger — meaning more rides and newer ones, which does bring people in — a bigger park does not necessarily draw more visitors. Take Songcheng Group. Hangzhou Songcheng, the first park it built, covers just 90 mu (about 6 hectares), roughly half the area of Sanya Songcheng or Lijiang Songcheng. It still drew 7.289 million visits last year, about twice as many as either sister park.

That doesn't tell us which of these Songcheng parks, all built around live cultural stage shows, puts on the better show. What decides Songcheng's visitor numbers is its business model: go after tourist cities like Hangzhou, Sanya and Lijiang, and live off the crowds that group tours deliver.

Here is another difference between theme parks in China and abroad: Six Flags and Universal pull visitors in with fandom and technology — a Justice League ride built on DC Comics characters in one case, a Harry Potter park in the other.

Tier-one cities are back in favor with theme parks

According to a report from Colliers International, "cities with a higher share of young people and children have greater demand for theme parks among residents, while aging cities have less." In megacities like Shanghai and Beijing, the registered population is aging, but young people make up the bulk of the large migrant population living there, and that is substantial demand for theme parks.

That explains why Anhui, with its relatively high birth rate, has become the hot spot chosen by both Wanda and Fantawild. It is worth noting that provinces with higher birth rates — Anhui, Jiangxi, Sichuan — used to export their people; the return migration of recent years has given theme parks in those places more room to grow.

By rights, a saturating tier-one market should push developers toward cities with good transport and cheaper land, and theme parks should be drifting down the city tiers. But foreign operators have arrived instead, and parks are enjoying a "revival" in the biggest cities.

Foreign entrants seem to be driving that revival. Apart from the Wanda City opening in Guangzhou in two years and China Movie World, due to be finished in Shanghai in four, most of the growth in tier-one-city theme parks comes from international brands: Disney and Legoland in Shanghai, Universal Studios in Beijing's Tongzhou district.

From a decade ago to now, the big players in the theme park business have turned over. Property developers relying on parks to feed the core business are still on the list, but they have been joined by foreign theme park brands and by media companies like Huayi Brothers and Enlight Media — who also have their eyes on Shanghai.

You could say these brands have upgraded the whole format compared with the theme parks that used to hold the tier-one cities. The foot traffic and spending power of big cities are still what developers care about most: tier-one residents are the main market within an hour's drive, and they may be readier to pay for cartoon characters with some culture behind them.

Charts: Wu Lingwei

Cover image: Visual China Group