Beijing, 8 Aug 2008. The Beijing Olympics will be the most expensive ever hosted. After the last medals are given out and everyone goes home, what will the impact be on the Chinese economy?
In 1988 Canada got itself into a thirty year debt when it hosted the winter Olympics in Calgary. Athens spent $15 billion on the 2004 summer Olympics, a debt that will take at least 10 years to clear.
All of that pales in comparison with the estimated $43 billion price tag of the 2008 Beijing Olympics, which will kick off today. The Wall Street Journal has calculated that these Olympics will cost one and a half times more than the last five Olympics combined.
So what does that mean for the Chinese economy as a whole?
In a study from the 2000 Sydney Olympics, John Irons from Argmax used IMF and Penn World Tables 5.6 data to calculate the impact of the Olympics on host countries. He used 12 year average GDP growth rates, and then looked at the variance before, during and after the games. The results are illuminating.
Host country economies tend to grow faster than normal before and during the Olympics. The best years tend to be three and four years the games start, with growth over 1 per cent above average. but they will then experience up to 0.8 per cent less growth on average over the next eight years.
There is some logic to this. For at least four years before a games are staged, major construction and infrastructure projects kick off. In the case of Beijing, that has included a new airport that is considered to be one of the world’s best, roads and metro links, new accommodation, and 37 new stadiums. There is also likely to be a growth in both inbound tourism and consumer spending fuelled by higher levels of optimism and confidence.
Once the Olympics circus moves on, the debts are left to pay and there may have been little direct financial benefit from the games themselves.
This may be less of an issue for China, simply because of its size. Certainly GDP growth rates have been increasing, reaching 11.9% last year. But the Beijing Olympics have been nothing more than a few dots on the map of the largest construction site in the world – the country of China itself. The Chinese government invests
over $1.5 trillion annually into the domestic economy, so the Olympic bill represents less than 1% of budget annually.
The Beijing Olympic Economy Research Association (BOERA) has estimated that the games have added 0.8 per cent on average to annual GDP growth. Indeed, much of the $43 billion would have been needed anyway, since Beijing was badly in need of improved transportation and infrastructure.
London, host of the 2012 games, may not be so lucky. The initial $6.6 billion (based on today’s exchange rates) that was budgeted for construction has already been raised to $18 billion. Some of the construction companies who won their bids are now having problems financing their deals thanks to the credit crunch, meaning that more public funds are likely to be needed. And with the prices of commodities on an extended bull run, further cost over-runs are almost inevitable.
Ultimately though, there are bigger stakes at play than balancing the books. The Olympics are the biggest sporting spectacle in the world, and for China it is more about officially marking their passage towards becoming a major world power, if not the major one. And that, as they say, is priceless.
Chen Xiulian, EconomyWatch.com