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Tax exemptions and increased demand drive 16-per-cent growth of Chinese winter sports economy

Dajing Wu of China celebrates winning gold in the Men's 500m Short Track Speed Skating Final A on day thirteen of the PyeongChang 2018 Winter Olympic Games at Gangneung Ice Arena on February 22, 2018 in Gangneung, South Korea. (Remote Richard Heathcote/Getty Images)

  • In its bid book for the 2022 Winter Olympics, China outlined a plan to have 300 million citizens participate in winter sports
  • The sheer scale of the commitment is having a transformative effect on the winter sports economy in the country
  • The pace of the boom has created several challenges, from environmental and real estate policy to a lack of technical nous

In its bid book for the 2022 Winter Olympics, China outlined great expectations for the development of its winter sports industry.

Not least was the commitment to motivate 300 million people – one in every five Chinese – to participate in winter sports, a promise also written into the latest version of the national sports development plan.

The sheer scale of the commitment is having a transformative effect on the winter sports economy in the country.

Between 2018 and 2019, the number of domestic skiers increased 21.5 per cent, reaching 23.45 million, according to market research company International Data Group. By the end of 2018, the number of ski resorts in the country was at 742 and the number of ice rinks at 596.

In total, the sector was worth $53.6bn (€47.7bn) in 2018, up 16 per cent over the $46.2bn valuation in 2017. Winter sports are responsible for 1.5 million Chinese jobs.

Positive business environment

More events and more demand have naturally driven up the need for ski resorts, ice rinks and snow fields. This has also led to a rejuvenation of winter sport companies that were languishing before China’s successful bid for the Olympics, like Black Dragon, a domestic company that specialises in ice skating boots.

Black Dragon closed in 2011 due to management issues but resumed production in 2015. Now, says general manager Huang Tao, its annual production capacity for ice skating boots has reached three million pairs.

He attributes the revival of the company to the 2022 Winter Olympics, as well as government support for domestic winter sport companies like his. The Chinese government has introduced tax exemptions for entities, enterprises and individuals that support preparations and test events for the Beijing 2022 Winter Olympics. Business income tax, individual income tax, value-added tax, consumption tax and stamp tax are among the categories eased for qualified taxpayers.

Companies operating in clothing, equipment and coaching have rushed to enter the Chinese winter sport market as a result.

Ski resort property boom

The ski resort and winter sport facility market has also been red-hot. Club Med, acquired by China’s Fosun Tourism Group for $1.3bn in 2015, signed agreements in March this year to establish new ski schools and mountain resorts near Beijing, adding to the two mountain resorts it already owns in the northeastern provinces of Heilongjiang and Jilin.

Chinese citizens walks past a a sign for Beijing’s bid for the Winter Olympics logo on January 16, 2015 in Zhangjiakou, Hebei Province, China. (Lintao Zhang/Getty Images)

Qian Jiannong, the chairman and chief executive of Fosun, told the South China Morning Post: “There is a shortage of ski resorts and facilities in China. We are planning to open more ski resorts in northern China and in Hebei, close to Beijing.”

How much do would-be investors have to fork out to join this ski resort monopoly game? China’s Wanlong Ski Resort director of communications Li Qiong tells SportBusiness: “An ice rink investment will cost about CNY 8m (€1.02m/$1.14m)-CNY 12m, and the level of investment for ski slopes and ‘snow towns’ can [cost] hundreds of billions of yuan for a project.”

According to Li, Wanlong hadn’t turned a profit for 11 years until the government push on winter sport consumption in 2015. “Today, our revenue from snow fields access tickets and equipment rental accounts for 70 per cent of our profits, with the rest from hotel revenues and entertainment facilities at the resorts.”

Infrastructure and training challenges remain

The pace of the boom has created several challenges.

One is keeping spending domestic, as the Chinese government would like. Wu Bing, chief executive of Carving Ski, a Beijing-based ski industry consultancy, distributor and service provider, tells SportBusiness: “Ski facilities are specialised equipment, and there are no Chinese brands on the list of Winter Olympic equipment suppliers that are approved by the International Ski Federation. This has left Chinese companies at a competitive disadvantage.

“Even if our prices are nearly 30 per cent cheaper, many snow fields and resorts will still choose foreign brands.”

Li agrees that quality is an issue: “While domestic brands prices are lower, over the long run, comparing energy consumption and maintenance costs, domestic brands are not cost-effective. This is why snow fields and resorts would rather spend more on buying foreign brands,” she says.

Wu says that, given Chinese companies’ relatively late entry into the snow and ice equipment industry, it will take time to improve the technical quality and employee skills. He also believes that investing to chase the Chinese skiing boom could hold back the long-term development of the industry. He told Japan Times: “A lot of money wants to join the industry, but they have no idea how to invest. We don’t want too much money to come in with no clear idea. It’s not good for the market.”

Ski facility operators say a lack of qualified staff, and rising costs related to those available, are putting pressure on profits.

Gao Yunchao, the deputy secretary-general of the Beijing Olympic City Development Association, admitted recently at the World Winter Sports Beijing Expo: “As a late starter in winter sports, China is in desperate need of proven experience and expertise in developing the industry sustainably beyond 2022.”

The Chinese Ministry of Education has moved to alleviate these issues by increasing the number of vocational education programs offering training in ice and snow sports facility maintenance and management.

Jiayu Liu of China competes during the Snowboard Ladies’ Halfpipe Final on day four of the PyeongChang 2018 Winter Olympic Games at Phoenix Snow Park on February 13, 2018 in Pyeongchang-gun, South Korea. (Cameron Spencer/Getty Images)

But Dong Jianming, dean of the Institute of Ice and Snow at Zhangjiakou University, told Xinhua: “The training of professionals in the ice and snow sports industry is affected by various factors such as the availability of suitable sports sites, seasonal changes and the ebbs and flows of winter sport enthusiasts, which makes the large-scale cultivation of talent through traditional education institutions and courses difficult.”

A lack of nous also extends to snow-and-ice real estate. According to local media reports, more than 70 per cent of China’s snow fields and ski resorts are ill-equipped, with primary roads and elevators either inadequate or poorly maintained. Wu warns that some will struggle to survive after the Olympic shine wears off.

Lin Xianpeng, a professor at Beijing Sport University, tells SportBusiness that administrative issues also plague snow field owners, with many operating under vague ownership regulations due to Chinese laws against privatisation of land. He explains: “There are snow fields currently operating that aren’t designated for use as such, which means that cable cars and service facilities are usually illegally constructed.”

Operators are also waiting on the Chinese government for further policy shifts, including in the cost of water. Lin says: “In Beijing, for example, industrial water is normally four yuan a ton, while at ski slopes they pay up to 160 yuan a ton, 40 times more, which has led to widespread complaints within the industry.”

The Chinese government has stepped up environmental requirements on outdoor ski resorts, mandating they be self-sufficient in their water requirements and avoid tapping public reservoirs. Chongli, a town four hours from Beijing that will host 2022 Olympic ski events, spent 550m yuan on improvements to a nearby reservoir in 2014 in order to supply five million cubic metres of water annually for local resorts for making snow, according to Chinese media reports.

Beijing 2022 is turbo-charging China’s winter sports growth, but there are considerable challenges that will have to be carefully managed to avoid boom and bust. It remains to be seen how the Chinese government will navigate environmental and property ownership policies, while keeping momentum going to hit its self-imposed target of 300 million winter sport participants.

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