Bottom line: Legoland's new Shanghai theme park spotlights the growing lure of China's leisure travel market, while Royal Caribbean's removal of South Korean ports from its China-based trips spotlights how political tensions can affect tourism-reliant businesses.
A couple of Shanghai-based leisure stories are spotlighting two very different trends in China's leisure travel sector, where a burgeoning middle-class is seeking new and interesting vacation ideas. On the more upbeat side, one of Europe's top theme park developers is expressing a major vote of confidence in the market, with word that the developer of Legoland theme parks will open one of its mega-resorts in Shanghai. But on the downside, the country's largest cruise operator, Royal Caribbean (NYSE: RCL), has removed South Korean ports from its China-based trips amid growing frictions between Beijing and Seoul over a controversial missile defense system.
The Legoland deal spotlights the big upside to China's leisure travel market, which has attracted most of the world's major theme park operators including Disney (NYSE: DIS), Universal Studios and Six Flags (NYSE: SIX). The latter story spotlights one of the biggest downside risks to doing business in China, namely the potential for politics to become entangled in business.
Let's jump right in with Legoland news, which is quite big in terms of investment and the arrival of another major player to the market. The latest reports say that Britain's Merlin Entertainment, developer of Legoland theme parks, will build a $300 million resort in Shanghai's Qingpu district.
Here we need to distinguish between the various formats that Legoland takes. Merlin has already opened a much smaller-scale rendition of its Legoland Discovery Center in Shanghai, probably costing in the tens of millions of dollars. But this particular new project involving a full-scale outdoor Legoland involves the company's premier product, and the size of the investment attests to the big potential Merlin sees in the market.
The reports say the resort will be completed in 2022, and will complement similar parks under construction in Japan and South Korea. it's significant the park is being built in Shanghai, which is fast becoming China's theme park capital for this kind of world-class entertainment. Disney last year opened its first mainland-based resort in the city, and Six Flags is building one of its resorts nearby. By comparison, only Universal has chosen Beijing, whose weather and nearby population base are less ideal for this kind of major outdoor attraction.
Meantime, there's the other news that Royal Caribbean has removed all South Korean ports of call from its cruises originating in China, many of those from Shanghai. The move was announced in low-key fashion on the company's China website, citing "recent developments regarding the situation in South Korea".
That's a slightly subtle reference to the current political tensions occurring between Seoul and Beijing over a high-tech anti-missile defense system the former is installing. Seoul says the system is necessary to protect against potential threats from North Korea, while Beijing worries the system could be used for spying on China.
In this case the biggest losers will be the South Korean ports that are usually included on such cruises, such as the island of Jeju that has become heavily dependent on Chinese tourism. South Korean retailer Lotte has also seen its China operations suffer as a result of the tensions, with a number of its retail stores and one of its joint venture factories recently forced to close after local inspectors discovered various violations.
This kind of fallout for businesses as a result of political tensions is one of the biggest risks for companies doing business in China, or in this case overseas firms that rely on Chinese tourists. Beijing is notorious for parlaying political tensions into the business realm, allowing state-controlled media to report extensively on the matters and fuel discontent among ordinary citizens.
In this case government is keeping a close watch on things, and appears to be making sure that the public outrage doesn't get out of hand the way it has in the past with other similar tensions. Still, that won't be much consolation for the people at Lotte or hundreds of small businesses in South Korea that have come to depend on Chinese tourists.