Facile hopes for Beijing and Tokyo

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Facile hopes for Beijing and Tokyo

Tokyo and Beijing are still celebrating the news that they will host the 2020 Summer and 2022 Winter Olympics, respectively. But it’s time to congratulate the real winners: all the cities that have decided to steer clear of competing for the honor.

Last week, Boston shocked the International Olympic Committee by withdrawing its bid for the 2024 Summer Games, after residents balked at the soaring price tag. Similar outcries in Oslo, Munich and Stockholm led those cities to drop their 2022 bids, leaving the IOC to choose, awkwardly, between two cities (Beijing and Almaty, Kazakhstan) that lack snow and winter sports cultures.

Winning the Olympics clearly cheered Chinese President Xi Jinping, who is having a tough year amid slowing growth and plunging stocks. News that Beijing will become the first city to stage both the Winter and Summer Olympics offers Xi a fresh opportunity to drum up nationalism among his 1.3 billion people and build on the soft power China amassed during the 2008 Games.

Japanese Prime Minister Shinzo Abe likewise hopes to recreate some of the 1964 Olympics magic that propelled Japan into the ranks of the G7 nations. After 20 years of deflation and sliding geopolitical relevance, Prime Minister Abe sees the Tokyo 2020 Games as an ideal opportunity to reintroduce a resurgent Japan to the international community.

But the leaders of Asia’s two biggest countries might be getting ahead of themselves. There is a good chance that the Games will actually do more harm than good to the trajectories of Asia’s two biggest economies.

Take China, which officially spent between $40 billion and $70 billion on the 2008 Games and got little to show for it, economically, other than debt. “Hosting the Olympic Games is generally thought to boost investment demand in the host country via the construction of facilities and additional tourism,” wrote Goldman Sachs economists Yu Song and Michael Buchanan in a July 2012 report. “But the Beijing Games do not appear to have had this effect on China’s economy.”

China can easily afford the 2022 Winter Olympics. After all, its official 2008 bill amounted to less than 0.5 percent of gross domestic product. And Beijing has pledged to reuse some of its stadiums and sports centers from the earlier event. But China’s spending for the 2022 event will likely come at the expense of its economic reform efforts.

Chinese officials won’t be able to closely monitor the coming explosion in public works spending. Local governments that have been under pressure to curtail debt will likely find ways to piggyback on the boom. New mini-Manhattans that nobody needs are sure to soon sprout up around Beijing, together with redundant six-lane highways, international airports, five-star hotels, riverside parks, opera houses, museums and high-speed rail projects.

Whatever its impact on the Olympics, this spending will result in an increase in pollution, economic overcapacity and, of course, debt. At about $4 trillion, local government IOUs already exceed Germany’s annual gross domestic product. Outstanding loans for companies and households hit a record 207 percent of GDP in June, up from 125 percent in 2008. A new building bonanza will support GDP in the short run, allowing Beijing to continue putting off painful upgrades into the future. Yet, it will mask China’s worsening debt load until it’s too late. Already, Xi’s team is dragging its feet on shifting China’s growth engines away from excessive debt and toward domestic demand.

Japan seems to be falling into its own complacency trap as the Tokyo Games approach. Officials in Tokyo - from Abe to top lawmakers to Tokyo Governor Yoichi Masuzoe - are increasingly hitching their political and economic hopes to the 2020 event. The government has declared it wants to show a primary budget surplus by that year, without offering specifics on how it plans to achieve it. Masuzoe, for his part, has said he wants to wrestle back Tokyo’s status as Asia’s financial hub from Singapore by 2020 (again, without saying how to accomplish that goal). And what year are companies like Honda using as a benchmark to make English their official language? You guessed it - 2020.

“Thing is, 2020 Japan is not 1964 Japan and as it becomes increasingly apparent that Abenomics is not economic Viagra, misplaced hopes are now pinned on the Olympics,” says Jeff Kingston, director of Asian Studies at Temple University in Tokyo. “They won’t be a game changer and currently are at risk of being remembered for all the wrong reasons.”

Those reasons include the spiraling costs of an event the Japanese government had sold to the public as an economical venture. Last month, Abe intervened to scrap plans for the main stadium designed by British-Iraqi architect Zaha Hadid as the cost approached $2 billion. But the controversy also put a spotlight on the ways that Japan’s politically-connected construction companies pad their bills - a longstanding problem that contributes to the country’s massive public debt, the world’s largest.

If economic ambition were an Olympic event, Asia would be sweeping the medals stand. But, in economics as in sports, it’s hard work that’s rewarded, not facile hopes for miracle improvements. Chances are Tokyo and Beijing will soon wish they had followed Boston in abandoning their bids to play Olympics host.

*The author is a Bloomberg View columnist based in Tokyo and writes on economics, markets and politics throughout the Asia-Pacific region.

by William Pesek

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