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Press Release (AP)

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Disneyland Coming to Hong Kong - November 2, 1999 5:12 PM EST

HONG KONG (AP) - The deal Walt Disney Co. struck with Hong Kong to build a major Disney theme park relies on a nearly $3 billion, taxpayer-funded investment by the territory, and just a $314 million infusion from Disney.

Disney may be ensuring that the deal, which gives the entertainment conglomerate its third international theme park location, won't leave it with the losses it suffered when Disneyland Paris began running up big deficits in the mid-1990s.

The venture will include an East-meets-West theme park and a traditional Disney Magic Kingdom castle, giving Disney, which also has a park in Japan, a stronger presence in Asia. The region is believed to offer Disney its greatest opportunity for growth in coming years.

Still, Disney appears to have structured its newest deal in a way that reduces its vulnerability to Hong Kong's economic uncertainty as the territory tries to recover from the financial crisis that devastated Asia over the past two years.

Besides investing far less than Hong Kong's taxpayers, Disney will own 43 percent of the park _ a smaller share than its 49 percent of Disneyland Paris_ while Hong Kong will own 57 percent.

Moreover, in a departure from Disney's past theme park development, the newest Disneyland is being planned in stages. It will be built to accommodate 5 million annual visitors and expanded through new attractions only if more people start coming, said Disney executive, Judson Green, chairman of a subsidiary that operates overseas theme parks and cruises.

Disney learned some hard lessons from Disneyland Paris, which opened in April 1992 under the name Euro Disney as Europe was in the midst of a recession. Turnout at the park was initially lower than expected _ 7 million instead of 11 million.

The park lost more than $900 million in its first year and needed a financial bailout in its second year. Walt Disney Co. had to help bail out the park and in the process took a $350 million charge against its earnings in 1993, contributing to an 18 percent drop in income. Disneyland Paris later went on to generate healthy profits and by 1998 was France's No. 1 tourist attraction, beating out Notre Dame.

While Hong Kong is putting up most of the money for the new Disneyland, it hopes the investment will be worthwhile in terms of economic growth and jobs.

Economist Andy Xie at the investment bank Morgan Stanley Dean Witter estimated Hong Kong is paying more than $100,000 per job _ double what some U.S. cities have invested to lure foreign car manufacturers.

When multinational corporations have a big prize to dangle in front of a government that wants the business, they can command a high price. But Disney's ultimate impact on the Hong Kong economy could be huge, spreading throughout the hotel, restaurant, transportation and retail sectors.

``It's a good deal under the circumstances,'' Xie said. ``Not many governments do better than this.''

Some critics say the cost might outweigh the benefits. They say the project initially will provide plenty of construction jobs but ultimately will offer mainly low-skilled, low-wage employment.

``We appreciate that Mickey Mouse is coming to Hong Kong, which will be welcomed by the Hong Kong people. But the question is, is Hong Kong paying too much?'' asked Sin Chung-kai, a lawmaker who speaks on economic matters for the opposition Democratic Party. ``I think Disney is getting a very good deal.''

Hong Kong's leader, Chief Executive Tung Chee-hwa, promised 16,000 jobs will be created for construction and related infrastructure projects, with Disneyland employing 18,400 people when it opens in 2005.

Tung defended the taxpayers' investment and predicted it will boost the economy by $18.98 billion over the next 40 years. Tung called that ``a pretty good return.''

But the government later acknowledged less rosy scenarios at Hong Kong Disneyland could leave Hong Kong with a long-term economic benefit as low as $10.25 billion if projected numbers for park visitors, or the amount of money they spend, don't pan out.

Economist Raphael Wu at investment bank Warburg Dillon Read said it was difficult to say who got the better deal.

``Disney's only going to invest one-tenth of what Hong Kong is going to invest, but Hong Kong needs a big theme park to justify itself as a regional tourism center in Asia,'' he said. ``It's pretty hard to say bad things about Disney.''


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