China’s changing attitudes towards investing in overseas sports properties

Recently, a consortium headed by Chinese billionaire Chien Lee of NewCity Capital and Pacific Media Group has taken a majority stake in Barnsley FC, a second-tier English football club. In 2016, Lee and Alex Zheng, president of Chinese hotels group Plateno, also led the acquisition of an 80% stake in French Ligue 1 side OGC Nice.

However, when Chinese media mentioned Lee’s close ties with Plateno in their news reports, the hotel group has immediately posted an official statement, saying that they have never been involved with the Barnsley FC deal and that none of their hotel brands has any equity or business relationship with Lee currently.  

It is noteworthy that Plateno affirmed that they will “continue to expand their business in domestic and overseas by firmly supporting the country’s foreign investment industrial policy.”

Looking back, Chinese investors once surprised the world with a series of purchase deals, which were partly influenced by China’s No 46 file launched in 2014 and the bold sports industry program for the 13th Five-year Plan.

According to the plan, China’s sports industry will exceed 3 trillion yuan ($432 billion) by the year 2020. The industry’s added value will reach 1% of GDP, and sports consumption to hit 2.5% of disposable income per capita.

From the example above, we can clearly see that Chinese companies have changed their attitude toward investment in overseas sports properties. Generally speaking, the change is a result of a different policy direction in the country.

According to a report by the Beijing Youth Daily, early in December 2016, China started to curb irrational overseas investment in real estate, hotels, movie theaters, entertainment and sports clubs.

In February 2017, Gao Hucheng, the then Commerce Minister of China, pointed out that with the rapid development of investment in foreign countries, some Chinese companies have exposed their blindness in investment, which may cause serious risks in the future.

In March, Zhou Xiaochuan, Governor of China Construction Bank, expressed similar ideas at a recent news conference and suggested that effective policies would be necessary.

Then in July, a China Central Television (CCTV) program named Suning’s investment in Inter Milan FC as an irrational deal, which has caused quite a stir among Chinese investors looking to buy a stake in overseas sports properties.

“Most of these companies have high debt ratios domestically, but they borrow money from banks to squander abroad or to buy assets,” said Yin Zhongli, a researcher at the Institute of Finance and Banking, Chinese Academy of Social Sciences.

“Despite their purpose of self-promotion, it may add risks for domestic banks and financial systems, once an error occurs in their foreign investment projects.” 

The program also suggested that it is typical that “irrational” investment project cannot generate enough returns, let alone the suspicion of money laundering and illegal transfer of assets.

Sun Weimin, Vice President of Suning Group, said the company is firmly committed to the foreign investment industry policy of China. As he responded in a Tencent Finance interview, “Suning’s industry strategies have been made based on the domestic development, and our overseas expansion aims to serve the needs of development of the domestic market.”

“Along with our football club in China, we hope that our investment in Inter Milan can bring us an advanced management and training model as well as grow the international influence of Suning brand,” Sun added.

In December, People’s Daily wrote that Chinese companies made large investments in 15 overseas football clubs over the past 3 years. Some of the deals are not only irrational, but also not in line with China’s recent policy, or even have hurt the international image of the country.

China hopes that with the government’s necessary guidance, its sports industry can overcome the adverse effects and step into a sustained and healthy development stage. In this regard, many Chinese companies may have possibly suspended their investment plans in foreign sports clubs.

We also know that it requires patience and rational policies to grow China into a sports powerhouse. Therefore, Chinese companies have to look for other opportunities like sports training, self-made tournaments, sports technology, sports stadium and sports marketing for investment.

Proofread by William Logsdon