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Economic Impact of Beijing Olympics

Hello, I’ve found a write-up discussing how the Beijing Olympics will have an impact on China’s economy. Enjoy:)

Article: Economic Impact of Beijing Olympics

The Olympic Games will affect the Chinese economy in the following way.

Increase in Tourism. This is a short term effect but will help increase spending in the economy. It will come from the athletes, spectators and media who will travel to Beijing. It is argued the Olympics will also provide a long term boost in repeat tourism; this could be quite significant for China as the tourist industry is largely underdeveloped.

Increased Investment in Infrastructure. To prepare the economy for the Olympics, the Chinese authorities have attempted to improved infrastructure and transport links, these will have some effect in increasing the productive capacity.

Macro Economic Effects of the Olympics

Higher Economic Growth. The increase in spending related to the Olympics will help to boost Aggregate Demand and economic growth.

However, the increased spending will only represent a relatively small % of GDP. Some estimates suggest around 0.5% of GDP. Also the Chinese economy is already growing very quickly so it is debatable whether a further boost will help.
Inflation. The extra spending could help fuel inflation, which is already a problem in the Chinese economy. The Olympics will certainly create some localised inflation.

Exchange Rate. The influx of tourists could put more upward pressure on the Chinese Yuan. The government have been trying to hold the exchange rate down, but the influx of foreign visitors will only cause further increases in demand.

How Significant will the Olympics be?

From a macro economic point of view it is not clear how important the Olympics will be. There is a definite increase in AD, but, it remains a relatively small % of total GDP.

There could be a multiplier effect though and the initial increase in AD could be magnified. Similarly, the investment improvements could lead to future economic growth.

Problems of the Olympics.
-Does nothing to address the regional inequality in China. It is the Northern regions of China which need investment and growth not Beijing and the South
- Inflation.
-Cost. The cost of the Olympics is very high and it is not certain whether they will get their investment back

Source: http://www.economicshelp.org/blog/economics/economic-impact-of-beijing-olympics/


Analysis and Review of the article:

Recently, there has been a debate going on about whether the Beijing Olympics will be more of a benefit or a burden to China’s economy. In the write-up above, it focused more on describing the economic benefits that the Beijing Olympics will bring to China.

Firstly, by hosting the Olympic games, Beijing will be able to earn revenue through tourism, since athletes, spectators, and tourists from all over the world will gather in Beijing, China to witness the Olympic games. Thus, there will be an increase in business of the tourist sector in China, and consumption of tourist goods and services will increase, hence increasing the total revenue. This is beneficial to the country’s economy since more taxes will be paid through the consumption of the goods and services, and its increase will allow more revenue to be earned by China.

The article also mentioned that this boost to the tourism industry is a long-term one. I feel that an explanation to this statement is that being the host city of the Olympics increases the repuation of China and fame of Beijing as the capital of China, which will make an indelible mark in the people’s minds. Also, by attracting more people to go to China, the various Chinese products will be more well-known to the people, and people may still buy these products even after Olympic games have ended.

Indeed, throughout history, the Log Angeles Games is the first-ever money-making Olympics. (1) Other hosting countries, such as Athens in 2004, have spent an amount that far exceeded that of the budget, resulting in a large loss made. (1) So will Beijing Olympics suffer from the same fate?

According to National Bureau of Statistics spokesperson Ye Zhen, over the next seven years, Olympic effects would add an average of 0.3 to 0.4 percentage points a year to national gross domestic product (GDP). (1) Since the main cost of hosting Olympics comes from building the infrastructures, the numerous investments from other countries should have helped to lessen the burden of the costs. Sponsorships are also provided by large companies to build some of the facilities. Also, the large amount of revenue earned from the tourist and investment industry will hopefully make up for the cost. Moreover, the long term benefits of hosting Olympics will benefit the economy as well.

In addition, the mascot of Beijing Olympics, “Fuwa”, will allow the Beijing Olympics Committee, who are the ones producing it, to be at a monopoly, as it is currently only sold in China. This allows the product to be also relatively inelastic as there is no close substitutes. Thus, price can be increased to increase revenue, and hence profits assuming that production costs remain the same.

Organising the Olympic games is an invaluable learning experience for China. This Olympic games has created a platform for people of different nationalities to come together for a friendly competition, and enhance interactions across cultures. This is definitely an important advantage that Olympic games brings.

Reference:

(1) http://www.china-embassy.org/eng/xw/t157967.htm

posted by Mengyuan:) @ 11:30 PM