Rings Around Beijing

To understand why San Diego-based Cubic Transportation Systems has made China a top priority, take a look at the to-do list for the 2008 Summer Olympics. It includes a $1-billion plan to add at least 60 miles of track and 60 stations to Beijing’s subway system.

For Cubic, which produces high-tech fare-collection systems, that job alone would be comparable to outfitting the entire Los Angeles subway system.

As Salt Lake City winds up its Olympic debut, firms such as Cubic are looking ahead to the grand prize: Beijing 2008. Even in the hyped-up world bound by the five interlocking rings of the Olympics, China is big--very, very big. China’s $23-billion budget is more than seven times the size of Salt Lake City’s and Sydney’s in 2000, more than five times the projected spending for Athens in 2004 and 32 times what Los Angeles spent in 1984.

The differences in costs are Olympian because Beijing, unlike the other cities, has so far to go to provide the basics. To win the coveted Olympics bid, Chinese officials agreed to spend more than $20 billion just on infrastructure, building an Olympic village with an 80,000-seat stadium, tripling the miles of the city’s expressways and cleaning up one of the world’s most polluted cities.

To fulfill those lofty ambitions, China has agreed to turn its capital into a giant construction zone. The $480-million Olympic village--designed by Baltimore urban design firm RTKL--is one of 37 Olympic venues spread between Beijing and five other cities. China is spending billions of dollars to divert water from southern China to parched northern China, relocating thousands of polluting factories from Beijing to the hinterlands, adding 400 bus lines and investing $3.6 billion in high-tech gadgetry, including a digital network capable of HDTV transmission for all Olympic venues.

For months, the Beijing Olympic Organizing Committee has been entertaining a stream of foreign delegations. The best opportunities for foreign firms appear to be in project management, construction, transportation and services such as financing, tourism and environmental technology.

“China is making all the right moves trying to spur international competition,” said Steve Shewmaker, a senior vice president at Cubic.

“The time to start talking with Beijing about the Olympics is now, not in three or four years,” said Patrick Powers, director of China operations for the U.S.-China Business Council, who met with Beijing Mayor Liu Qi, also head of the Olympic committee, last fall. “They’re moving forward with their plans the first half of this year, and there is already significant competition for the committee’s attention from major corporations and governments.”

Chinese Olympic officials hope to put out bids for the major venues by the end of this year, with the goal of completing the major structures by 2007.

Hong Kong attorney Christopher Stephens, whose firm, Coudert Bros., was hired to advise the Olympic committee, said the Chinese are under pressure because of the magnitude of the construction, the tight timetable and the need to minimize negative effects on residents of Beijing.

“Every time you put up one of these sporting venues, you drop it on a plot of land, but then you have to surround it with access roads, bring in electricity, water and sewer, and if you have water runoff, it affects an enormous area,” Stephens said. “This is an enormously complicated thing just to coordinate internally, and it has far-flung consequences way beyond the Olympic Games.”

The 13.8 million residents of the crowded capital already have gotten a taste of Olympian headaches. When the Olympics site team visited Beijing last spring, the local government blocked downtown streets to guarantee a smooth flow of traffic, closed dirty factories to improve the air quality and spray-painted the grass along the main thoroughfares bright green. Though the prospect of having a greener, cleaner and more efficient city is welcome, locals are bracing for massive traffic delays, power outages and other inconveniences along the way.

Striving to Avoid Controversy

Companies that want to use the Beijing Olympics to garner goodwill or reach China’s fast-growing consumer market should expect to pay dearly for corporate sponsorships, television broadcasting rights and marketing and licensing spinoffs. Though the Chinese government is using a lottery to help defray the multibillion-dollar construction budget, it expects private firms to pay for 80% of the $1.6-billion organizing budget. That would be four times as much as the $320 million earned by the 2000 Sydney Olympics. At best, China expects to extract only a slim profit from the venture, according to Chinese media reports.

Human rights critics have warned foreign companies that they are running a risk becoming too closely associated with an authoritarian government that has used high-profile events as an excuse to crack down on political dissidents or religious groups such as the Falun Gong.

But these concerns haven’t deterred the world’s leading companies, most of which already are heavily invested in China and seeking to improve their standing in the run-up to the 2008 Olympics. U.S.-based General Motors Corp. and Xerox Corp., Australia’s Telstra and Acer Corp. of Taiwan were among the firms that helped subsidize Beijing’s $20-million Olympic bid.

Avoiding controversy is important to the International Olympic Committee and China, both of which are fighting high-profile battles against corruption. The Olympics are also an important test of China’s commitment to the World Trade Organization, which it joined in December. As a member of the global trade group, China agreed to lower tariffs and other trade barriers, improve its judicial system and step up enforcement of intellectual property laws.

Chinese officials assured the U.S.-China Business Council, a Washington-based business promotion group, that the process of bidding for Olympics-related contracts “would be transparent and according to international standards.”

China is likely to give preference to foreign firms that establish joint ventures and use local products and services, said Geoff Jackson, regional director for Asia for the U.S. Trade and Development Agency in Washington.

“They’re definitely going to maximize Chinese content, and why not? This is an opportunity to show the world China’s capability,” he said.

The Trade and Development Agency provides grants so developing countries can obtain U.S. technical expertise for building large infrastructure projects. Jackson said his agency and others, such as the U.S. departments of Energy and Commerce, are looking for ways to give U.S. firms an advantage in China.

One possibility would be to help the Chinese acquire U.S. project management expertise from local governments and firms that have Olympic experience. The lessons are varied, from Peter Ueberroth’s record $232-million profit in the 1984 Los Angeles Olympics to the 1996 bomb scare in Atlanta to the corruption scandal that nearly sank this year’s Salt Lake City Games.

“The Olympics is a good opportunity for U.S. industry, not only for suppliers of equipment but in project planning,” Jackson said. “The U.S. has great experience in hosting several Olympics. Not all of the experiences have been good, but we learn each time we do something.”

Financing also is critical. Foreign governments are far more aggressive in offering low-interest loans or other financial aid to push their companies to the front of the line, U.S. executives say.

Cubic Transportation Systems, a division of Cubic Corp., won $50 million in contracts to provide ticketing machines for subway lines in Shanghai and Guangzhou after the U.S. Export-Import Bank agreed to match the financing being offered by German and French competitors. But in a separate project in Shanghai, Cubic lost the bid to a Japanese firm, Nippon Signal Co., which sweetened the pot with an attractive government loan, said Shewmaker, the Cubic executive.

“I’ve got a concern that we as an American company are disadvantaged when that situation arises because of the strict rules and regulations we’ve got to follow over there,” he said. “If we go in with the U.S. government providing concessionary financing, it sort of levels the field.”

Though firms such as Cubic and San Francisco-based construction giant Bechtel Group Inc. have a long history in China, the Olympics are creating opportunities for small and medium-sized California firms, said Lon Hatamiya, secretary of the California Technology, Trade and Commerce Agency. Last fall, his office held a conference in Long Beach to introduce U.S. environmental technology to China, which has pledged to spend $7 billion on Olympics-related environmental work, including new waste disposal facilities and the planting of thousands of acres of urban forest in and around Beijing.

High-Tech Answer to Water Shortage

In addition to beautifying the city, China’s reforestation program is designed to slow the spread of the nearby desert and reduce dust storms. DriWater Inc., a small firm based in Santa Rosa, Calif., is offering China an innovative answer to its water shortage. The firm’s patented DriWater product combines water and vegetable gum into a gel-like substance that is packaged in biodegradable containers. Buried in the ground, the product provides water for up to three months.

Kent Corley, DriWater’s vice president for operations, said his firm hopes to participate in the greening of Beijing. DriWater sent 200,000 quarts of its product to China last year and set up demonstration reforestation projects in six provinces in northern China. To lower costs, the company has established a joint-venture manufacturing facility outside Beijing that is set to begin production.

“They [the Chinese] know about the technology,” Corley said. “They understand it and they want it. One of the main issues has always been cost. We just needed the economies of scale.”

China’s leaders are keen to create a sophisticated athletic showcase that will bring their country the recognition they feel is long overdue, said Min Wang, whose San Francisco firm helped the Chinese design their winning bid.

“The Chinese people have for so many years felt they have been left behind and not taken seriously,” said Wang, the design director for marketing firm Square Two Design. “With the Olympics and the WTO, people finally feel China is part of the international family. Now they need to organize and prepare the game to international standards.”