Yutang Note: The Chinese sport industry has been undergoing a big change from 2011, when tennis player Li Na who had jumped out of the national sport system achieved great success in the global sport stage. A few days ago, Li Na announced her retire, but the transformation of the industry is not finished yet. 

This transformation began about four years ago in 2011 with a government five-year plan. Although almost four years have passed since then, there are still a number of the same problems from then; after all, we’re still within the five year plan. 

The picture of the whole industry still had a resemblance from back then and the direction of development remains largely the same. 

We present the following article by Matt Beyer which was written in 2011 when China began to plan the transformation and Li Na and Yao Ming just showed the system a need of change. The opinions in the article are still useful now and can be regarded as a reference. 

Professional sports is a highly regulated industry in China, but the PRC government is committed to opening it more to the private sector. The government also aims to expand the industry to improve people’s fitness, provide positive social activity outlets, provide world-class entertainment, and create national champions. Companies that help China use sports to boost physical fitness among youths, create profitable sporting events, and develop elite domestic talent will receive strong government support to help raise sports standards in China.

China’s sports system

In China, sports officials and coaches select prospective athletes at a young age and place them into specialized training schools, where they are isolated and focus almost completely on repetition-based training regimens. Outside of this system, few Chinese citizens participate in recreational sports, and spectator-sport culture is generally nationalistic, complemented by entertainment elements surrounding the game.

From a business perspective, the government regards sports as a cultural industry; from a political perspective, the government sees sports as an educational tool. Patriotism is at the core of sports. Even if an elderly Chinese person does not follow track and field, he will cheer for Liu Xiang, one of China’s top track and field athletes, because Liu has been lifted up as a national hero for his 2004 Athens gold medal. In contrast to the Chinese entertainment industries (particularly film in recent years) that have gained significant private funding and international attention, Chinese domestic sports are playing catch-up.

The direction of change

Following the release of China’s 12th Five-Year Plan (FYP, 2011-15) in March 2011, the PRC General Administration of Sport released its own five-year plan in May. The sports administration’s plan aims to raise the share of China’s GDP spent on the sports industry from less than 0.5 percent ($23 billion) to 0.7 percent ($62 billion) over the period. Commentators often contrast China’s sports industry’s share of GDP to that of the United States, which is 2.8 percent ($414 billion). The composition of sports industry spending also differs between China and the United States. The value of China’s sports industry is made up mostly of sporting equipment and apparel production (71 percent), which is export driven. Retail sales (9 percent), ticket sales (7 percent), and recreational league fees (4.5 percent) remain relatively insignificant. In the United States, sporting good sales (50 percent), recreational participation fees (22 percent), and sports medicine (13 percent) make up the lion’s share of the industry’s value.

China’s sports leadership and a select group of central government bodies will focus on expanding the sports services sector aggressively over the next five years as part of the sports administration’s 12th FYP. Related goals are to create a participation-oriented domestic sports culture and provide high-quality sports products to China’s rising group of consumers with disposable income. The PRC government has welcomed foreign companies to help with these initiatives. Top priority items include management of recreational activities and sports facilities and sponsorship.

Expanding recreational sports to foster a Chinese sports culture

Sports play an underappreciated role in China’s educational system. For instance, over the last 15 years, changing eating habits have had a dramatic influence on the figures of Chinese youth. This phenomenon is not unique, however. Young people in the United States are supersizing, despite the strong sporting culture in their country. But China’s health risks could increase, since physical education classes have been replaced by hours of desk work preparing for competitive exams.

Two of the PRC State Council’s main goals are to make education more well-rounded, which includes integrating sports into children’s lives for exercise, and to develop new professional talents. Many of the 4 million sports-related jobs that the government aims to create over the next five years will help reach these objectives. Companies that support programs integrating education and sports will receive a welcoming ear—and in many cases a generous funding—from central and local government authorities. 

The State Council has launched “a national fitness program” for the 12th FYP period, which encourages companies and communities to engage in physical activity. Chinese and foreign businesses that get behind such policy initiatives and organize mass sports events to engage Chinese people are encouraged. For example, in recent years the Chinese sports brand Anta has held an annual long-distance race. Because it matches government fitness objectives, Liu Peng, the minister of the General Administration of Sport, took part in last year’s race as a symbol of the government’s support. These types of events can also increase a company’s brand value and may be regarded as corporate social responsibility activities.

Creating profitable sports facilities in China

According to the General Administration of Sport, in 2007, China had 812,118 sports facilities, 63 percent of which met PRC government standards to be considered official sports facilities. Out of all the sports venues, only 3.4 percent registered profits: 2.8 percent made profits of ¥100,000 ($15,626) or less, 0.5 percent made profits of ¥100,000-¥500,000 ($15,626-$78,126), and only 0.1 percent of the entire group made more than ¥500,000 per year.

With a glut of facilities functioning as black holes for government funding, the government is on a mission to make these facilities self-sufficient—and profitable. Making facilities available to local recreational leagues could provide revenue to most small facilities. In 2007, 26.8 percent of facilities were open for public use, however, making the execution of this plan a challenge.

Usage restrictions are likely to change, as the PRC government looks to foreign companies to provide management solutions for China’s numerous sports facilities. This will include general operations advising, maintenance and renovation consulting, and event management and booking. Though companies have struck notable deals in Beijing and Shanghai—including sponsorship of the MasterCard Center and Mercedes Benz Arena, both managed by US-based Anschutz Entertainment Group—these deals are just the tip of the iceberg. Companies that can localize effectively will be able to take advantage of many opportunities. The construction of new venues on par with international standards will require multinational corporations’ (MNCs) design and management expertise that is not yet produced by domestic manufacturers.

Leveraging athletes and events for publicity

China’s sports authorities consider the country’s top athletes, many of which are Olympians, precious resources and are hesitant to relinquish control of the athletes to outside parties—especially foreign companies. This is slowly changing as the PRC government recognizes the need for MNCs to invest in athletes and sports events. For example, New York-based sports and media heavyweight IMG (formerly International Management Group) sponsored Li Na in her rise to fame. Team Yao is also a mix of local and overseas Chinese and foreign players.

The government also hopes athletic marketers will bring the athletes they represent together with corporate sponsorship resources to hold large-scale athletic events. Since China experienced the success of the 2008 Beijing Olympics and the 2010 Asian Games in Guangzhou, the PRC government’s desire to hold large-scale sporting events has only increased. The government will support foreign companies that can bring Chinese athletes major deals and organize global-scale sports events. Ambitious local governments will be increasingly keen to explore new opportunities to feature their jurisdictions in internationally recognized events.

Training agents

The PRC government is focused on standardizing the sports agency industry, and the General Administration of Sport held its first-ever national sports agent certification exam in January 2011. Though market opportunities continue to expand for Chinese athletes, officials are concerned about the current unregulated nature of athlete management, where “agents” with no credentials endanger the careers and personal finances of athletes. The PRC government will welcome foreign agencies with strong legacies of successful athlete management in the United States and Europe to help raise the marketing values of China’s domestic athletes and raise a class of professional Chinese agents.

Positive partnerships are key

As long as the sports industry is highly regulated, aligning business strategy with the government’s political and developmental goals is key to any plan to tap the market. MNCs should position themselves as partners for China’s sports industry to facilitate a sports culture and develop Chinese talent. Advising local partners on how to best leverage China’s sports resources as part of a marketing strategy will be important to gain trust and a long-term market presence.