HONG KONG -- When the deal to build Hong Kong Disneyland was struck in 1999, China and Singapore probably felt envious.
Former Chinese premier Zhu Rongji, who was then Shanghai mayor, had first approached the Walt Disney Company in the 1990s about a park in mainland China. Singapore's late leader Lee Kuan Yew reportedly invited Disney executives to his official residence to win them over. "Those were the two competitors we knew of," recalled Mike Rowse, who led the Hong Kong government's negotiations with Walt Disney.
Today, it is a different world. Singapore is home to a popular Universal Studios park. Shanghai will have its own $5.5 billion Disney Resort next month. Hong Kong Disneyland -- the world's smallest Disneyland -- seems like a less-favored sibling suffering from a triple whammy of pressures: sliding earnings, a long-overdue expansion and a likely loss of Chinese customers when the newer and three-times larger Shanghai park opens.
In April, Hong Kong Disneyland fired under 100 staff, citing "operational adjustments." That was the first large-scale layoff since the park opened its gates in 2005. The dismissals came months after it reported its first full-year loss -- of $19 million -- in four years. Turnover and hotel occupancy were all down last year, dragged lower by a fall in the number of mainland Chinese tourists, who make up about 40% of the park's visitors. International visitors make up 20% and locals the rest.
During the recent May Day holiday, also known as "Golden Week" that is the traditional travel season for mainlanders, just a third of the parking lots reserved for tour buses were filled. Entrance tickets, which once were needed to be booked in advance, were available on site. The wait to get on the Space Mountain ride was only 30 minutes, half that of two years ago. In Shanghai, meanwhile, some 40,000 passengers reportedly flocked to the new Disney metro station on May 1 for a glimpse of the still unopened park.
Situated on the outlying island of Lantau, Hong Kong Disneyland is about 1.26 sq. km in size. While its small size is often seen as its fatal flaw, the Hong Kong park is yet to reach its full potential. It is adding a third hotel with 750 rooms next year. New attractions that will open later this year include a theme area based on Marvel's "Iron Man" franchise, and a revamped Space Mountain ride to incorporate elements from the "Star Wars" movies. But these moves are simply part of the park's next stage of development. A much bigger plan is underway.
Hong Kong Disneyland, in which the local government has a 53% stake, could potentially double its size with the building of a second theme park. This would be equivalent to the addition of DisneySea to the neighboring Tokyo Disneyland, or placing Disney's California Adventure park next to its main park near Los Angeles. The Nikkei Asian Review found out that the original Hong Kong deal struck in 1999 gives Walt Disney priority on the acquisition of an adjacent site covering an area of 0.6 square km, and even the possibility of developing a third theme park.
"We gave them a 100-year lease once Disney put their name up. The prestige of the company depends on making that theme park a success," said Rowse, a retired politician who was Hong Kong's first commissioner for tourism. "The idea of Disney moving away from Hong Kong is just silly."
But skepticism has begun to creep in. One suggestion is that Walt Disney is deferring investment in Hong Kong, while keeping its eyes on a potential bigger market in mainland China. "They probably want to wait and see how things go with Shanghai Disneyland," said Yiu Si-wing, a lawmaker who represents the tourism sector in Hong Kong. "But four years of waiting is simply too long."
According to the deal, Walt Disney can decide by 2020 whether it wants to go ahead with a second park in Hong Kong, but some say Disney should clarify its plan as soon as possible. "The deal was signed without hindsight that a second park would be built in China," said Yiu. "If there are further signs they are withdrawing investment here, this is unfair to Hong Kong. Disney is morally responsible to maintain the park's competitiveness."
After the deal was signed, the Hong Kong government made substantial investments in infrastructure to prepare for the park's opening. A second reclaimed site has been reserved for theme park expansion and a Disney-themed metro line was built to connect the park with downtown areas.
Nonetheless, Disney and the Hong Kong government have been tight-lipped about details of a second theme park. Walt Disney in the U.S. has not responded to an email request for comment. A Hong Kong Disneyland spokesperson declined to comment, only stressing that the opening of the Shanghai park would "create synergy" for the Disney brand in both mainland China and across the region.
In February, the Hong Kong park's then managing director Andrew Kam laid out his "Asia strategy" to diversify to neighboring markets like Indonesia, the Philippines and Thailand. "We will focus on serving customers around the region," Kam said, shortly before he quit for "personal reasons" after eight years in the post. It is still unclear whether the leadership shuffle signified a shift in overall strategy, as successor Samuel Lau has declined media requests for interviews.
Hong Kong's Tourism Commission has avoided addressing the question of a second theme park, but reiterated that it was in discussions with Walt Disney on the next phase of expansion. "The Hong Kong Disneyland is an important tourism facility, and the [Hong Kong] government would continue to press ahead [with] expansion projects," said a spokesperson by email, adding that the park's further development is the "shared vision" for both parties.
Asked about its positioning, the spokesperson said Hong Kong Disneyland would have southern China and Southeast Asia as its main customer markets, while its Shanghai counterpart is "mainly positioned to attract mainland tourists" from eastern and northern China.
Industry watchers have long discussed each Disney park serving its own hinterland. Walt Disney has 11 theme parks globally, three of them in Asia, with a new one on the way.
Even though Asia-Pacific is a fast-growing region and contributions from royalties and merchandise sales are healthy, the scale has not reached that of the U.S. Last year, the region contributed less than 10% of the group's total revenue. When it comes to the theme park business, Disney's U.S. parks brought about four times more revenue than its parks overseas in 2014, although this could in part be due to its equity stakes in its Asian theme parks, which stand at less than 50%.
China, meanwhile, appears to be an ideal place for Disney to recover losses, thanks to its huge population of about 1.36 billion. The opportunity came on May 5. Chinese President Xi Jinping, who rarely meets with foreign business leaders, greeted Bob Iger, the Walt Disney chair and chief executive, at the ceremonial Great Hall of the People in Beijing. Iger was quoted by state broadcaster CCTV as saying that Disney "highly values" the cultural exchange between China and the U.S., and the Shanghai Disney park will "spare no efforts" to provide quality service for its Chinese customers.
Iger's comments came at a time when Disney was suffering a setback in China as its attempt to bring Disney movies and programs to internet viewers came to a sudden halt. Chinese regulators recently closed down DisneyLife, a streaming video service that the U.S. company launched last December with local e-commerce company Alibaba Group Holding, following a tightening of state control over online content. Analysts say that while the short-term impact is likely to be minimal on giants like Alibaba and Disney, the real motive of the partnership was to pump up sales of merchandise for Disney and trips to Disneyland.
Others warn against pushing the Disney culture too hard and too fast in mainland China. Allan Zeman, former chairman of Hong Kong's Ocean Park, said: "People joke [that] the difference between Ocean Park and Disney has been that Disney has the fake mouse, we have the real mouse." Dubbed the "mouse killer," Zeman was known for helping homegrown rival Ocean Park to set records for attendance and earnings despite the competition from Hong Kong Disneyland, which has suffered seven years of losses since its opening.
Seeing the competition from Shanghai Disneyland, Zeman says Hong Kong theme parks have to find their own niche for survival. "If we have the same castle and the same Space Mountain ride, there is no reason for mainlanders to come here," he said. "We need to expand the park with technology and things that don't exist before."
The Shanghai Disneyland is not just a tourist attraction. Some have called it a "face-saving" project for China to demonstrate its financial strength and openness to foreign businesses. The Shanghai theme park is 57% owned by Shanghai Shendi Group, a consortium of companies controlled by the city government. "It is not just Disney; it is the Chinese government and state-owned enterprises that want the biggest and the best," Zeman said, adding that the opening of the park is quite a difficult prospect for Hong Kong Disneyland at the moment.
But Rowse seems unbothered. Sometimes called by his nickname "Mickey Rowse," he has not regretted the decision to bring Hong Kong Disneyland to life despite all the possible setbacks the park has faced. "Don't be short-term," he said. "The 100-year lease is one aspect people forget... [It] can be renewed if everything is going fine. We can give the park another 50 years and then another 50 years."