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China's Sunac sparks questions over strategy with theme park move

Developer takes over operation rights for 13 Wanda entertainment projects

One of China's largest property developers might have found a way to gain favor from those who dole out land-use permits.   © Reuters

HONG KONG -- Sunac China Holdings, one of the country's largest developers, is prompting questions over its strategy after this week unveiling plans to move into the theme park business and diversify a portfolio heavily invested in the slowing property market.

Tianjin-based company on Monday announced that it will take over management rights for 13 culture and tourism projects, ranging from a ski resort in Harbin to a movie studio complex in Qingdao, that it bought from Dalian Wanda Group last year for 43.8 billion yuan ($6.3 billion).

While Sunac said the transaction will help improve management efficiency, analysts harbor some doubt, citing the poor profitability of similar entertainment developments in China.

The projects, which also include theme parks, shopping malls, hotels and a yacht club, were part of Wanda Chairman Wang Jianlin's drive to build an entertainment empire that one day could match Disney and Hollywood in the U.S. But the grand plan began to teeter last year, after Beijing slammed the billionaire's plan as "irrational" and posing "systemic risk" to domestic lenders.

That is when Sunac Chairman Sun Hongbin showed up with the money, buying majority stakes in the projects, some of which remain under construction, in what he described as a "poetic" investment.

But the deal called for Wanda to manage the properties for 20 years and for Sunac to pay an annual consulting fee to the group.

Now it appears Sunac wants to take full control. But some analysts are puzzled as to why.

"Last year, I thought Sunac just wanted the land," said Alan Jin, head of property research for Asia excluding Japan at Mizuho Securities.

While the authorities have grown cautious toward residential developments, local governments like big leisure and tourism projects. These local officials are tantalized by the prospect of more visitors and nationwide recognition.

As a result, local governments have granted land to developers who promise entertainment hubs that offer cheaper prices.

But Sunac's decision to take over operations did not make sense, Jin said. The entertainment-tourism business in China was not as appealing as elsewhere because the country lacked the kind of strong intellectual property owned by Japan (Hello Kitty and Mario) and the U.S. (Mickey Mouse and Harry Potter), he said. Theme park revenue would also be negligible given the size of Sun's property group.

While Sunac will gain employees and talent from Wanda -- as well as the right to change Wanda's brand name at anytime - Sunac's move might come in handy when the developer goes to local governments to have other projects approved, Jin said.

David Hong, head of research at consultancy China Real Estate Information, agreed. "I can't see any [commercial] benefit for Sunac at this stage," he said.

Developing theme parks is an extremely low-profit business that requires big upfront investments. But Hong said this week's maneuver will allow Sunac to demonstrate a kind of "political correctness" while the property sector is out favor in Beijing.

"You always need to think what the authorities like," said Hong.

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