June 11, 2017 2:00 pm JST
David Cockayne

China's soccer goals will require steady development focus

Administrators, club owners must look toward long-term sustainability

Shanghai SIPG's Elkeson celebrates after scoring on March 4, 2017. © Reuters

Lavish spending on foreign players and substantial investment in iconic European clubs are the defining elements of China's market-driven approach to achieving President Xi Jinping's vision for global soccer supremacy. Inevitably, such a full-throttle approach to the industry's development has raised eyebrows, and the rise of Chinese involvement in soccer at home and abroad is now drawing criticism.

The nature of Chinese investment in European soccer has attracted scrutiny from Beijing and from European governments while the volume of money being spent by Chinese Super League clubs on foreign stars has prompted criticism of the governance of the domestic league. These developments reflect the socio-political nature of professional sport and also highlight how inconsistent and market-reactive administration of the game could damage China's hopes of developing a culture of elite soccer performance and successful sports business.

To avoid this, Chinese club administrators need to shape and develop a global Chinese soccer market, which will require the development of longer-term, strategic approaches to club management. This should involve investment in better training facilities, development of youth programs, and a focus on long-term business success. Chinese investors in foreign clubs must also recognize the need for greater transparency to reassure European leagues, institutions and fans.

In January, on the eve of its new season, the Chinese Football Association unexpectedly announced a series of measures to target the "operations and management" of teams in the Super League and the second-tier China League One. Changes included a reduction in the number of foreign players who can play for each club from four in each league match to three. Clubs must also include at least two Chinese players under the age of 23 in their starting line-ups.

To confuse matters further, the Super League announced in May that from next season, the rules will change again. Firstly, clubs will have to field equal numbers of under-23 Chinese players and foreign players. Secondly, clubs which are being financed on credit will have to contribute to a China Soccer Development Fund, paying in an amount equal to that spent on foreign acquisitions, which will double the cost of new signings.

These changes come in response to criticism of transactions such as the $63 million spent by Shanghai SIPG on Brazilian midfielder Oscar and Shanghai Greenland Shenhua's signing of former Manchester United striker Carlos Tevez on an annual salary reported to be more than $20 million. Critics have called such spending "irrational" and "irresponsible" while China's top sports administrator has accused private investors of "burning money."

Political favor

These comments generally refer to the perceived opportunity cost of the transactions -- the diversion of funds away from investment in facilities or infrastructure. There is, however, a growing feeling in Beijing that the recent series of eye-watering transactions is more about club owners seeking to nurture long-term political favor by diversifying into the soccer sector -- aligning themselves with Xi's vision -- rather than trying to develop a sustainable industry. Critics argue that this can limit opportunities for home-grown players, stifle development and damage the nation's performance objectives.

Whether the sanctions imposed are based on legitimate concerns or not, the timing and implementation of the rule changes are far less defensible. Chinese clubs have been encouraged to invest in players to raise visibility, competitiveness and the global appeal of the league. The potentially lucrative sponsorship and media deals that result could enable China's youth to experience and engage with soccer, an essential determinant of any soccer superpower.

Enforcing mandatory sanctions on the eve of a new season creates uncertainty for administrators and investors. It also makes the Super League a less appealing destination for players, both domestic and foreign.

Tighter regulations at home are not the only area of concern. Beijing has begun to investigate transactions in European soccer. The past year has seen Chinese companies buy stakes in England's Manchester City and Spain's Atletico Madrid. Chinese groups have also acquired Italy's Inter Milan and AC Milan, along with England's four main West Midlands clubs -- West Bromwich Albion, Aston Villa, Birmingham City and Wolverhampton Wanderers.

Some in Beijing see this as a prime example of capital flight, where companies move money offshore through foreign acquisitions. As part of a broader, macro-level assessment of China's foreign investment strategy, Beijing is concerned by spending on overseas retail, sports and entertainment.

Beijing is not alone in scrutinizing Chinese investment in the European game. Of the European clubs wholly owned by Chinese investors, all but West Bromwich Albion have underachieved this season, prompting the media, fans and other stakeholders to question the decisions and integrity of their new owners. AC Milan has had two different Chinese owners in the past 12 months; new owner Li Yonghong's financial resources are already under scrutiny.

Some proposed deals have failed to get off the ground. In 2016 Dai Yongge and his sister Hawken Xiu Li attempted to invest in Hull City, an English Premier League club. The deal was blocked by the league after the family failed to satisfy its "fit and proper person test," apparently because of problems at Hong Kong-listed Renhe Commercial Holdings. The company, the family's main corporate vehicle, was judged by rating agency S&P Global to have financial problems and weak corporate governance. However, the brother and sister did complete a takeover of Reading, an English second tier club, in last month, buying a 75% stake from the club's former Thai owners.

Financial integrity

The league's ruling on the Hull City deal may have reflected widespread concern about the experience of Blackburn Rovers, which was a Premier League team when it was acquired in 2010 by Venkys, an Indian poultry company. Blackburn, which won the Premier League championship in 1995, will play in England's third-tier league in 2017-2018 following years of underinvestment.

There were no questions about the financial integrity of Randy Lerner, a U.S. businessman, when he acquired Aston Villa in 2006. But Lerner presided over a gradual reduction in investment that led to eventual relegation from the Premier League last year. The club was sold to Tony Xia, a Chinese businessman, in June 2016, after a league review cleared the new owner.

Have leagues learned valuable lessons in relation to overseas investors, or are potential Chinese suitors facing more scrutiny than most? If they are, it could be related to perceptions of the way Chinese soccer is administrated. At home, China is criticized for lacking administrative consistency. The policy changes introduced to date are novel, but short-term focused. This has thrust Chinese soccer, as a collective entity, firmly under the global media spotlight.

The danger for China is that critiques of practices at home harden assumptions about the game in China and create stereotypes that influence how Chinese investment abroad is perceived. This is perhaps one reason why Chinese investors are facing more public scrutiny than others. This situation will only worsen unless domestic practices become more rational and less uncertain.

The Chinese Football Association, leagues and clubs must begin to recognize that while soccer clubs are business entities, they are also institutions embedded in a significant social, cultural and political nexus. This environment demands a consistent, transparent strategy that is versatile in practice.

Extravagant signings that yield short-term interest, inconsistent policy changes and knee-jerk reactions to public opinion create administrative chaos, along with uncertainty among consumers and investors. This poses a significant reputational risk to Chinese investors in soccer, particularly those looking to opportunities overseas.

There is little doubt that Xi's global vision is inspiring. But this vision must now be completed by a separate focus on the business and culture of sport.

To develop Chinese soccer players, a commitment to developing a sustainable culture of elite team sport is needed. Investment in grassroots development, state-of-the-art facilities, world-leading coaches, coach education, involvement with health science, diet and nutrition support, and medicine are all required.

At the business level, the private sector needs to be incentivized, not punished. Consistency in governance and public sector-support and appreciation will help reduce uncertainty, inspiring confidence and consistent investment. Collectively these complementary but separate strategic focuses can help China achieve a sustainable soccer future, but it requires buy-in from the public and private sectors, fans and athletes alike.

David Cockayne is a senior lecturer in business and sport management at the University of Liverpool.

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