Reuters

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HONG KONG, Nov 2 (Reuters) - Hong Kong and The Walt Disney Company announced a multi-billion-dollar deal on Tuesday to build a theme park and resort complex in this special administrative region of China, the third Disneyland outside the United States.

Hong Kong leader Tung Chee-hwa, flanked by Mickey and Minnie Mouse, said the new theme park and resort would add some magic to the city's image and boost its economy after two years of hardship.

"This world class development will mark the beginning of a new era for Hong Kong," he told reporters.

But analysts questioned whether Tung had paid too much, with the government investing HK$22.45 billion (US$2.9 billion) in the Disney park and accompanying infrastructure.

Disney, by contrast, will invest HK$2.45 billion, or a tenth of the government layout. Their new joint venture company, Hong Kong International Theme Parks Ltd, will raise an additional HK$2.3 billion in commercial loans for the project.

The deal drew criticism that the government, instead of private investors, was taking a lead role in the economy. Hong Kong officials said the government could sell part of its holding from a year after the park opens in 2005.

TUNG PUTS FOCUS ON POSITIVE

But with Mickey and Minnie waving happily at his side, Tung brushed asided hostile questions and focused on what it meant for Hong Kong, which saw its economy contract by 5.1 percent in 1998.

"Hong Kong Disneyland will be a key strategic infrastructure component in the renewed and reinvigorated push to strengthen and consolidate Hong Kong's position as a must-see tourism destination," he said.

With Hong Kong's 6.1 percent unemployment rate near record levels, Tung stressed the job creation that would come with the mega-project at Penny's Bay on Lantau Island, minutes from the new international airport.

The park would create 6,000 jobs during construction, 18,000 at the opening and 35,000 over a 20-year period. A further 10,000 jobs are expected to be created by land reclamation projects and associated works funded by the government, he said.

ANALYSTS QUESTION COST TO HONG KONG

Hong Kong will invest HK$3.25 billion in the joint venture company for a 57 percent equity share, but Disney will have management control over the theme park.

"If you look at a 20-year horizon, it's probably not a bad deal assuming the government's equity stake can be sold off at a reasonable price," said David O'Rear, regional economist, the Economist Conferences.

"What concerns me is that the project could not be done on a strictly private basis," he said, with some government incentives such as concessionary land prices, tax breaks or infrastructure.

"Actually to have to take an equity stake in the project suggests there was not sufficient private enterprise support for it to go ahead," he added.

Other analysts said the government was enchanted by the idea of the magical Disney name to boost Hong Kong's image.

"This project is not a cheap project, but the thing we need to consider is that we are buying a brand name product to help Hong Kong to strengthen our tourist status in the Asia Pacific region," said Shamus Mok, chief economist with Bank of East Asia.

"You have to look at the spillover effect," he said. "From that point of view it is a social investment. It will strengthen us as a tourist centre."

Several analysts said it was a question of short term versus long term, and of a good deal for Hong Kong versus a very good deal for Disney.

"Disney is potentially getting a very good deal. They're only putting in a fraction of the cost and they can claim a lot of that back in licence fees and royalties," Howard Gorges, director of South China Securities, said.

DISNEY SAYS IT LEARNED FROM OTHER PROJECTS

Hong Kong will be Disney's third park outside the United States, after Tokyo and Paris. It has parks in California and Florida.

Disney officials said they had learned from bumpy starts in France and Japan, and would apply these lessons to Hong Kong, especially to open smaller and then grow as demand rises.

"We have very conservatively targeted the attendance in the five-million range (a year) and planned for, with the government, the ability to add attractions and capacity in the years ahead," said Judson Green, chairman of Walt Disney Attractions.

Green told reporters depending on performance, the Hong Kong Disneyland's capacity could grow to 10 million or more a year.

(US$1 = HK$7.77)