Trade and industry, Arts, culture & society | Asia, East Asia

13 July 2017

President Xi Jinping may be leading the line in China’s football grand plans, but recent moves have caught others in the world game offside, Simon Chadwick writes.

With the closure of China’s football player transfer window, the big news is, well, that there is no big news. During the last three transfer windows, the world has become accustomed to an endless flow of big-name, high-value overseas talent heading east, with the likes of Oscar, Hulk and Jackson Martinez being notable examples.

However, during this window transfer activity has been minimal; indeed, most people would probably struggle to name either players who have headed to China or the clubs they have signed for. Me included.

This hardly represents the bursting of a bubble, as naysayers have been predicting in recent years. For overseas players and their agents looking for a big payday perhaps it does, but for the Chinese themselves, the bubble has not burst (though it has changed shape).

Evidence of this could be seen on the face of President Xi Jinping recently at a football match he attended in Germany, alongside the country’s president Angela Merkel. Played in Berlin between teams of school children from each country, the normally ultra-stoic Xi smiled openly as he watched the game alongside his German counterpart.

The smiles could have had something to do with China and Germany’s burgeoning relationship, not least in football where representatives from both countries have been actively engaged in forging mutually beneficial alliances. This has resulted in some striking deals being agreed, for example, that China’s Under-20 men’s national team will be permitted to play in German fourth tier football.

It is more likely however that the match-day smiles and all-round bonhomie on display in Berlin were because Xi was watching what he has always envisaged: a Chinese team playing high-quality foreign opposition, with the emphasis very strongly being placed upon the development of high-quality domestic talent.

When Xi made his pronouncement on the future of China’s sports industry back in late 2014, what he had in mind was a subtle variation on what subsequently has become Donald Trump’s ‘America first’ doctrine. The 2014 pronouncement was founded upon a vision that China could become a sports industry superpower by 2025, with football helping drive the country towards this target.

What Xi nor his officials appeared to anticipate was the feeding frenzy that followed, resulting in the country’s Super League becoming something akin to the new Klondike.

Xi wanted a ‘China first’ approach that would result in Chinese teams populated by Chinese players, that would win international competitions for China. What he got instead was an influx of overpriced stars, some of whom could have been labelled ‘fading’.

Still, this proved to be a salutary lesson both for China and for the rest of the world. Earlier in the year, without warning and literally overnight, the Chinese government imposed two significant measures on football in the country that have left commentators in Europe, South America and elsewhere claiming the bubble had burst.

The first was the move from a ‘4+1’ to a ‘3+1’ player rule; later came the introduction of a 100 per cent player tax. These measures were striking, not least for the way in which they dramatically and instantaneously moderated activity in what had become a rapidly inflating market for overseas players (specifically their transfer fees and wages).

For those in sport unused to the Chinese state’s vagaries, such a rapid shift in policy direction allied to the new policy’s forceful imposition will have been a stark introduction to the way in which business is conducted in an economic system that remains very strongly state-led.

Aside from concerns about the likes of Carlos Tevez taking from football in China but giving little in return, Xi and the Chinese government have also been concerned about external flows of its currency, the country’s declining currency reserves, and the proliferation of overseas investments based upon an accumulation of domestic debt.

Earlier this year, the state warned Chinese businesses against making ‘irrational overseas investments’, even threatening to name-and-shame those involved, or to press criminal charges against them. To some extent this fell on deaf ears; as a result, recent attention has more forcefully switched to businesses whose overseas growth has been fuelled by Chinese domestic borrowing.

At the end of June, the China Banking Regulatory Commission requested information from financial institutions regarding loans made to companies including Dalian Wanda Group Co., Fosun International Inc., and to an investor (Zhejiang Luosen).

This sent shockwaves across China; Wanda’s share price fell dramatically upon the announcement that the company was under investigation. Meanwhile, at Fosun, the conglomerate’s chairman, Guo Guangchang, was rumoured to have disappeared. People speculated that he had been detained by state authorities, something that previously happened to him in late 2015, when he also temporarily disappeared from public view.

Significantly for football, Wanda’s investment portfolio includes Infront Sports and Media (of which FIFA is a major client), a 20 per cent ownership stake in Atletico Madrid (with which it also has a naming rights contract for its new stadium), and a lucrative sponsorship deal with FIFA. Fosun is most notably the owner of English football club Wolverhampton Wanderers; it also owns a stake in Gestifute, the Jorge Mendes’ athlete representation business. Zhejiang Luosen led the eventual, albeit rather protracted, takeover of AC Milan.

For businesses and investors in China, the lesson has been that, whatever trappings of liberal, free-market capitalism it may enjoy, the country remains firmly in the grip of state control. Xi has recently been cementing his position as head of state. These latest moves demonstrate that he retains power and control, and is prepared to use them especially when it comes to his pet sports project.

For those outside China, these recent events are significant. Many in football will now know that the Chinese state remains supreme; as things stand, it cannot and should not be challenged if one wants to do business there. It also illustrates how unpredictable China can be; the speed with which things can change there makes operating in China perpetually uncertain. It is also important to recognise too that, no matter how open to the world the country may seem, the power of ‘China first’ should never be underestimated.

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