A rap on the knuckles, but no burst bubble

Big-spending Chinese football clubs brought to heel

Simon Chadwick

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

18 January 2017

While unlikely to puncture China’s football dream, moves by the Chinese government to restrict spending on foreign footballers is still a warning best not ignored, Simon Chadwick writes.

Now that China’s football player transfer window is open again, hardly a day passes without a new rumour about an overseas player moving to the Chinese Super League (CSL) emerging. Hot on the heels of Carlos Tevez and Axel Witsel, there seems to be an endless stream of other proposed big money moves.

As a counterpoint to these stories, there is an equally plentiful supply of newspaper, website and blog articles from cynics and naysayers who are at pains to point out that China’s player transfer bubble is going to burst. Part of the narrative associated with this view is that Chinese investors have more money than sense.

Into the space between the rumours and the reality has stepped the Chinese government. The General Administration of Sport of China recently stated on its website that it intends to restrict spending by football clubs, accusing them of ‘burning money and paying excessive wages to foreign players’.

This and other similar statements by some of China’s state institutions has led various foreign observers to gleefully exclaim that China’s football bubble has, indeed, now burst. However, this rather oversimplifies an issue that is in many ways characteristic of a myriad of more general issues currently facing China.

Perhaps the most significant of these is the problem of Chinese offshore investments and the associated external currency flows. During 2016, it has been estimated that upwards of US$100 billion left China as its investors sought overseas opportunities. Often, these investments were made in order to mitigate risks associated with domestic investment in China.

More on this: Conspicuous consumption is a matter of law and order in China

A consequence of moving ‘hot money’ (as one leading Chinese sport business leader publicly described it at last year’s World Football Forum) offshore has been the inflated rates Chinese investors have had to pay for their acquisitions. Football is no exception, hence the origins of China’s ‘Tevez Problem’ lay beyond the sport itself. Attempts to control transfer spending are therefore simply part of a broader economic and industrial policy designed to control the yuan’s flow offshore.

One commentator on state economic policy recently observed that “China’s government is constantly looking to shut down leakage points, but is often challenged by its own conflicting objectives.” This is similarly true in football; if China is to realise the goals it laid down in its 2016 Football Development Plan, then it will inevitably need to continue spending on football (albeit on investments other than ageing Argentinian professionals).

Instead of choking-off China’s overseas football investments therefore, it seems more likely that the state’s recent instructions will merely serve to moderate the behaviour of Chinese football investors rather than curb it completely. One reason for this is that the country has developed a penchant for breaking world records, and we should still expect the country at some stage this year to break the world transfer fee record.

At the same time, we should also anticipate that Chinese spending will become more economically rational. The signing of overseas players will continue, but the business case for doing so will need to be more clearly established. Similarly, the acquisition of overseas clubs is also likely to continue, under the proviso that tangible returns can be attributed to these investments. If AC Milan is finally to pass into Chinese hands, and if the rumoured Liverpool acquisition does ultimately take place, then both will need to link more closely to China’s broader football goals.

In China, when the government speaks then investors normally listen; that’s the way things are in in the country’s state-led incarnation of capitalism. State edicts though are not just economic, they are also generally politically and socio-culturally embedded. This suggests there are other reasons behind the latest concerns surrounding football clubs’ player transfer splurge. China and the Chinese take their national identity very seriously, something which is currently being undermined by the influx of, predominantly, South American footballers. Instead of talking about the CSL or players like Gao Lin and Zhang Linpeng, the world is discussing Oscar and John Obi Mikel.

While the world’s attention was previously focused on state calls for fiscal restraint in football, new transfer regulations also now appear to have been enforced on the Chinese Football Association (CFA) by central government. According to the respected Wild East Football blog, the new regulations will mean that clubs must also feature “a Chinese under-23 player in the starting 11, and can name five foreigners in the match day squad – but only a maximum of three can be used, meaning if three overseas players are named in the starting 11, no more foreigners can enter the field of play.”

China is a conspicuous consumer of, well, pretty much everything; signing Messi or Ronaldo would merely be an extension of this. However the state’s intention is that national identity should trump ostentatiousness every time. Thus, a further aspect of the Middle Kingdom’s disquiet about player transfers is that the government wants teams occupied by Chinese Messis and Ronaldos, not someone else’s.

More on this: Cleaning up China’s corruption

And finally, to the elephant in the room: for many people, Chinese football has long had a reputation of being corrupt, with match-fixing and kickbacks being commonplace. However, President Xi and the Chinese government in general have been working to tackle the problem. China has introduced stringent anti-graft measures (both generally and in football) while at the same time arresting and imprisoning football officials who have been engaged in corrupt activity.

The recent and massive influx of money into football appears to have resulted in the re-emergence of kickbacks and other such illicit activities. As one agent active in China recently told me, ‘at the moment, there are an awful lot of red envelopes being exchanged between agents, clubs and players’. For a state committed to eradicating the damaging effects of corruption, there is likely to be considerable concern inside the Chinese government that its stance is being undermined.

This is especially the case given that the kickbacks could undermine an industry that is in the global spotlight. Indeed, with China keen on hosting the World Cup, the last thing it needs is for the country to re-establish its previous reputation as being a hotbed of football corruption. Furthermore, it is outside influences, notably foreigners, who seem (at least in Chinese eyes) to be the root of the problem.

Rather than the sound of a bubble bursting, transfer controls may therefore actually be the sound of knuckles being rapped, for corruption and for the other reasons noted here. China’s government is a strict disciplinarian, and won’t expect to have intervene again. Foreign players, European clubs for sale, and unscrupulous agents would do well to heed the warning.

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