worth reading Golf in China: Boom or Bust?

What's the future of golf development in China? Will all the heady predictions about the growth of the game pan out or fizzle out?

Following are excerpts from an unsigned article -- “Will China's Golf Boom Hit a Hole in One, or Land in a Bunker?” -- produced by the Wharton School's Arabic Knowledge group. To read the entire article, visit the group's website.

In Japan, during the heady bubble economy of the 1980s, investors speculated on golf club memberships, whose prices skyrocketed to millions of yen until the bubble burst.

A similar golf fever infected Ireland when its economy was heating up in the 1990s: Golf fees at clubs quadrupled, and banks financed memberships that spiraled to unheard of heights.

Today, golf watchers wonder whether China will be the next country to tee off with its own boom and bust. With the economy growing rapidly and incomes rising, interest in the sport is increasing. About 250 courses are under construction in China, and about 600 more are on the drawing board. . . .

But will China's golf boom hit a hole in one, or land in a bunker?

Ye “Tiger” Bi, the founder and CEO of China Golf Group, a Shanghai-based golf course developer, clearly expects the former. During a keynote speech at a recent annual Wharton Asia Business Forum in Philadelphia -- titled “Global Asia, Global Opportunities: Capitalizing on the Growth in the East” -- Bi noted that demand for golf courses in China currently exceeds supply, leaving the industry a long way to go before it reaches saturation.

“We see a very exciting and promising future in China's golf business over the next decade,” he said.

One reason for this optimism: Increasing disposable income in China “has created huge growth opportunities” for numerous sports and leisure sectors, including golf.

As Bi -- a serial entrepreneur who set up his golf company in 2006 -- noted at the Wharton event, China's economy has grown at a rate of more than 8 percent annually over the past 20 years, creating an appetite for luxury lifestyles and leisure activities among the country's new wealthy.

“It is widely believed that now is China's time for golf, because the economy and increasing consumer demand is strong enough to support the industry,” Bi said. . . .

Since 2004, the [Chinese] government has put moratorium on golf course development due to concerns that developers were illegally building their resorts on farmland. Reports say developers have been able to secure permission from local governments despite the ban or sidestep the rules by calling a golf course a park or an open space. Many have also combined their golf ventures with luxury property development to take advantage of the country's real estate boom.

Securing enough land for development is arguably one of the biggest challenges companies face. Developers lease land from the Chinese government, usually as part of an agreement that villagers affected by new construction projects receive some sort of compensation -- which, according to some reports, doesn't always happen. . . .

With supply still falling short in a country whose average per capita annual income is said to be less than $6,000, golf remains an elite sport in China, and the exorbitant fees promise to keep it that way for a while. According to Bi, while annual golf club dues in China are relatively low -- averaging $700 a year, compared with between $15,000 and $25,000 in the U.S. -- green fees can run as high as $120 per day, and initiation fees for an individual membership to an 18-hole golf course range from $15,000 to $300,000.

A 2008 survey by consultancy KPMG found the average price for a golf membership in China was $53,000. “This is far higher than in any of our surveyed countries in Europe, the Middle East, and Africa and is four to five times higher than the initiation fee in the most expensive European golf market,” the report said.

More than 90 percent of golf courses in China today follow the membership model, Bi said, and most sell about 1,000 memberships per course. Not every golf club member in China is getting out on the green, however. In fact, Bi said, “about 40 percent of memberships” are sold to people who do not intend to play, either because they like the social status of membership and use it for gifts or favors or are investors.

“Golf membership prices are going up every year,” Bi said. “It's better than the stock market.” . . .

Bi doesn't think China is experiencing a speculative bubble of golf club memberships, like Japan did in the 1980s. He noted that Japan, a country with a population of about 128 million people, has some 2,500 golf courses, while China, with a population of 1.3 billion, has only 500.

“We are in the up trend, not the down trend,” he said.