View Slideshow

BEIJING — In the capital’s embassy district, a stream of Olympic visitors has arrived, foreign journalists and dignitaries donning official lanyards and combing the shops and bars that long have been a hub for expatriates in Beijing.

This story first appeared in the August 12, 2008 issue of WWD.  Subscribe Today.

Yet even with the steadily increasing number of new faces, the Sanlitun district remains strangely empty. Bars and cafes have been ordered to shorten their hours and make less noise, while much of the area’s popular sidewalk seating has been moved inside and some places shut down entirely. Many who frequented the area or even owned cafes and clubs are now gone, shuffled out of China for at least the summer by new visa restrictions to curb the number of foreigners here ahead of the Games.

“It’s still less busy than last summer,” a Chinese restaurant manager who requested anonymity said of the newly emerging Olympic tourists.

So much for an expected boom in business in Beijing from the forecasted 500,000 Summer Olympic tourists flooding the city. From visa restrictions, which forced many foreign workers to leave and many more to stay away, to shipping regulations, which have held up containers in port and halted some overland shipping, this year has cast something of a pall over China’s previously shiny image of an unstoppable economic juggernaut.

Language and business culture barriers, coupled with the at-times overwhelming transition of a major world economy from centrally planned to market-based, long have made China a tricky place to do business for Western companies and investors. But new security regulations for the Summer Olympics have multiplied the difficulty factor exponentially this year.

“Simply put, the Chinese government sees keeping the Olympics an all-domestic affair, and keeping Johnny Foreigner out for the duration, as the best way to ensure ‘success’ for the Games, which adds a bit of shiny kudos to their regime when they face a lot of political problems, all of which are domestic concerns,” said Matthew Crabbe, director of Access Asia, a market research firm whose newsletter has chronicled the visa cull in China.

China initially denied any change in visa policy and still has not released numbers of how many thousands of foreigners were forced out or denied entry for business or tourism trips. The government now says its visa and logistics policies are in line with those of the host nations of past Olympics.

China is predicting that 500,000 tourists will descend on Beijing for the Games — about the same as the number of tourists who visited the city in all of last year. Yet hotels and retail spaces remain starkly empty in many parts of the capital. And, while tickets for hot events such as swimming remain hard to come by, even the casual observer can’t help but notice rows of empty seats at many sports so far during the Games.

In other words, the Olympics hype that prompted many investors to set up new retail space in Beijing in the hope of a business bonanza is starting to fizzle. And even local businesses have been affected, such as the Kiosk. The once-popular outdoor lunch spot has been ordered to stop serving food. It’s still allowed to serve beverages, but since most of its customers went there to eat, it’s lost most of its business.

“We haven’t had the Olympics bringing in too many people,” said Nicole Niu, a clerk at the Nike store in the gorgeous and sprawling new Solana mall.

Solana, styled in low-rise stucco like something straight out of Southern California, is vast, clean and beginning to fill in with midrange international brands such as Zara, Sephora, L.L. Bean and Guess. The mall opened in June to take advantage of traffic from the nearby Olympics beach volleyball grounds at Chaoyang Park. Thus far, though, the stores have remained largely empty of customers but for handfuls of mostly window shoppers.

To cash in on the short-term potential gains of August, many businesses have raised prices temporarily or implemented Olympic surcharges. Even more firms are banking on long-term strategies. If the government’s aim in hosting the Olympics was to show off the face of the New China, everything from the breathtaking opening ceremonies to the innovative architecture feed into that goal. And Chinese officials also hope that the Games will serve to attract even more foreign investment into an economy that, while slowing, remains one of the fastest growing in the world.

After all, the Olympics is presenting only the latest in a long string of unexpected business disruptions in China, though this year has been fraught with many more political minefields than usual.

Political tensions and pro-Tibet demonstrations following the March uprising and crackdown in Lhasa stalked the international torch relay earlier this year and touched off anger from Chinese nationalists. They vented and attempted to organize a boycott of Carrefour, the French supermarket chain with a major presence in China. Though the boycott ultimately failed and tensions cooled, owners of the chain were forced to insist that they had no allegiance to the Dalai Lama, the exile Tibetan spiritual and political leader.

In late May, actress Sharon Stone got her own taste of Chinese wrath after her ill-advised comments about the Sichuan earthquake that killed nearly 70,000. Stone drew ire when she said the earthquake may have been karmic retribution for China’s handling of Tibet. Dior cosmetics, scrambling to save face with Chinese consumers, canceled the actress’ ad campaign here and decried her comments.

But not all troubles with doing business in China are so clearly related to political events and social sore spots. In mid-June, local officials in Hangzhou shut down a Louis Vuitton boutique, saying the store did not have its products labeled properly. After intense negotiations, the shop was allowed to reopen, with little explanation from either side about exactly what had happened.

While like incidents are bound to crop up periodically in the future, businesses are now hoping things will get back to normal after the Olympics this month and Paralympics in September. But the question remains: After all the hassles of this year, will foreign investors and businesses be willing to stake so much on China?

“During the Olympics, there are lots of regulations and rules which make the whole environment very messy. I don’t see any point entering China or doing business at this messy period of time,” said Yao Liwei, an analyst at Guangfa Securities. “But overall, the Olympics won’t have too big an influence on China’s economy on the whole.”

Crabbe said he believes the Olympics hassles are just a momentary blip for China and that things likely will get back to normal or better when the hubbub ends. Officials have begun cleaning up heavily polluting industries and shoddy products as part of their pre-Games spruce up. While challenges will remain, he said, the overall climate could be vastly improved.

“What you are left with is better competition, too, improving the efficiency of each industry, at a time when the middle-income consumer group is growing rapidly, increasingly moving to the suburbs, with average incomes continuing to grow well above inflation,” said Crabbe.

“You would expect that Beijing will be keen to continue to show off to the world after the Olympics, and will therefore be keen to keep the tourists coming in,” he added. “So I would hope that they do normalize the security situation again.”

View Slideshow