Final Report - Asian Development Bank

6
TA 4721-PRC: Preparing the Shaanxi-Qinling Mountains Integrated Ecosystem Management Project
Final Report Appendix 13
relatively low entry fees and revenues to cover only operating costs. Most of the current PRC
Botanical gardens surveyed have entry fees of CNY30 or less per entry (i.e. visitor). For example, the
relatively small but quite appealing Xi’an Botanical Garden near the center of the city has an entry fee
of CNY10, as does the much larger and better known Beijing Botanical Garden.
27. In other cases, the site such as the horticultural exhibitions first at Kunming in 1999 and then
in Shenyang in 2006 were established and fully paid for as one-year world expo events and therefore
can now charge small entry fees that again only need to cover operating costs. Even then, the
Shenyang (Liaoning Province) International Horticultural Exposition of 2006, which operated for 184
days from 1 May-31 October 2006, had an entry fee of only CNY50. Now, one year after the Expo, it
is operating as a more normal Botanical garden and it is charging an entry fee of CNY20. The
Kunming Horticultural Landscape Botanical Garden in Yunnan is now charging the same entry fee.
Therefore, to the extent that domestic and international tourists visiting Xi’an – and local residents in
southern Shaanxi – have some reference point for what they are prepared to pay to visit a Botanical
garden, that reference point would appear to be less than CNY50 a figure confirmed by a small
willingness-to-pay survey conducted.
28. The second challenge is that Xi’an and Shaanxi offer a wide range of very attractive tourism
facilities that will be competitors of the Botanical Garden and the other PA tourism facilities,
particularly in the early years when the BG will be an immature Botanical garden and will not be well
known among many visitors to Shaanxi. (A recent survey completed by the Design Team indicated
that the BG is well known among local residents because of extensive and favorable media coverage).
29. With the exception of the Terra Cotta Warriors, the Xi’an Wildlife Park and the Xi’an Aquarium,
these competing facilities typically charge an entry fee of CNY 40 to 50 and the revenues per visitor
appear to be in the range of CNY100-120. The PPTA “willingness to pay” survey confirmed an entry
fee of CNY50 and revenues per visitor of about CNY100. Accordingly, a high entry fee and other
charges in the early years, and within-site prices total revenues per visitor that are not competitive with
alternative tourism facilities in Xi’an and which are seen as not affordable by many local residents and
domestic tourists, could result in very low attendance and no growth momentum for the BG based on
favorable word-of-mouth advertising. This situation would place early financial performance and ADB
loan repayment at risk.
30. In its earlier financial analysis, the BG Team preferred an attendance/pricing scenario which
involved lower attendance in the early years – recognizing the immaturity of the Botanical garden and
the need to build market interest and image over time – while charging high entry fees and other
prices to enter the Park’s attractions. While the low early attendance was justifiable, the PPTA Team
argued that the high entry fees and other charges were not competitive with alternative tourism
facilities in Xi’an and would not be affordable for many potential visitors from domestic markets
especially in the first critical years of BG operation.
31. In its May 2007 FSR, the BG Design Team proposed high early attendance, entry fees and
revenues per visitor from 2011 on – with relatively little growth in these parameters 9 . The Design
9 In fairness to the BG Design Team, it should be stated that the financial analysis guidelines of both the PRC
and ADB require that the financial analysis be conducted in terms of real monetary values (where the effects
of price inflation are removed) and encourage analysts to use attendance, price and cost parameters that are
fixed or at the very least change very little through the projection period. This static approach generally works
well for traditional, slow-growth sectors such as agriculture/food processing, forestry and infrastructure.
However, this static approach works less well in high-growth economies like China, and in dynamic sectors
such as tourism, where the income elasticity of demand is high (meaning that tourism demand and revenues
expand much faster than real per capita incomes) and where effective marketing campaigns and word-ofmouth
advertising can move demand curves outward – allowing tourism facilities that are well run and
differentiated from competing attractions to raise their prices through time without hurting attendance and
revenues.
The static approach applied by the BG Design team leads to situations where attendance and prices appear
much too high in the early years but are quite acceptable and even on the conservative side in the later years
of the projection period when per capita incomes and tourism demand and revenues in China are higher and
the tourism facility is well established within a region’s tourism network for guided and individual tourism.