Disney (DIS) Goes To China, And Locals Get Angry

China has approved a plan for Disney (NYSE:DIS) to build a theme part in Shanghai. The American entertainment company has been trying to get a go ahead to build the $4 billion project for several years. The Chinese government gave no reason for the timing of its announcement. Shortly after the news became public, Chinese residents began to attack plans to build the park. The Wall Street Journal reports that, based on online polls and comments “Walt Disney won’t make Shanghai the happiest place in the world.”

Disney joins a long list of companies from Dell (NASDAQ:DELL) to Wal-Mart (NYSE:WMT) to McDonald’s (NYSE:MCD) and Ford (NYSE:F) which are willing to bet that the Chinese consumer will eventually become a critical part of the expansion of the economy in the world’s most populous country. China’s GDP has been driven by exports. The US, where most consumer-focused firms have made their profits over the years, has counted on those consumers to be the engine of its economic expansion.

Some experts think that the deep recession has killed rapid expansion for consumer spending in the US forever. Those analysts believe that American economic growth will rely on exports and manufacturing in the future. The opposite may be true in China where millions of jobs created in the manufacturing sector have built a new middle class of consumers.

Disney’s move into Shanghai is almost certain to be successful. The city has a population of nearly 20 million people, over twice the size of New York City. The areas around Shanghai house millions more. China’s economy would have to slow considerably to hurt the Disney plans, unless economic expansion is not the only issue.

The threat to Disney is almost certainly not a recession, but inflation could hurt its huge investment in a new theme park. There is a theory that the rapidly expanding Chinese economy, driven in large part by its $585 billion stimulus package, could begin to form asset bubbles and double-digit inflation. That would put consumer-centric companies at some risk of not being able to raised their prices fast enough to keep up with the rising costs of labor, energy, and commodities.

Disney’s gamble in China is, at it core, a gamble against inflation. China may find that the artificial support for its economy is not enough to offset slow exports to the damaged Western economy. One stimulus package from the central government may have to be followed by another. There are seeds of inflation in the billions of dollars being pumped into the economy and that could hurt Disney badly.

Douglas A. McIntyre