Chinese theme park developers will face tougher government restrictions going forward. Photo: DoublePHOTO studio / Shutterstock

The Chinese government has reportedly ordered that development of theme parks in China should be brought to a halt after years of explosive growth and a growing number of theme parks popping up near Chinese cities of all tiers. The government’s new orders are specifically targeting large-scale theme park developments, with smaller amusement parks likely to be less affected by the directives.

According to a Variety report, the Chinese government doesn’t hate fun; it’s trying to curb two primary side effects of China’s theme park boom. Specifically, the Chinese government’s National Development and Reform Commission had found that amusement parks built to the tune of hundreds of millions of dollars are often nothing but housing and office projects disguised as theme parks.

Debt as well as disguised housing and office developments are quoted as the reasons for increased scrutiny

Moreover, the commission seems concerned with associated debt incurred by such projects on part of provincial and municipal governments that are often co-sponsors of local theme parks. The justification for taking on substantial debt to help develop theme parks tends to be along the lines of bolstering the local tourism industry and improving entertainment options. Much like popularity among Chinese tourists has become a symbol of development for Chinese cities, so has theme parks.

With concerns over increased indebtedness at different levels of government in China, the in part government debt-fueled rise of theme parks in China seems to be next on the chopping board for an increasingly debt-concerned central government.

And it’s not only provinces, cities, and municipalities finding themselves indebted after funding local theme parks. China’s best-known theme park developer, Dalian Wanda, also ran into a cash crunch and trouble with regulators. For Dalian Wanda, this meant selling off many of its theme park assets to the similarly debt-fueled Chinese property developer Sunac. Other players in the industry are China’s largest property developer, Evergrande, and Six Flags’s Chinese partner, Riverside Investment Group.

Theme parks costing more than $235 million will be subject to “special scrutiny”

While it’s unclear exactly how the National Development and Reform Commission’s new theme park directives will play out in practice, it’s clear that larger theme park developments will be the ones subject to the most scrutiny. A project expenditure of $235 million or higher is set as the limit for “special scrutiny.” In comparison, the upcoming Universal Studios Beijing has a budgeted investment of some $3.3 billion, and Shanghai Disneyland cost stakeholders some $5.5 billion.

Theme park developments the most likely in danger of falling victim to new directives are those in highly indebted lower-tier cities with perhaps more questionable ways of recouping the investments. However, tightened scrutiny of theme park developments and a generally increased level of government concerns over debt-levels of both local governments and Chinese property developers are likely to make theme park construction in China costlier and more in need of proper due diligence than before.

If nothing else, a cooling theme park market in China may come as good news to theme parks throughout East and Southeast Asia that have experienced growing competition for Chinese tourists from theme parks inside China’s borders.