PART TWO: THE DOMESTIC MARKET, ECONOMIC BUBBLES & NATIONAL PRIDE

The Chinese Spending Spree: Why now? And what lies in store for the Super League going forward?

ICYMI –>  Part One: Xi Jingping, Aguero Selfies & Politics

Part Two: The Domestic Market, Economic Bubbles & National Pride

The Great Fall of China:

After the transfer extravaganza of recent weeks, as large a proportion of football fans as ever before are able to recognise the names ‘Guangzhou Evergrande’, ‘Shanghai Shenhua’ and ‘Jiangsu Suning’. Club sides in the Chinese Super League are perhaps of as much relevance to the global game today as they ever have been, and the scope for further growth by the Super League is huge.

As a young league with very respectable attendance figures, an increasing number of foreign stars and a large, young (and rapidly growing) domestic market, these are very exciting times for the club game in China.

However, these times are unfortunately not quite as exciting for those involved in China’s national team set up. ‘Team China’ is currently slumped in 93rd place in the (admittedly somewhat meaningless) FIFA World Rankings sandwiched between African minnows Botswana & European whipping boys the Faroe Islands.

Despite leader Xi Jingping’s high hopes for the Chinese national team in the future, ‘Team China’ has had little to write home about since the turn of the century.

Having failed to qualify for the World Cup since their zero points & zero goals showing at the 2002 edition, as well as having failed to reach even the last 4 of the AFC Asian Cup in the last 12 years (a feat managed by Bahrain & Uzbekistan in the meantime), it’s clear to see that the current generation of Chinese players are no world beaters.

China’s forgettable World Cup campaign in 2002. Credit: Daily Mail

However, for a nation ranked 93rd in the world, and one that falls at the quarter final stage of the 2015 Asian Cup, there is something not quite right about the fees some of these evidently average players sell for. For example, Jinhao Bi, a centre back with just a solitary cap for the national team, broke the Super League record for a domestic player this January when he signed for Shanghai Shenhua for a reported £8.35million. This January also saw the transfer of 29 year old China international Jiang Ning from Guangzhou R&F to Hebei China Fortune for £6.26million.

These  transfer fees being paid for the likes of Bi & Jing raise questions about the Chinese domestic transfer market for several reasons. Not only are these particuar players’ ‘appropriate valuations’ listed at only £188,000 & £150,000 respectively according to (the admittedly conservative) TransferMarkt.com, but the fact that this January has seen established players in top European leagues (Steven Naismith, Mario Suarez and Nordin Amrabat for example)selling for less than some of their Chinese fellow professionals, the issue of China’s domestic transfer market’s inflated prices and the existence of a ‘Chinese Player Premium’ truly come to light.

And this artificial overvaluation of Chinese players goes a long way (perhaps even more so than the political incentives discussed previously) in explaining the transfer activities of Chinese Super League clubs of late.

First of all, why is it that Chinese players so overpriced?

Besides rich owners competing for on field success and the accompanying political benefits that could bring them, the key driving force behind the Chinese footballer price bubble is an economic one in the form of quotas (specifically the Super League’s 4(+1) ruling which has been in place since 2009). ‘Four plus one’ restricts Super League squads to only 5 non-Chinese players, and only 4 non-Asians.

This quota means there is a legally enforced high level of demand for Chinese footballers, and high demand (whatever the cause of it) will mean high prices. This demand floor means that whatever the quality of the current generation of Chinese footballers, there will always be demand totaling around 350 players every year, as each of the 16 Super League teams’ squads require at least 20 domestic players to make up the numbers.

Today’s domestic market for footballers in China, as a result of the quota on foreign imports, provides a classic example of the negative economic effects (namely inflated domestic prices relative to quality)associated by economists throughout history with ‘import substitution’. In an economist’s eyes, the Chinese domestic football market could well be a manufacturing sector firm in 1970s Latin America.

“Inflated prices relative to quality”? Sounds a bit familiar…

The idea of inflated domestic player prices has long been familiar to English fans, clubs and journalists alike, with the notion of an ‘English player premium’ added on top of transfer fees widely acknowledged. And whilst discussing how legislation on foreign players can affect transfer fees, it’s worth pointing out that the infamous ‘English player premium’ was expected to grow even larger following the introduction of England’s own (admittedly weaker) ‘import substitution’-esque policy. That policy being the “Homegrown Players Rule” implemented in the Premier League as of the 2010/11 season.

Even though the English homegrown player rules were not particularly binding for any teams, and in fact didn’t cause any changes in the squad compositions of Premier League sides (the league simply continued along its downwards trend in homegrown player appearances per season), it was widely considered that the ‘English premium’ problem only got worse. Mediocre Englishmen sent on to sell for inflated fees that they would inevitably fail to live up to.

With this in mind, if a law as undemanding as the “Homegrown Players Rule” (Premier League teams are still allowed 17 foreign over 21 players in their squads) can result in the sales of Phil Jones & Stewart Downing for £17million and £20million respectively. Then it is quite easy to understand how legislation on foreign players as strict as China’s 4(+1) rule goes a long way in explaining the even larger premiums & inflated prices being paid for their domestic players (the Jinhao Bi’s of this world…).

JB and PJ
Bi & Jones: The Overpriced Centreback’s Union.

What’s all this got to do with the recent Chinese spending spree on European players?

The incentives to spend big on foreign players, as Chinese sides did this January, are numerous when considering the Super League’s strict quotas and inflated prices domestically.

Firstly, by only being allowed 5 foreign players in a squad, Super League clubs face a huge incentive to make the signing of a foreign player ‘worth their while’. And this inevitably means a large incentive to spend big importing a superstar from Europe or South America. Simply put, why would a CSL club give up 1 of their 5 precious spots to a foreigner of similar ability to players they can easily scout in China?

Secondly, the inflated prices of Chinese footballers (especially those in the national team) also makes big name imports appear cheaper in relative terms. Not only are Chinese players disproportionately poor quality players relative to their price, but this low value for money domestically make Super League teams doubling spending to look abroad and sign a foreign ‘superstar’ potentially more than worthwhile.  Not only will they will be likely get a better ‘value for money’ signing (e.g. being ‘twice the price but more than twice the player’)but they may also (crucially) be more likely to sign a more marketable player than any domestic alternative. And with 237 million Chinese children under 15 up next to potentially fall in love with the game, having a recognisable star in your ranks is a huge asset.

Guangzhou Evergrande hope to have invested in both a goal scoring & shirt selling machine…

Whilst it may be true that the likes of Guangzhou Evergrande’s Zheng Zhi may well be both a talented player and marketable star capable of selling shirts throughout China, the ability & marketability  of Zhi & his compatriots simply don’t offer as good value for money as foreign imports do in today’s inflated Chinese player market. And until the price bubble inevitably bursts, or the Super League’s foreign player restrictions loosened , then Chinese clubs in the transfer market will continually be incentivised to look abroad and spend big as they did to so much fanfare this past January.

And continued Super League outlay in the transfer market is something football agents, pro players in their 30s and football gossip writers all over the world over can look forward to…

By Tom Drissi                                                                @OutsideTheBig5

Next Piece: China’s Footballing Influence Globally, Superfans & the  Super League.

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