Why can’t the US find $61 million for an Expo 2010 pavilion? A primer.

At the moment, there ‘s almost no reason to believe that the United State will occupy a stand-alone pavilion when Expo 2010 opens in Shanghai on May 1, 2010. And though this doesn’t seem to be a matter of much concern in the United States, it is a matter of intense concern in Shanghai, and in Beijing, with powerful voices beginning to suggest that the US will suffer real and lasting commercial consequences in China if it doesn’t use the next 348 days to rescue its floundering pavilion effort.

Over the last several weeks, as I’ve published various stories and blog posts on this subject, one question continues to come up: namely, why wouldn’t US companies with Chinese operations rush to become sponsors of a project likely to be visited by upwards of 70 million Chinese citizens during Expo 2010’s six-month run?

In the interest of answering that important question, and explaining why the authorized US pavilion team has raised only $2.8 million of a $61 million budget,  I’ve prepared this short primer on the various issues and reasons inhibiting – if not outright preventing – US companies from contributing money to what would appear to be the premier international PR event of 2010. In assembling this post, I’ve drawn upon conversations and emails with individuals connected with US corporations operating in China, many of whom have been directly solicited for pavilion contributions, or attended pavilion-related events. Most of these individuals have spoken or written to me off-record, out of concern that negative comments about the US pavilion effort might invite negative consequences, if not outright retaliation, from various quarters.

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Broadly speaking, there are two issues. The first concerns US government restrictions on funding international expo pavilions; the second is broadly related to issues that have arisen with the US State Department, and its chosen entity to fund-raise, design, build, and operate a US pavilion. The first I’ll deal with briefly; the second will require more space.

It’s been widely reported that the US Congress restricted the State Department’s ability to fund pavilion at international expositions in 1991 (subsequent legislation, later in the decade, further tightened these restrictions) As it happens, people with better legal skills than me have suggested – both in private correspondence and publicly – that the prohibitions may not be absolute (or possibly misinterpreted). But regardless of the actual legal status, the simple, on-the-ground fact is that the State Department has operated under the assumption that the prohibition is real. And, as a result, in March 2008 it issued a Letter of Intent (LOI) authorizing two former Warner Bros. executives, Nick Winslow and Ellen Eliasoph, to form a non-profit entity to “assume full responsibility for the project,” including to “design, instruct, install and manage”  a US pavilion at Expo 2010, and “to raise all funding required for the project from the private sector.”  Theoretically, had Congress not meddled with pavilion funding mechanism, the US might have already broken ground on its Expo 2010 pavilion. But Congress did meddle, and so we’re left with a convoluted process.

To be clear: the Letter of Intent is not authorization to break ground and build a pavilion. That privilege will only come after the State Department signs a Memorandum of Agreement (MOA) authorizing such actions, and – according to the Letter of Intent – State will only do that only after Shanghai Expo 2010, Inc has demonstrated that “adequate funding for all aspects of development, construction, oversight and management of the U.S. Pavilion and its programs are in place.”  So far, that isn’t even close to happening.

The remainder of this extended post will explain why.

Shortly after receiving the LOI, the group ran into two very serious issues, one foreseeable, and one not.

A.  The Olympics. Shanghai Expo 2010, Inc., began its formal fund-raising efforts less than six months before the Beijing 2008 Olympics. This was ill-timed. Corporate sponsors who might otherwise express an early interest in affixing their name to a US pavilion for Expo 2010 were heavily distracted by the much bigger opportunity – and expenditure – that the Olympics presented. As a result, US pavilion fund-raising was delayed until the fall of 2008.

B.  The Global Financial Crisis. Corporate sponsorships already stretched thin by the Olympics, suddenly evaporated.  At that point, in October 2008, Shanghai Expo 2010 Inc announced it was withdrawing from the effort and ceasing further development.

But even without these events, Shanghai Expo 2010’s fund-raising would have been constrained by two additional State Department restrictions (that Shanghai Expo 2010 knew about before it was ever authorized).

A.  Foreign donors. At Expo 2005, at Aichi, Japan, Toyota had been the primary sponsor of the US pavilion, much to the embarrassment of the State Department and anybody who might have been paying attention. Nobody, least of all the State Department, was willing to tolerate a Chinese-built US pavilion in Shanghai, especially in the wake of massive US public borrowing from China in the wake of the Global Economic Crisis. Politically, the symbolism was unacceptable.

B.  The State Department screens all potential donors in hope of preventing sponsorships by companies that – for example – have violated the Foreign Corrupt Practices Act, or might otherwise prove embarrassing to the United States. As a result, Shanghai Expo 2010 has been unable to tap the potentially lucrative group of US companies in search of an image upgrade.

As of this writing, the Memorandum of Agreement (again ,the MOA), indicating that the Department of State considers the Shanghai Expo 2010 Inc plan to be viable, has not been signed.  Nonetheless, only so much blame can be pinned on the State Department. To be sure, they’ve played a significant role in causing the current fiasco, but the authorized group – Shanghai Expo 2010, Inc – sought out the State Department’s authorization knowing full well of the restrictions that would be imposed against it. Thus, it’s necessary – if a bit unpleasant – to detail the various factors that have prevented this authorized group from successfully raising money from US corporations in China, and elsewhere.

A.  Cost. Shanghai Expo 2010’s $61 million pavilion budget – down from an earlier $84 million budget – is inordinately expensive, and surely the most expensive national pavilion after the elaborate Chinese design.  “For that kind of money [$61 million],” an experienced American businessman in Shanghai told me. “You could build a thirty-story residential tower on that site and still have money left over. But these people want that money for a two story pavilion.” In comparison, Germany’s elaborate pavilion design is projected to cost US$40.8 million; Norway’s elegant structure, a comparatively minor US$22 million. And even those might be overpriced. At the Beijing 2008 Olympics, major commercial pavilions were built for around $1000 per square meter – that is, less than US$5 million. So far, Shanghai Expo 2010, Inc., has failed to provide a detailed public accounting of how it plans to spend its proposed US$61 million, leading to wild and unsubstantiated speculation among experienced China hands in Shanghai. [UPDATE: I’m told that there are, in fact, a couple of pavilions more expensive than the proposed US design, including Japan’s. In either case, the US’s remains one of the most expensive, under-funded and – key – it could be done well for much, much less.]

B. Deadlines. Repeatedly, Shanghai Expo 2010, Inc., has set public and private deadlines for fund-raising and construction, failed to meet them, and then either ignored or downplayed them. These include a January 2009 date to start construction (in its original plan submitted to the State Department), and a March 31 date to complete fund-raising (on its Chamber of Commerce-sponsored website as recently as May2) for a May 1 groundbreaking. Potential and actual corporate sponsors have been unnerved by this disregard for dates, and their nervousness has only been stoked by well-founded suspicions that the State Department is ignoring, if not actively enabling the procrastination rather than supervising its chosen pavilion team (or seeking out a more reliable one). There is ample basis for these suspicions: For example, on April 23, 2009,a US Consular official in Shanghai actively involved in the pavilion effort emailed an individual concerned with yet another missed deadline, with this observation: “On the date issue, there is too much fuss over a single date.  In fact, April 15 was one of several dates mentioned over the past year … [T]his is par for the course when both the project scale and the challenges are great … [N]o one’s clock has run out because a target in April was missed.  So the U.S. has not yet confirmed participation.” This official may have a point, but what he, the State Department, and Shanghai Expo 2010 fail to understand is that this sort of attitude freaks out potential US sponsors. After all, what company wants to give money to an enterprise that can’t meet self-imposed deadlines?

C.  Transparency. Perhaps no single issue has damaged the US pavilion effort more than the secrecy that the State Department and Shanghai Expo 2010, Inc., have drawn around it. The examples are numerous and bizarre. In recent weeks, for example, the State Department has passed on answering questions regarding the process by which Shanghai Expo 2010, Inc was chosen to lead the US pavilion effort and the specific rules and regulations under which Shanghai Expo 2010 is allowed to raise money. Even more bizarre, Shanghai Expo 2010, Inc. has declined to reveal its donors, the value of their contributions, its creditors, and the value of its borrowing.  And this is nothing new: interested US citizens have been forced to file Freedom of Information Act requests to obtain copies of Shanghai Expo 2010, Inc.’s authorization letter and “Action Plan,” the fulfillment of which have been inexplicably delayed (despite the Obama Administration’s advocacy of prompt action on such requests). It may be the case that the State Department and Shanghai Expo 2010, Inc. have nothing to hide, but so long as they refuse to reveal even the most basic details of the US pavilion effort (shouldn’t donors to the US pavilion be public?), potential contributors are shying away from a black box.

D. Credibility. Inexplicable costs, missed deadlines, and a lack of transparency should be enough to damage the credibility of any organization in the eyes of the already wary expatriate business community in Shanghai. And they have. But, unfortunately, that’s only the beginning. As documented at Shanghai Scrap and elsewhere, over the last eight weeks the members of Shanghai Expo 2010, Inc have been publicly corrected by government officials and changed positions on whether or not they are interested in foreign funding (quietly, the State Department has changed its rules, and now allows them to accept foreign funding). In my own interviews with Shanghai Expo 2010, Inc, the principals have contradicted each other, or made statements that are unverifiable. And these sorts of encounters are not reserved for the press alone – they’ve happened countless times over the last 18 months, at fund-raising events and in private meetings. As a result, several potential donors have decided that – based upon the individuals managing the US pavilion – they won’t contribute. And, according to somebody close to the situation, at least one current confirmed donor to the pavilion effort is having second thoughts about the commitment. Reportedly, the official effort is close to losing credibility with Expo organizers, too.

So what’s to be done? Barring the sudden appearance of a miracle donor willing to fund Shanghai Expo 2010, Inc without strings, I’m not sure. Several individuals inside and outside of Shanghai have proposed viable, lower-cost alternatives to the current plan (ranging in price from $20 million to $30 million), but without explicit State Department authorization, or an agreement from Shanghai Expo 2010 to collaborate, those plans aren’t going anywhere. In my opinion, the US effort could use some new faces and management to reassure increasingly wary and frustrated potential and actual donors (and those upon whom donors rely for advice). That doesn’t necessarily mean jettisoning the current authorized group, but it almost certainly means supplementing – if not supplanting them – with credible individuals committed to deadlines, transparency, and competent management.

28 thoughts on “Why can’t the US find $61 million for an Expo 2010 pavilion? A primer.

  1. Thanks for the ongoing news as it breaks Adam. I’m not American, and are not overly worried about the US pavilion, but I can see how the Chinese would see it as a slap in the face if the US doesn’t particpate. Having visited the expo in Brisbane, Australia, as a young lad in 1988, I’m looking forward to next year’s one in Shanghai, and having seen the crowds then in a country with 0.1% the population of China, I can’t see why their is a problem with finding sponsorship? Who would’ve thought it would be so hard to get a pavilion built? (The Australian one is well underway, costing around the same amount of money (US$61 million)).

  2. Just a reminder, the USA also did not join the last Expo in Germany. So there are no sinister motives. The World Expo is interesting, but has only very little commercial impact, if any.

  3. Wonderful insight.

    ” …the US will suffer real and lasting commercial consequences …”

    Why does China still resort to childish threats when there exists the prospect of ‘losing face’ (i.e. not being told how great they are)? Is the need to impose punitive measures in retaliation to perceived insults hard-wired into the Chinese psyche?

    I sincerely hope there is no US pavilion that is merely a profligate gesture to appease Chinese sensibilities.

    The clown who made those remarks would do well to read your article, Adam.

  4. Ack, left my comment in the older thread linked in the first paragraph:

    I’m one of the Americans that couldn’t give a damn. To me, the Expo is nothing but a glorified Alliance Francaise or British Council. The US olympic committee is independent of the government, too, and that works fine because people care.

    Couple questions: Which was the last Expo that the US had a country pavillion? How many US companies have their own pavillions?

    (I’m just here via Danwei, so I apologize if these are addressed elsewhere)

  5. Maybe Pfizer can sponsor a VIAGRA USA pavilion in Shanghai and use the materials from that Chongqing sex theme park which just got dismantled. Just add some blue stripes and white stars to that big red thong and America will have the most popular World Expo pavilion ever made!

  6. I’m not American either but having seen the Expo preparations close up, I think a lot of people don’t realise how big this Expo is going to be. A Chinese Expo can’t really be compared to one in Saragoza. Shanghai is going to reinvent this event and most people won’t realise it until it starts.
    What Expo presents is a chance to share ideas, unfiltered, directly with an expected 67.5 million Chinese, most of whom have never traveled abroad. Many visitors from inland China may be speaking to foreigners for the first time as they talk to pavilion staff.
    China has opened up so much we forget, that not long ago contact with people from other countries was discouraged, limited and subject to severe restrictions when it did happen.
    This Expo will present an unprecedented chance for countries to introduce themselves directly to ordinary people inside the 21st century’s rising power. It’s ok if the US isn’t there, plenty of other countries will.

  7. This is probably the last big world Expo, a chance for the traditional model of showing off your country for tourism and creating original impression, as well as forming a basis for b2b talks on a large scale. The Olympics, for all their glitz and TV revenues, are a short term, athletics focused event that stars the host city/country.

    As a member of the 2005 Aichi Expo Canada pavilion staff I saw first hand the very real business that gets done at an event like this. Its 6 months of showcase, of connecting and of providing a platform for companies and organizations to make REAL connections and impacts that will continue for years to come. The pavilion and its millions of visitors are just one part of a much larger event that has the potential to make a real difference for US companies who are doing business, or want to do business, in China. If the US fails to get a delegation together, non-governmental, government approved or otherwise they stand to loose a lot more than face. If its done right, the US$61 million will pay back for years. And if they don’t show up, well, you reap what you sow.

  8. The USA had an independent pavillion at the 2005 Expo in Aichi, Japan that was well attended.

  9. Another non-American and another non-interested reader. What exactly is the point of these Expos? At least with the Olympics there is some element of human interest in the competition. The original Expo was designed to show off the latest wares of Victorian Britain. What great wares and ideas does Shanghai have in 2009?

  10. You did not come out and say it but I think you are suggesting that there might be skimming on the part of the us organizers and others pavilions. that shouldn’t be surprising. skimming on real estate projects big and small is an old tradition in shanghai. so if the us people and their designers and contracters make a few extra bucks along the way and nobody knows about it so what. it wouldn’t be the first time in shanghai.

  11. I am a World’s Fair historian, and historically the U.S. has always had a suspicious and apathetic view of world expos. There was no history ever written on America’s First World’s Fair, the New York Crystal Palace, until I wrote in 2008. No plaque in Bryant Park NYC where it was held. Even so, even in this instant gratification computer age, World’s Fairs offer a treasure trove of hands on information and learning, an instant trip around the world and impressions that last a lifetime. Hope the U.S Pavillion gets off the ground. To answer the question about the last World’s Fair in the U.S. it was in New Orleans in 1984. There were seperate pavillions for Chrysler, Lipton, Union Pacific and the U.S. Petroleum Industries. On another note, I would like to showcase my large World’s Fair collection at Shanghai

  12. China sets the price and deadlines and adds its usual shoe banging tirades as negative reinforcement.

    China expats, the ones with the most to lose from no expo and the ones with the most to gain (through fraud and buying more Chinese friends) are the only Americans making noise about making the pavilion happen.

    This all adds up to be a $61 million fleecing of US taxpayers. China is not going to stop buying US products (or stealing our ideas) after their little temper tantrum is over. McDs, Buick, Microsoft, GE, Conoco, etc will all continue to make money there.

    Who gives a crap about dodgy China expats and the fraud they won’t be able to pull of anyways?

  13. I am so glad that China won’t be buying more pork from the US. Not participating in another China coming out party is a great decision. China don’t lack money. If China wants the world to pay homage, it must do something to earn that honor.

    I thing China should refuse to put a pavilion in any future US held EXPO. That would be great too.

  14. China should just give the expo space to Iran; they can pay with oil easily. Problem solved.

  15. I have a hard time seeing the value returned on a $60M investment in what is essentially a beauty contest. Larger countries like the US don’t lack access to foreign markets (at least in the sense that an expo would potentially remediate), and the price tag is significant relative to the extremely tight budgets that US firms are facing today.

    Aside from losing face politically (I can’t imagine it’s $61M worth), can anyone provide data on the real ROI that private organizations realize from this type of investment? Anecdotes, theories, and hypotheticals don’t count.

  16. While $61 million is too much for a pavilion, it’s not government money that’s being sought — so that line of attack is useless. Every other country except the U.S. funds its pavilion with public money, which is why the U.S. may be having unique trouble having a presence in Shanghai next year.

    The ROIs for pavilions are multiple: prestige, commercial deals, encouraging tourism, cultural exchange, showing off one’s technological chops, etc. The decision NOT to fund a US pavilion at the Shanghai Expo was made by the Bush Administration and had no principled purpose. It appears it was done simply to put up a pavilion on the cheap, with other people’s money. For more information about Expos, see The Expo Book online and the excellent Expo Museum.

    I don’t get it. Adam discusses a pending policy issue with serious political and commercial ramifications and although many of the comments here are spot on, he also gets a lot of uninformed, snarky, and frankly lame comments. Is there a special award for expressing especially snarky or stupid remarks about anything Chinese? It’s not clever or becoming and in the case of complaining expats, it raises the question: “If you don’t like it in China and aren’t helping to make life there better, why stay?”

    Anyway, back to the question at hand which, if it doesn’t capture everyone’s interest here, certainly has done so in spades in Washington, DC, and in official Shanghai. What’s the U.S. to do?

  17. PS Because I champion public support for a US pavilion does not mean I support the current candidate for that support. Best would be to hold a full-on competition to select the most talented group, the one best able to do the job, and fund it for a smaller amount, the rest to be made up from private sources. That’s how it’s been done before.

    Oh wait, didn’t that happen in 2007, when the State Department conducted a year-long RFP process but didn’t select the finalist as the winner, instead choosing a non-competitor?

    Given that the time now left until the opening is now so short — 1/2 the time it normally takes to do a quality pavilion — why not go with the RFP finalist? That would seem the U.S. best bet.

    (Disclosure: I’m a member of RFP finalist team, all volunteers, Expo veterans and exhibition greats who want to create a topnotch pavilion to serve as a bridge between this Century’s two great nations, the U.S. and China. We sincerely believe this is an important historical moment, an opportunity for the entire world to envision a better, sustainable future and what it would take to make it happen.

  18. My point is we can spend 1/2 the $61M and get the same bang for our buck. Oh well, I guess that does not matter. Apparently it’s either do or not — yes or no — …

  19. I was recently forwarded this blog and find both the article and commentary quite interesting. I was the Executive Director of the organization that planned and funded the US Pavilion to the 2005 Expo in Aichi. Leading up the the EXPO, I transition to the role of Director of Corporate relations, responsible for fundraising and managing our corporate sponsor’s experience.

    Some comment and insight:

    1. Our pavilion budget in Nagoya was $32 million and we were not responsible for building a structure. Rather we were tasked with installing the exhibit and VIP suite inside a pre-existing building that was built and financed by our Japanese hosts.

    2. One must remember a bulk of our budget was NOT the construction of the pavilion, rather the operational cost of staffing and operating the pavilion for six months in a foreign country and funding artists and performers from the US to come to Japan during the expo.

    2. A major obstical we faced in fundraising was that US corporations do not want to be branded as “US” rather international and did not want to participate in a World’s Fair.

    3. The State Department regulations are relatively clear in that short of an act of congress, government funds are prohibited from being used for World Expos. We even had to cover the expenses of local government officials (the counsel general etc.) when they would drive to the site or take the train.

    4. I could write forever about the pros and cons of participating. My own general opinion is that while one could argue the positives and value that result in participation, the negatives of not participating in some meaningful way are clear. It is embarassing that the U.S not have some participation. If nothing else it is a 30-60 million dollar shovel ready project that could employ a number of Americans over the next 24 months.

    5. In Japan we touched over 2 million people with a positive message of the U.S. Regardless of government to government relations, this is an opportunity to expose millions of Chinese to a uniquely America message. That is a commercial and diplomatic opportunity that ought not be missed.

  20. Thank you, Daniel, for insights from the field. The Chinese can find a prebuilt pavilion on a backstreet for the United States, but they were and are expecting a pavilion effort befitting the special location they have reserved across from the Chinese pavilion.

    The difficulty encountered by the fundraisers for the last 18 months may have more to do with factors inherent to the effort than with existing law, which may be ambiguous but certainly does not prohibit Congress from funding pavilions.

    There are a couple hyper-pavilions — China at $200 million and Japan at $135 million — most pavilions are priced in the range $15-$25 million, including initial operating expenses. $61 million is a relatively large number. A down payment of only 3-5% (the amount raised so far) would not cut it with any lender, public or private.

    Several American corporations are participating in the Shanghai Expo, building or sharing corporate pavilions. But these are mere dozens among the thousands of large corporations that should be participating. This year, every national pavilions will be globally accessible via the Internet and thus international. So why aren’t they signing up? The main benefit of being in a pavilion is the excitement and energy that it generates. Apparently, that case hasn’t been made for the current proposal.

    This project could fit better with the President’s stimulus strategy. It’s tough to argue making-work-for-Americans when you’re relying primarily on Chinese designers and other labor at an early stage in the pavilion’s development.

    There’s a fatal catch to any bailout strategy: by law, the State Department isn’t authorized to fund Expos and its Bureau of Educational and Cultural Affairs (ECA), which has managed the current US Expo effort from its beginning, isn’t authorized either. One would first have to revamp the government management of this project before it could legally receive public funding.

    Given all of these conditions, Adam’s critique survives: things are critical. The US President and Congress should take a a closer look at how this thing is playing out. It’s not just that the US effort is still hugely underfunded (which isn’t news), but that it needs radical restructuring. We’ve seen this sort of thing before.

  21. My take on it, having built some of the largest Pavilions at the Olympics in Beijing last year is that we can spend 1/2 the $61M and get the same bang for our buck; operational costs amount to nearly a third of the budget — but the building construction can be done for much less than the proposed $16M-$19M. Oh well, I guess that does not matter. Apparently it’s either do or not — yes or no — … I suggest bringing all interested parties to the table and sort this out ASAP!!

  22. interesting read, thank you.

    i have to say i am one of those americans who just doesn’t care. Actually, i think i do care. I would be plenty irritated if companies have that kind of money to throw around in this financial crisis, and i think a lot of folks back home would be too. doesn’t matter if it is government money or freaking Dunkin’ Donuts. Just doesn’t look good.

    Secondly, this seems like a purely commercial venture, with no real ‘sharing’ going on. It’s not about ‘the science of the future’ or sharing the joy of funnel cakes, potato doughnuts and fried Snickers bars. mmmm.

    I must add, some of those comments in the middle are fantastic. Every reason that the US should just quietly back away from this huge money suck and let China turn it into some big insult.

  23. Dan’s second #2 point is i think at the crux of this topic:
    “2. A major obstical we faced in fundraising was that US corporations do not want to be branded as “US” rather international and did not want to participate in a World’s Fair.”

    bingo.

  24. As a proud American who is troubled by the fiscal situation of his country, I would suggest building a gigantic cardboard box as the US pavillion. It would show the world the future trend of housing for many American families.

    US bank executives can man the pavillion, and beg for money from visitors. Representatives of the largest bailout recipients will grab on to the legs of visitors who look rich (i.e., black hair and yellow skin) until they receive a satisfactory donation.

  25. Shanghai World EXPO 2010 being the first in an Asian ‘developing’ country and likely to be the biggest event of the century and USA being the sole super power had a great opportunity of ‘winning hearts and minds’ of the visitors with her presence. Sadly USA prefers other methods of doing so by going to other countries.
    US pavilion in Nagoya was such a big success. Its staff and other officials were the friendliest lot. They will be missed.

  26. Great article! Thanks for providing all these facts, which is so different from what is coming out of local media channels. It’s such a pity that “Americans in charge” don’t get what we “old China hands from America” only know so well.

    I agree that the best route is to go after some of the major American MNCs based in China…but only AFTER there is full transparency (as you well pointed out) in place first.

  27. On the Chinese internet,A rumor said that, Haier, A state-owned chinese enterprise ,is the main sponsor of the USA pavilion with a share of $50M under the imply of the Chinese government to avoid the embarrassed situation of absence of USA.Maybe you can dig deeper about this.

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