Partying too hard

Shanghai expo: Shanghai is determined to outdo its siblings. The $4.2 billion spent on the World Expo, opening on Friday, is twice the bill for 2008's Beijing Olympics. Add in new infrastructure, and the total tab is almost $50 billion. Yet the city's expensive coming-out party may create unnecessary financial risk for little actual result.

The latest World Expo - where 191 countries showcase their achievements in elaborate pavilions - will be the most expensive in its 150-year history. An itemised bill would include at least $2.6 billion on constructing the site, with a further $1.5 billion of running costs over five months. As for infrastructure, Shanghai spent $45 billion on the world's longest metro system, two new airport terminals and a riverside promenade.

At least these should outlive attractions like Spain's wicker basket-shaped Pavilion and Denmark's "eyeball", which face demolition when the exhibition ends.

The financing of all of this is risky. Ticket sales and sponsorship will recoup just $1.4 billion. Almost half of the site construction costs are financed by Expo bonds, issued by the city government and secured against the cash flows of state-owned companies. Shanghai hopes to sell Expo land afterwards, at a high enough price to pay down debt. With Beijing intent on cooling runaway property prices, the proceeds may fall short of expectations.

Similarly, the infrastructure is partly debt financed. Typically local governments put down just 30 percent in equity. With Shanghai already more developed than other cities, the incremental returns could fail to match debt servicing costs. It may also crowd out private investment that could have gone elsewhere.

For all that, the Expo may not even help Shanghai's hopes of becoming a global financial hub. That hinges more on China's closed capital system than a shortage of new tube lines. Shanghai scored highly in a China Economic Review survey on infrastructure strength, but got low marks for its regulation, talent pool and economic policy.

None of this will worry Shanghaiers, who are enjoying Expo-related perks such as extra days off and free Metro cards. Banks and investors who funded the spectacle have less to look forward to.