Nov. 4 (Bloomberg) -- Walt Disney Co. won government approval to build a theme park in Shanghai, giving the world’s largest media company access to consumers in mainland China’s richest city.

The agreement to construct Disney’s fourth park outside the U.S. in the world’s most populous nation “marks a very significant milestone,” Chief Executive Officer Robert A. Iger said in a statement. Disney and its Shanghai partners are now allowed to move toward a construction and operation agreement, the statement said.

Disney’s foothold in mainland China comes after a decade of negotiations and will cost 24.5 billion yuan ($3.6 billion), according to Hong Kong newspaper Wen Wei Po. The expansion targets the wealth of China’s middle class and the fastest growth of any major economy as Burbank, California-based Disney suffers from lower spending at its U.S. theme parks, tumbling ad sales and falling DVD revenue.

“It gives Disney an opportunity to monetize its brand without necessarily having to produce filmed content,” said David Bank, an analyst with RBC Capital Markets in New York. Expanding in China without facing the risk of regulatory hurdles is “the real key to making money in China for the media companies,” he added.

China has an import quota of 20 foreign films a year, forcing Disney to compete with other studios to show its movies.

Disney rose 0.8 percent to $27.62 in New York trading yesterday, increasing its gain this year to 22 percent.

Magic Kingdom

“Shanghai Disney would be a huge boom,” Shaun Rein, managing director of China Market Research Group, said. “You have 80 million people within 3 hours’ driving distance.”

The park will include a Magic Kingdom-style theme park with characteristics tailored to the Shanghai region, Disney said in its statement. It will occupy an area of about 7 square kilometers (1,700 acres), the state-run Xinhua News Service said.

“The cultural implication is significant as Disney theme parks represent a certain kind Western thinking,” Chinese University hotel and tourism management associate professor Leung Wai-kin said in a phone interview. “It doesn’t mean the government agrees to it but at least it’s comfortable with it.”

Disney’s third-quarter profit fell 26 percent to $954 million. Parks and resorts are Disney’s second-largest business behind media networks, contributing $2.8 billion in sales in the three months ended June. Profit for the company’s theme parks tumbled 19 percent in the period.

Financial District

The Shanghai park will be 57 percent owned by China with Disney holding the rest, and will be built in Pudong district’s Chuansha area, Wen Wei Po reported. That’s about 27 kilometers from the financial district of Lujiazui. Alannah Hall-Smith, a Hong Kong-based Disney spokeswoman, declined to comment on the size of the park or the cost.

Shanghai has in 17 years transformed Pudong from a farming community into a commercial district with the country’s tallest skyscrapers.

An official at the planning department of Chuansha who declined to provide her name said relocation will start soon.

Calls to Shanghai government spokesman Chen Qiwei weren’t answered.

The proposed theme park would compete with Disney’s Hong Kong resort, which opened in 2005. The Shanghai park will also get mainland Chinese who find it difficult getting a visa to go to the Hong Kong park, according to China Market Research’s Rein. Hong Kong is a special administrative region which mainland Chinese need visas to visit.

Chinese Tourists

“It’s going to draw the mainland Chinese tourists away,” said Rein. “The Hong Kong park is too tiny.”

China’s population of 1.3 billion provides market potential for both of the Disney theme parks, Rita Lau, Hong Kong’s secretary for commerce and economic development, said in a statement.

Hong Kong Disneyland remains focused on its expansion plan, which it aims to get under way “as soon as possible,” park Managing Director Andrew Kam said today, in remarks relayed through spokesman B.C. Lo.

The Hong Kong park, which has attracted more than 17 million visitors since its opening, plans to spend HK$3.5 billion ($452 million) to add rides such as “Toy Story Land” and “Grizzly Trail.”

A signing ceremony is being scheduled for when U.S. President Barack Obama visits China, Caijing Magazine reported yesterday on its Web site, citing unidentified people familiar with the situation. The park, which will occupy more land than any other Disney park in the world, may be completed by 2014, it said.

Obama Trip

Scott Walker, spokesman for the U.S. Consulate in Shanghai, said he’s unaware of any plan for a signing ceremony during Obama’s trip. Obama is scheduled to visit Shanghai and Beijing Nov. 15 to Nov. 18.

“China is one of the most dynamic, exciting and important countries in the world, and this approval marks a very significant milestone for The Walt Disney Company,” Iger said in the statement.

China’s economy expanded 8.9 percent in the third quarter, the most growth in a year on stimulus spending and record lending growth. Retail sales gained 15.5 percent in September, the fastest pace since January.

The Shanghai government’s involvement in the project is being discussed, it said a statement on its Web site today.

--Stephanie Wong and John Liu, with assistance from Chua Kong Ho and Jiang Jianguo in Shanghai, Wing-gar Cheng in Singapore and Mark White in Los Angeles. Editors: Frank Longid, Bret Okeson

To contact Bloomberg News staff for this story: Stephanie Wong in Shanghai at +86-21-6104-7029 or swong139@bloomberg.net

Last Updated: November 4, 2009 04:31 EST