June 30 (Bloomberg) -- Walt Disney Co. will pay HK$3.5 billion ($452 million) to add rides like “Toy Story Land” and “Grizzly Trail” at its Hong Kong theme park and raise its stake in the project, said its partner, the city’s government.

Three new themed areas will be built over five years, said Hong Kong Chief Executive Donald Tsang, at a press conference. The government said it won’t spend money on the expansion and that Disney’s investment will cut Hong Kong’s stake in the project to 52 percent from 57 percent. Disney, the second- biggest U.S. media company, runs five parks worldwide.

“The existing park is so small, we hope the expansion starts as early as possible,” said Joseph Tung, executive director of the Travel Industry Council. “Adding exclusive rides will enhance the park’s attractiveness.”

The agreement ends two years of talks between the two shareholders that were marked by tension over attendance, job creation and investment. The Hong Kong park, which opened in September 2005, was the company’s first foray in China aimed at positioning itself for the mainland market.

The expansion will “benefit both parties,” said Leslie Goodman, a Disney Parks executive vice president, in an e-mailed statement. “Disney is making a substantial investment in this important project.”

Missed Targets

Park attendance has fallen short of target from the outset. To date, 14 million people have visited the park, averaging between 4.5 million and 4.6 million a year, said Helen Chan, a government economist. That compares with the city’s initial target of between 4.2 million and 5.6 million a year, she said.

The park’s performance has drawn the ire of Hong Kong lawmakers like Emily Lau, who called for a stop to more government spending on the project after a 23 percent drop in attendance during the park’s second year of operation. In an interview yesterday, Lau said Hong Kong is “throwing away good money investing” in the park.

“These new attractions might be what the park needs to draw more visitors,” said James Lu, executive director of the Hong Kong Hotels Association. “It’s about time they expanded.”

This development plan will boost the size of the Hong Kong park by 23 percent, the government said.

A few months ago, Disney signed a framework agreement to build a park in Shanghai which is pending approval by China’s central government, said Robert Iger, Disney’s President and Chief Executive Officer, on a May 5 earnings conference call. No schedule was mentioned for Shanghai.

World’s Largest

“Mainland Chinese equate big with better, the world’s largest this, and that,” said Shaun Rein, Shanghai-based managing director of China Market Research Group. “All the rides are scrunched together in a really small area, so what Disney had to do is to expand it to generate continuous interest from Hong Kong and people in mainland China.”

The expansion will boost the economy as unemployment in the city reaches 5.3 percent, the highest in four years, creating 3,700 construction jobs and an additional 600 long-term positions when the park opens, Tsang said today. Over the past three years, Hong Kong Disneyland has contributed a 0.2-percent- a-year gain to the city’s gross domestic product, said Chan.

‘Good Agreement’

“The executive council believes this is a good agreement,” said Hong Kong’s Secretary for Commerce and Economic Development Rita Lau, at the press conference.

The Hong Kong government said it will convert “a substantial part of its loans” into equity, though maintain at least HK$1 billion of loans in the theme park and remain its majority shareholder. No details were given. The city has HK$6.1 billion in loans on the project.

Hong Kong had invested $418 million in the park for its 57 percent stake and spent another $1.8 billion on landfill, roads, sewers and a rail line. Disney invested $320 million for the remaining stake.

To contact the reporter on this story: Wing-Gar Cheng in Hong Kong at wgcheng@bloomberg.net; Wendy Leung in Hong Kong at wleung12@bloomberg.net

Last Updated: June 30, 2009 05:47 EDT