China's overseas takeover spree meets growing resistance

Associated Press

HONG KONG – Corporate China's global shopping binge barreled on this week with more multibillion dollar deals, but Beijing is starting to discover that there are limits to what its money can buy.
In recent days German and European Union officials have moved to tighten up scrutiny or even block high-profile acquisitions in the latest sign of growing opposition to Chinese purchases of companies in key industries due to national security or competition concerns.
Swiss chemical giant Syngenta said Tuesday that EU regulators examining its proposed $43 billion takeover by state-owned ChemChina have "recently requested a large amount of additional information," which will drag the approval process out into the first quarter of next year.
At about the same time, the German government withdrew clearance for a Chinese company to buy semiconductor equipment maker Aixtron in a $670 million deal over unspecified security-related concerns — a decision that threatens to complicate German Economy Minister Sigmar Gabriel's trade visit to China next week.
"The surge in Chinese acquisitions of high-tech companies certainly has policymakers on high alert, especially in Germany," said Bjorn Conrad, vice president of research at the Mercator Institute for China Studies in Berlin, which tracks China's overseas investment. 

"That is because China is not playing by the rules."
He said some of the deals reflect a political strategy in which state-owned Chinese companies, spurred by an aggressive outbound industrial policy, unfairly exploit Europe's open markets to gobble up companies with core technologies to speed the country's technological advance.
European policymakers "are not naive when it comes to government-driven acquisitions. They will apply a much higher level of scrutiny in the future," Conrad said.
Chinese companies have invested nearly $200 billion so far this year in overseas firms, almost double the amount for all of 2015, according to Dealogic. 

The transactions have included a German robot maker, a Finnish video game company and an American appliance maker.
Just this week, HNA Group paid $6.5 billion for a 25 percent stake in the Hilton hotel chain, after one of its units earlier this year bought Carlson Hotels, operator of the Radisson and Country Inns & Suites brands. 

Meanwhile, Beijing-based China Oceanwide Holdings Group agreed to buy U.S. insurer Genworth Financial for $2.7 billion.
However, about $40 billion in proposed Chinese purchases has been cancelled since the start of 2015, reflecting resistance to such deals, according to Dealogic.
In Australia, the government blocked a Chinese group from leasing a Sydney electricity grid in an unusual turnaround, citing classified national security reasons. 

The deal involving state-owned State Grid Corp. and Hong Kong-based Cheung Kong Infrastructure group would have earned the government more than 10 billion Australian dollars (then-$7.6 billion).
The August decision was unusual in that the government had initially invited the companies to bid and only rejected them at the last minute on general security concerns unrelated to any specific country, said Hans Hendrischke, a professor at the University of Sydney Business School who specializes in Chinese investment in Australia.
However, "overall, certainly, I think the political outcome is clearly that the perception is created as if all of these are somehow directed against Chinese acquisitions of assets in foreign countries."
The concerns mirror those in the U.S.
Last month, 16 lawmakers wrote to the Government Accountability Office calling for a review of the Committee on Foreign Investment in the U.S., a federal inter-agency panel also known as CFIUS, saying it should be updated or expanded to keep pace with the surge of foreign acquisitions in strategically important sectors.
Specifically, the letter said the committee's powers might need to be widened in light of Chinese conglomerate Dalian Wanda's recent purchases of U.S. theater chains and the Hollywood studio Legendary Entertainment, citing fears about Beijing's censorship and propaganda efforts.
Tighter scrutiny by CFIUS or the prospect of it has already thwarted some high-tech deals.
State-owned Tsinghua Unisplendour in February scrapped a plan to buy a 15 percent stake in disk drive maker Western Digital, which would have made it the biggest shareholder, after the committee decided to investigate the $3.8 billion investment on national security grounds. 

A month earlier, electronics giant Philips aborted the sale of a majority stake in its LED components and auto lighting business to Chinese investor GO Scale Capital.

Chinese Peril

Dalian Wanda: China’s Propaganda Puppet
By RICHARD BERMAN
China's Goebbels Wang Jianlin

AMC Entertainment. Carmike Cinemas. Legendary Entertainment. Lionsgate Corporation. Paramount Pictures.
They are mainstays of America’s movie industry, either producing content or distributing it to the masses. 

But these film studios and movie theater chains are tied tighter together through a Chinese businessman with infinite ambitions: Wang Jianlin, the founder and chairman of Dalian Wanda.
To most Americans, Dalian Wanda, a Chinese firm owned by Wang—China’s wealthiest man—remains an unknown. 

Yet Wanda has emerged as a global player determined to consolidate the U.S. movie industry under one parent company. 

In 2012, Wanda bought AMC—the second largest movie theater chain in the country—for $2.6 billion. 

It purchased Legendary—the producer of The Dark Knight Trilogy—for an even heftier $3.5 billion in January of this year. 

Wanda-owned AMC now plans to buy Carmike for $1.2 billion, forming the country’s largest chain with 8,380 screens in more than 600 theaters. 

The company has also shown interest in buying at least a portion of Lionsgate and Paramount—if not all of Hollywood’s “Big Six” studios.
On the surface, Wanda’s motivations are monetary. 

Wang strives to turn Wanda into “a juggernaut” in the movie industry through high-dollar mergers and acquisitions—granting him greater control of major production and distribution channels. 

Wang’s incendiary rhetoric against Disney—one of Wanda’s major competitors in the entertainment tourism space—confirms his relentless pursuit of greater market share. 

In his words: “We want to smash them. It’s not personal—it’s where the interest of the company lies.” (Wang has likened Disney to “one tiger” competing against his “pack of wolves.”)
But his ambitions transcend buttered popcorn and glitzy theme parks. 

A former Communist deputy, Wang has steered at least $1.1 billion in government subsidies to Wanda. 

He has sold company stakes to relatives of China’s most powerful politicians and business executives, including the business partner of former Prime Minister Wen Jiabao’s daughter and relatives of two members of the Politburo—the Communist Party’s principal policymaking committee. 

Qi Qiaoqiao, the elder sister of  Xi Jinping, was also an early Wanda investor.
Wang’s connections to China’s political elite signal his broader agenda: Promote Chinese propaganda. 

In recent years, Xi has vowed to promote China’s “cultural soft power,” specifically in the realm of “international communication.” 

To that end, Communist officials have pledged government support to Wanda and other companies making cultural inroads abroad. 

As Wang admits, the soft-power policy—spreading favorable and stifling unfavorable depictions of China—is “very beneficial” to Wanda’s bottom line.
It blurs the line between Wanda’s interests and the Chinese government’s. 

Shortly after acquiring Legendary in January, company officials called it “China’s largest cross-border cultural acquisition to date.”
With it, Wanda acquires the ability to influence the development of movie scripts, heaping praise onto the Chinese government and tempering criticism where Wang sees fit.
History is rife with examples of movies altered pre-release to appease Chinese censors, which force filmmakers to rewrite scripts according to the Communist Party’s wishes if they hope to gain entry into China’s lucrative market. 

Pixels—the 2015 action-comedy flick—initially depicted aliens blasting a hole in the Great Wall. 

The scene was removed entirely from the final version of the movie. 

Similarly, the 2012 remake of Red Dawn originally featured Chinese soldiers invading an American town. 

Producers changed the invaders into North Koreans without even receiving a formal complaint from Beijing.
Wanda seeks greater sway in the creative process. 

Wang’s company recently bankrolled Southpaw’s $25 million production budget, becoming the first Chinese firm to “solely finance an American movie.” 

And it left fingerprints everywhere. 

According to David Glasser, who helped produce and market the film, “(Wanda was) involved — it wasn’t just a silent investment.” 

Glasser went even further: “They were on the set and involved in production, postproduction, marketing, everything.”
“Everything” includes distribution, which undergirds Wang’s interest in an AMC-Carmike merger. Controlling America’s largest movie theater chain allows the Chinese businessman to dictate much of what gets shown in the U.S.—and what doesn’t. 

It’s no surprise that AMC’s cinemas showed no Chinese films before Wanda’s takeover, yet now put on double-digit productions every year. 

As Wang points out, “More Chinese films should be in…theaters where possible.”
Could that include a new war movie called South China Sea?
All signs point to no.