Chinese Peril

Tensions flare between US and China, this time in Hollywood
Rebecca A. Fannin

China investment into overseas transactions doubled last year to peak at $225 billion, according to data firm Dealogic, which tracks deals across real estate, tech, industry and Hollywood. 

Now Chinese acquisitions overseas have slowed to a small fraction of that former record, especially when it comes to Hollywood. 

At least one dozen cross-border, China-U.S. deals in the tech, media and entertainment space have dried up over the last six months, according to a studio executive with close ties to investment bankers and private equity dealmakers involved in these transactions.

Just take note of some of the high-profile deals that have been scrapped over the last year.
In March the $1 billion deal by Chinese real estate and entertainment conglomerate Dalian Wanda Group to acquire Dick Clark Productions, producer of the Golden Globes and American Music Awards, collapsed. 

Regulatory pressures, as well as payment issues from Wanda's side, were the cause, according to one principal involved in the deal.
Other China-to-Hollywood deals are in trouble or have been abandoned. 

A $1 billion, three-year deal by Chinese firms Huahua Media and Shanghai Film Group with Paramount Pictures was intended to help the studio finance films and get released and marketed in China, but has stalled since former Paramount head Brad Grey was forced out, though Paramount has insisted in recent press reports it will still happen.
In a related entertainment and distribution deal that was meant to capitalize on the growing trend toward live streaming and internet distribution of content, a $2 billion agreement by Chinese tech and entertainment conglomerate LeEco to acquire LA-based TV maker Vizio is officially off due to "regulatory headwinds." 

The deal's collapse in early April was the result of tighter currency controls and a crackdown on China-U.S. deals, in addition to a cash crunch at LeEco, which has been facing financial difficulties and retrenching after rapid expansion into smartphones and electric vehicles, according to deal makers involved in the industry. 

The two companies will seek to collaborate on content and distribution now that the acquisition is off.
Meanwhile, the Middle Kingdom's moves into Hollywood have been facing scrutiny on Capitol Hill as concerns grow about too much influence and control on American content by China, a market that blocks social media services Facebook, Twitter and Instagram on the Chinese internet. 

In the run-up to the presidential election, 17 lawmakers pushed for Wanda to be investigated for violations to the Foreign Agents Registration Act and require it to publicly disclose its relationship to the Chinese government. 

More recently, New York Democratic Senator Chuck Schumer has voiced concerns over Wanda's Hollywood dealmaking.
"No Chinese buyers are coming to the table," says Chris Fenton, a trustee of the U.S.-Asia Institute in Washington, D.C., and president of DMG Entertainment Motion Picture Group in Los Angeles and Beijing. 

"No Chinese entity wants to test this," he said, referring to the potential limits of regulatory scrutiny. Most of Chinese investment in U.S. assets has dried up in the final hours of negotiation," he said. Fenton helps organize congressional visits to China. 

This summer he has added a trip focused on the high-profile media and entertainment industry.

Behind the Sino-American skepticism
Issues have been brewing on both sides of the ocean over China-Hollywood deals. 

As China has turned to Hollywood as part of its outward reach and bid for soft power, such transactions have been ensnared by Chinese regulators. 

China policymakers have been closely examining transactions that cut across industry lines and command big price tags, while the Chinese government has tightened controls over capital outflows to shore up foreign currency reserves and gains in the yuan currency.
"The Chinese government crackdowns have made it extremely difficult to get money out," said Rob Cain, president of advisory firm Pacific Bridge Pictures, focused on United States and China entertainment markets.
Hollywood is also becoming more cautious about Chinese capital, Cain said, and also more cautious after earlier — naive — infatuation. 

"There's a lot of skepticism now by Hollywood about these deals," he added, continuing, "On the U.S. side, there's very little sophistication about how to vet potential investors. You have to have dedicated teams and be on the ground in China. It takes a lot to learn the market."

Wanda's Hollywood plans fall through Sunday, 12 Mar 2017

Wanda had led the Hollywood empire building in 2015 by acquiring American film production house Legendary Entertainment, co-producers of "Jurassic World" and "Godzilla" in a deal for $3.5 billion in cash, adding to a U.S. portfolio that included theater-chain giant AMC Entertainment and a deal to finance films with Sony Pictures. 

China's tech titans Alibaba and Tencent have also been on the hunt in Hollywood for inroads into this glamorous and high-profile sector, just as these Chinese leaders have in Silicon Valley for the past few years for technical know-how.
In 2016, Tencent invested in movie studio start-up STX Entertainment, while Alibaba announced a minority stake in Hollywood director Steven Spielberg's Amblin Partners to produce, distribute and finance films globally and in China. 

Alibaba chairman Jack Ma has said the e-commerce company will invest $7.2 billion over the next three years in Hollywood pictures.
"China absolutely wants to have its own home-grown film business," said Elizabeth Dell, a content producer at Two Camels Films and head of the China task force of the Producers Guild of America.

Collaboration may be the hottest ticket
The infatuation between China and Hollywood probably won't fade soon. 

As China's middle-class population has increased and second- and third-tier cities have seen dozens of new cinemas open, China's box-office revenues have soared. 

Annual revenues in China movie tickets have been growing by 35 percent each year since 2011, according to Chinese media and entertainment researcher EntGroup in Beijing. 

It's a frontier market that can't be ignored while U.S. movie ticket sales are relatively flat. 

China is on track to become the world's largest box-office market.
Moreover, Chinese companies are luring filmmakers to China to make movies. 

Wanda's billionaire chairman Wang Jianlin created a stir in Los Angeles last October by announcing a 40 percent subsidy for Hollywood to come to China to create films at its state-of-art movie production facility in the coastal Chinese city of Qingdao. 

A number of companies agreed to shoot there, including Arclight Films and Lionsgate and China Media Capital-backed Infinity Pictures.
Hollywood has turned to co-productions with a China partner to avoid a quota system that limits big-budget imported feature films to 34 per year and limits foreign studios from keeping more than one-quarter of Chinese box-office revenues.
A recently released U.S.-China co-production — The Great Wall, by Universal Pictures, Wanda's Legendary and a LeEco film division — was looked at as a trendsetting deal. 

It was the most expensive feature ever shot in China, and it starred Matt Damon. 

But the film, which melded Chinese action sequences with Hollywood-style romances, did not go over well at the box office in China or the United States, and losses are expected to hit $75 million.

Chinese Peril

• China’s Dalian Wanda Group faces renewed scrutiny
• Top Senate Democrat Chuck Schumer raises concerns over Chinese conglomerate’s Hollywood takeovers

By ERICH SCHWARTZEL in Los Angeles and SIOBHAN HUGHES in Washington

Incoming Senate Minority Leader Chuck Schumer sent a letter Wednesday calling for further scrutiny of Chinese deals.
A top Senate Democrat is calling for increased scrutiny of China’s ambitions in Hollywood and other sectors, lending a critical new voice to a cause championed by President Donald Trump.
In a letter sent Wednesday, incoming Senate Minority Leader Chuck Schumer said the takeovers of U.S. companies by China’s Dalian Wanda Group Co. and others warrant further scrutiny to determine whether they are being orchestrated by Chinese government interests—leaving U.S. companies to compete on an uneven playing field. 

The move increases the likelihood of a re-examination of how the U.S. allows Chinese to invest in American companies.
“I am concerned that these acquisitions reflect the strategic goals of China’s government,” he told Treasury Secretary Jack Lew and U.S. Trade Representative Michael Froman in the letter, a copy of which was seen by The Wall Street Journal.
Wanda and its U.S.-based holdings have completed several entertainment acquisitions this year, and the conglomerate has a pending deal to buy Dick Clark Productions for $1 billion.
Mr. Trump, who has indicated his administration will also take a closer look at such deals, was copied on the letter.
If the president-elect follows through on promises to scrutinize such deals more closely, Mr. Schumer’s letter could signal a shift for U.S. policy toward China. 

For decades, some lawmakers on both sides of the aisle have been unhappy with the White House, both under George W. Bush and Barack Obama, whom they saw as timid about confronting China, the biggest holder of U.S. debt.
Now, a senior Democratic lawmaker and the incoming Republican U.S. president could be on the same side of the issue, potentially shaking up the landscape. 

Congressional backlash to Chinese investments have lately focused on flashy Hollywood deals, but the outcry could have sweeping ramifications across other sectors of the economy.

Beijing stooge Wang Jianlin

“You can be certain that the new Congress in 2017 will work on legislation to further expand CFIUS oversight authority,” Mr. Schumer wrote, referring to the Treasury Department’s Committee on Foreign Investment in the U.S., which examines foreign deals seen as potential threats to national security. 

CFIUS reviews have traditionally concerned sectors like aerospace.
Wanda has previously responded to similar calls for scrutiny by saying the company “has and will continue to comply with all applicable U.S. law in connection with its media and entertainment investments in the United States, including without limitation making the appropriate filings with the Federal Trade Commission and the Department of Justice.” 

The company declined to comment on Mr. Schumer’s letter.
Mr. Schumer’s stance aligns the Democrat on one issue with the President-elect. 

A document circulated by Mr. Trump’s transition team stated that the administration would ask CFIUS to review foreign transactions that couldn’t be replicated by a U.S. entity. 

That could cover Chinese investment far beyond Hollywood, since Chinese companies can become majority owners of U.S. assets but China doesn’t allow U.S. companies to do the same.
Mr. Schumer said the ability for Chinese companies to take a majority stake in U.S. assets, often backed by state officials and China’s sovereign-wealth funds, is unfair considering stateside companies are handicapped from doing similar deals in China. 

U.S. companies hoping to do business in China usually have to form a joint venture that often includes the sharing of intellectual property—an arrangement that Mr. Schumer called a “pay to play system.”
“While China’s government has aggressively pursued policies that encourage strategic acquisition in the U.S., U.S. companies continue to face steep barriers to market access in China,” he wrote. 

Mr. Schumer said Chinese acquisitions across multiple sectors—information technology, transportation, manufacturing and agriculture, among others—are often supported by Chinese government subsidies designed to encourage global expansion.
Like several politicians before him, Mr. Schumer set his sights on Wanda, whose chairman, Wang Jianlin, is China’s richest man, according to Forbes. 

Wanda’s acquisitions in Hollywood have raised concerns among politicians and some entertainment executives that they are “soft power” plays designed to spread Chinese propaganda and messaging through American media. 

The country is the second-largest movie market in the world behind North America, but it imposes a quota of 34 movies that can be imported from ALL countries to its theaters each year.
In the past several years, Wanda has become the world’s largest movie-theater operator through its $2.6 billion acquisition of AMC Entertainment Holdings Inc., expanded into film production with the $3.5 billion purchase of Legendary Entertainment and its Dick Clark deal signaled an expansion into television. 

Wanda has become known in Hollywood for an insatiable interest in acquiring more assets, and Wang has publicly indicated his hopes to own one of Hollywood’s major studios.
Congressional scrutiny of China’s media acquisitions has been ramping up since September, when 16 members of the House of Representatives asked the Government Accountability Office to investigate whether CFIUS’s authority has kept up with the expanding scope of foreign investment in the U.S.