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.

Massive Chinese Fifth Column

The Gulag Aperture: Hollywood Becomes Handmaiden To China's Communist Party

By Capital Flows

Wang Jianlin arrives before the company’s IPO at the Hong Kong Stock Exchange on December 23, 2014.

On New Year’s Day, China Central Television (CCTV) unveiled its newest “soft power” entertainment media venture, whose purpose is to extend China’s global media influence. 

Xi Jinping said that the overriding directive of this new collection of television stations and news agencies will be to “follow the party line and promote ‘positive propaganda as the main theme.’”
The CCTV announcement compounds the growing risk that increased Chinese investment will entice Hollywood into volunteering itself as a propaganda division of the Communist Party of China (CPC). 

And if these trends continue, the Western world’s outlet for Chinese dissenters will be closed.
China’s film industry has in recent years grown approximately 34% annually and generated $6.8 billion in 2015. 

While many applaud the very modest political reforms that sometimes complement China’s market liberalization, one should be wary of the country’s iron grip on its entertainment industry.

China’s industry players are inextricably bound to the CPC, as evidenced by the ascent of Wang Jianlin, China’s richest man. 

Jianlin’s successes are a product of quid pro quo arrangements between himself and the CPC’s top officials. 

Further, Jianlin is a delegate to the CPC congress and was a high-level advisor in China’s faux legislature from 2008 to 2013. 

Today, CPC delegate Jianlin can count several American awards shows, including the Golden Globes, the Billboard and American Music Awards, and even AMC Theaters as part of his recently accrued collection.
One may argue that the influence of China’s propaganda machine is overstated. 

After all, Russia has been doing the same thing for years through its RT media network. Economically though, Russia is little more than “Upper Volta with missiles.” 

The Russian Bear simply can’t wield a cudgel or dangle a financial carrot the way the Red Dragon can. 

If Putin threatened to remove Russian funding from Western media, it would be like threatening to remove a bucket of water from the ocean.
Jianlin, on the other hand, has made clear exactly what would happen if President Trump followed up on the U.S.-China Economic Security Review Commission’s recommendation to ban China’s state-owned companies from buying American ones: “Tell Mr. Trump that I have $10 billion of investments in the United States and more than 20,000 employees there who wouldn’t have anything to eat should things be handled poorly.”
Jianlin demands American compliance with Chinese propaganda prerogatives, all while U.S. film investments are barred from the Chinese market. 

It’s no wonder the Justice Department and Congress have begun to look askance at this exclusively CPC-friendly arrangement.
The U.S.-China Economic and Security Review Commission issued a report in October 2015 detailing the consequences of China’s far-reaching propaganda efforts. 

The Commission noted that the chilling influence of Chinese media propagandists is already felt, that it is a “truism” that Hollywood won’t make a film “that the Chinese would reject for social or political reasons.”
The Commission elaborated by explaining that “Hollywood confronts broad consequences when it does not appease Chinese regulators: Captain Phillips found itself $9 million short of its anticipated revenue after finding itself unable to distribute in China [due to censorship].”
Seeds have now been sewn for an American entertainment industry financially beholden to Chinese investors whose purpose and direction begins and ends with the CPC.
The entwining of Hollywood’s and the CPC’s dual fates, and so Hollywood’s complicity in pitching communist propaganda, will persist so long as China continues its aggressive courtship. 

An announced production and distribution partnership between China Film Co. and Paramount Pictures, as well as the $100 million establishment of a U.S.-China cooperative film fund by China Film Co., proves as much.
Is it even possible for the mission of Chinese film and television projects to diverge from the mission of the CPC? 

The evidence isn’t heartening.
China Film Co. is state-owned, meaning that the creative direction of Chinese filmmakers following, say, a $610 million share flotation, will be influenced by the CPC, as will the aforementioned partnership with Paramount. 

Who would believe that this influence doesn’t spill over into Hollywood, when it’s been said that La Peikang, the head of China Film, is the “man to whom Hollywood now goes [to], cap in hand”? Regarding television, the head of CCTV is also the television industry’s chief regulator.
Private companies should be wary of playing devil’s handmaiden to China’s communist propagandists. 

American social media has already proved itself willing to help China’s state apparatus surveil Chinese citizens. 

If the American film and television industry joined in this promiscuous courting of CPC largesse, the net effect might be too great to overcome. 

The CPC’s agitprop would echo across continents.