EXCLUSIVE: This is an important week for China, and Hollywood. October 18 kicks off the 19th National Congress of the Communist Party. There will be much fanfare, with an opening ceremony broadcast live on China Central Television. The Congress is meant to unveil new leadership and set a blueprint for national development for the next five years and beyond.
So, what’s at stake for Hollywood? First the negotiations on a new contract that would cover quota films has not really been able to move forward ahead of this event. That leaves the USTR working after all is settled to secure a new deal for the studios. That could include a rising of the quota floor, more flexibility on release dates and potentially a higher share of box office which is currently limited to 25%.
'Avengers: Endgame' China Presales Blast Off To Unprecedented Levels
China had a rotten year of growth at the box office in 2016. But the recent Golden Week saw a big hit in Never Say Die and other films — like Wolf Warrior 2 at $850M+ — have helped to spin the turnstiles to what looks like a better 2017.
Deadline has been told that personnel changes in terms of the Politburo, the Standing Committee of the Politburo and the Central Committee will be ones to watch. Further, per USC professor Stanley Rosen, we’re waiting to see “how Xi Jinping is designated. Everyone is waiting to see whether he is cited for his ‘theory,’ his ‘thought,’ or, far more likely, some variation to distinguish him from Mao (thought) and Deng (theory).”
“Xi Jinping’s going to be in his second five-year term. The question is what is how he will try to continue his influence after 2022. There’s no question that he’s trying to get of these other factions but there is a question of how successful will he will be. One of the way to judge that is who is on the Politburo (and committees).”
One thing is certain, today’s China in regards to Hollywood investment is vastly different from five years ago. There has been massive screen expansion but also announcements aplenty with little payoff. Some have attempted co-productions to varying degrees. Offshore investments have been halted. Most, but not all, U.S. movies do well.
The country itself has an ironclad hold on what films can come in and how they are presented. And yet, despite the handcuffs, it’s impossible to ignore a market of 1.4B people.
But this past year has been one of turmoil for Chinese investments in the U.S. entertainment industry and according to experts, it’s very hard to figure out where this is going to go next. “People in the Chinese media are looking at The Foreigner as a possible sign that more co-productions will be done. Because The Foreigner has been fairly successful.” It stars the beloved Chinese actor Jackie Chan.
One rumor that we know now is not true is that following the exit of Jack Gao as the interim CEO of Legendary yesterday is that Wanda got rid of the international staff from the Wanda Qingdao Movie Metropolis. We were told this is not the case.
Gao joined Legendary in 2015. His exit followed the exit of Chinese investors Oceanwide Holdings Co. and Zhejiang Huace Film & TV Co. It also comes after the news that China’s state banks were instructed not to lend to Wanda after their aggressive move to expand overseas.
So what about any more investment in the U.S.? “It’s very hard to take what we see going on in Politics and in economics in China and try to figure out what it might mean for investment in the U.S.,” said Rosen. “There’s no doubt he (Xi Jinping) wants to compete in entertainment and media and push Chinese culture all over the world in competition with Hollywood. In order to do that, you must work together with Hollywood at this point in the process. The stronger he is, the stronger he may be able to push China’s interest in terms of soft power, but it will be very hard to determine.”
But, as we wrote earlier this year, major Chinese entertainment investment into the U.S. on the scale of Legendary or Dick Clark Prods. has been halted and any money that is currently in U.S. banks right now for U.S. entertainment companies is all that anyone is getting. The Chinese government has put an end to state-owned banks giving out loans to companies that are not keeping their investments inside China.
In other words, unless the money is in the account now, that’s it. There have been tricklings of money let loose for options of material, but even smaller productions have had funds pulled by Wanda. We’ve been told repeatedly that dealing with U.S. bank syndicates or Hong Kong banks are the companies that are going to enjoy the financial stability at the moment.
“It’s very, very clear and you can see that with Jack Gao stepping down at Wanda now that their interest in investing money into entertainment is going to be extremely limited,” said Rosen. “The Legendary and Dick Clark type of investments are gone now. They don’t promote China in any positive way. They only seemed to be attempts to get money out of China and aggrandize those businessmen in China.”
China has been all about soft power, but even that right now, “is extremely limited, because despite their interests in soft power, there are other interests that are even more important,” said Rosen. “In the heirarchy of values in China, soft power is not as important as social and political stability and geo-strategic assertiveness of Chinese power in different parts of the world, retaliating in different countries when needed.”
One of the investments we are seeing by the Chinese government is into online giants. “There are many issues right now: One is vested interests in state-owned enterprises. The state is buying into all the online firms by taking a 1% stake which gives them a voice on the corporate boards of places like Tencent and Alibaba.”
And China is all about controlling the message and even the businessmen who they think become too public or too powerful as Wang Jianlin could attest to. The Chinese government basically cut him off at the knees with investments into the U.S.
“Wang Jianlin made an argument in talking to the West that he was a private company and was independent of the government, but that doesn’t seem to be the case. His argument in China was that the government shouldn’t regulate him very much because he could represent Chinese interests better than the Chinese government ,and he could stand up to Warner Bros. or any other U.S. company because he could negotiate as an equal as just another private enterprise,” said Rosen. “The billionaire businessmen in China are seen by the government as a potential threat and people who have to be controlled. They are cracking down on their investments. They even kidnapped a Chinese-Canadian businessman Jianhua Xiao in the middle of the night out of the Four Seasons Hotel in Hong Kong at the beginning of the year in 2017. The overriding issue to all of this is control and the state having a hand in all these private enterprises.”
The Chinese government will continue to flex its muscle over private enterprise. According to Rosen: “Alibaba, Jack Ma and all these guys have said that they are private companies and not married to the Chinese government, but I think what the Communist Party is doing is to make sure they have influence over every possible company.”
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