The Chairman of China’s Dalian Wanda Group, Wang Jianlin, has made no secret of his ambition to buy a major Hollywood studio. Horrors! What next? Will we have China controlling the green-lighting of Hollywood films? What will happen to the inscrutable karate-chopping Oriental bad guys? (Who will play the role of heavies?) No more films on Tibet? If all that sounds like a stretch, consider this. Eighteen members of the US Congress have raised concerns about investment in Hollywood by Dalian Wanda, a major Chinese conglomerate that has already acquired AMC Cinemas and Legendary Pictures.
The Congressmen would like to see acquisitions of US entertainment companies reviewed by the Committee on Foreign Investment in the United States (CFIUS), a little known investment review entity that falls under the US Treasury Department and which is mandated to review foreign investment in the US on national security grounds. (Only acquisitions leading to majority control by foreign investors are subject to review). The Congressmen have written to the US Government Accountability Office (GAO) to request that CFIUS’ mandate be reviewed to determine whether it has the necessary tools to be able to review foreign investment (from China) from a “strategic threat” perspective rather than simply as an overt national security threat, and whether the definition of national security should be broadened to include the exerting of “propaganda control on American media”. The GAO has agreed to undertake a review.
Wanda, originally a real-estate development company in China, has deep pockets and big ambitions. After trying to acquire a major stake in Paramount, Wanda has for now accepted a consolation prize by announcing a strategic partnership with Sony. Wanda will invest in and co-produce a number of films with Sony, many of them for the Chinese market, where it owns the largest chain of cinemas in the country (as well as Hoyts in Australia). Wanda is also embarking on a major rollout of up to fifteen theme parks in China, in competition with Disney. As I discussed in an earlier blog, Chairman Wang has threatened to devour and crush Disney’s Shanghai investment, but the Mouse House has international credibility and plenty of experience to sustain itself.
While it is a doubtful proposition that a private company like Wanda is interested in anything other than increasing its earnings and enhancing its bottom line, there is a generalized suspicion of Chinese companies in the West because of the close links that many have to the Chinese state apparatus, even if they are not State Owned Enterprises. The unease about Chinese investment echoes in many ways the attitude toward Japanese investment in the 1980s. A comparison to the visceral reaction that occurred when Sony purchased Columbia Pictures in 1989 is instructive. The Chicago Times at the time reported that 54 percent of Americans believed that Japan’s economic power and unfair trade practices were a greater threat to the US than the military power of the Soviet Union. Members of Congress called for an investigation of the Sony takeover by the attorney general saying they feared Sony would use Columbia Pictures as a propaganda tool at a time when US -Japan relations were strained over a chronic trade deficit the United States was running with Japan. Sound familiar?
Columbia hardly became an instrument of Japanese propaganda, (although Sony lost a lot of money). Now Sony-Columbia is a well-established part of the Hollywood studio scene. Hollywood needs regular infusions of capital and many argue that investments from China are a logical next step as China’s film market (now the world’s second largest box office by revenues) continues to expand and develop. However, it is worth noting that China maintains restrictions on foreign investment into its film sector, and imposes a range of controls and quotas on foreign content. That double-standard is one argument that critics use to urge greater oversight of Chinese investment, along with the allegation that control of a studio by a Chinese company could subject Americans to foreign propaganda.
Most, if not all, countries maintain restrictions on foreign investment in parts of their media infrastructure. In the US, there is a 25% cap on foreign investment in broadcasting networks and stations (both television and radio) although this is under review, and the FCC has made recent case-by-case exceptions. This restriction, which dates back to the 1930s, is security-related and based on the fact that broadcasting is part of the critical national infrastructure. In addition, broadcasting uses a limited public asset in the form of spectrum. Some other countries (Canada is an example) also restrict foreign ownership of domestic publishing, both books and magazines. This is justified on the basis of cultural rather than national security policy however. The US hardly needs protection for its cultural industries, which are a major export that generates both considerable earnings abroad as well as global cultural influence. To argue that the acquisition of a Hollywood film studio by Chinese capital will put US values and national security in jeopardy seems like a major over-reach.
The situation is different in China though, where there is still paranoia that “western values” (whatever they are) are infiltrating the Chinese psyche through the Trojan horse of film, publishing and television. Recently the broadcast and publishing regulator in China promulgated new rules prohibiting promotion of “western lifestyles” or “poking fun at Chinese values” in the Chinese news media. China is not a democracy and control of content is still regarded very much as an instrument of state power. Thankfully government in the US and other western democracies plays a very different role.
It is true that when Wanda operates in China, it follows the rules of the Chinese regulator but so too do US studios if they want to exhibit their product in the Chinese market. Among the restrictions US studios face is a government owned duopoly that controls both the importation and distribution of films, in the process tilting the playing field in favour of Chinese productions. Why do the studios put up with this? The reason is simple; that is the price they pay to be able to access the lucrative Chinese film market. Making a profit, or creating value for shareholders, is a powerful motivating factor. It is equally true that when Wanda operates in the US, it follows US rules. Wanda, like Hollywood, wants to earn a return on its investments and it is highly unlikely to do anything in its US operations that would undermine that goal, assuming it was able to acquire a major US studio. (If it did, it would run into anti-trust issues given its current ownership of AMC cinemas, but that is another story).
Still, the situation with regard to China in 2016 is not quite the same as with Japan in 1989. Japan was and is a political ally; China is seen by some as a political and military threat. The role of the Chinese government in regulating content for its own people is far more intrusive than it has ever been in modern Japan. And, of course, the US election has put China in the spotlight. All this seems to indicate that, rational or not, we can expect to see more political scrutiny in the US of Wanda’s aspirations in Hollywood.
© Hugh Stephens 2016. All Rights Reserved.