As reported in the Hollywood Reporter, two major Sino-American entertainment deals recently collapsed (or threatened to do so) due to recent changes in Chinese law and policy.
These failed deals included (i) a billion-dollar investment in American film studio Paramount Pictures by China’s Shanghai Film Group and Huahua Media; and (ii) a billion-dollar buyout of American television studio Dick Clark Productions by the China’s Dalian Wanda Group.
New Chinese restrictions on capital outflows
Since November 2016, China has increasingly restricted large-scale investments in foreign companies, including the sort that have dominated entertainment news in recent years, and now there is a virtual freeze on any large-scale capital outflow.
This freeze resulted in Paramount Pictures failing to receive the first payment of its billion-dollar financing deal with Shanghai Film Group and Huahua Media; and in Dick Clark Productions’ owner calling off its proposed buyout by Dalian Wanda Group and suing to recover a $25 million breakup fee.
New American restrictions on Chinese investments
Also in November 2016, the America’s U.S.-China Economic and Security Review Commission (USCC) released its 553-page annual report to Congress, and included the recommendation that “Congress amend the statute authorizing the Committee on Foreign Investment in the United States to bar Chinese state-owned enterprises from acquiring or otherwise gaining effective control of U.S. companies.” This recommendation, although only advisory, would effect an across-the-board ban on any purchases of U.S. companies that resulted in Chinese state-owned enterprise (SOE) control.
In other words, Sino-American entertainment deals will likely face an uphill battle from both Chinese and American regulations.
Chinese restrictions on foreign films
In addition to investment restrictions, Hollywood faces continued restrictions on the number of films it can import on a revenue-sharing basis. As reported by Variety, last month the United States and China begin to renegotiate the formal trade agreement that governs relations between the countries’ film industries.
For more than a few years, Hollywood’s six major studios have looked to China as a quick fix for its flat revenues. However, China’s government does not want more American films, as it seeks to promote China’s domestic film industry. China’s current foreign film quota allows only 34 titles per year, although in 2016 Chinese government regulators actually allowed the import of 40 Hollywood titles on revenue-sharing terms (without acknowledging any deviation from past practice).