China Crackdown Hitting Hollywood: Where Do China Investments Stand? – Deadline

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EXCLUSIVE: Chinese government leaders have placed tight restrictions on some of their biggest players who have been infusing money into film production, and Hollywood is now fearful of where the money may come from to finance its projects. At the center of the storm is Beijing-based real estate conglom Dalian Wanda Group, which purchased Legendary in 2016 in hopes of taking the company public on the Chinese stock market but wasn’t able to do so. Questions have now arisen about the long-term health of Legendary and all of Wanda’s business investments outside the U.S given that the government has blocked all future loans to its entertainment acquisitions.


AMC, owned by Dalian Wanda, took a beating in second quarter results today, with a 25% Q2 net loss ($178.5M to $174.5M), down from a $24M profit in the same time period last year. The exhibition giant also announced that they don’t see an upturn for the rest of the year. One analyst wondered whether the ahead-of-schedule announcement was related to a planned sale of National CineMedia shares or a sale of AMC shares by Wanda.

AMC was quick to point out last month that they have a syndicate of U.S. banks behind them without any financial guarantees or credit enhancements from Wanda and that they have “never received committed financing from any bank headquartered in mainland China for any purpose, including for acquisitions.”

Wanda, which had entered into a partnership with Sony and took a small percentage of Passengers and The Emoji Movie, we are told will likely no longer be doing any more of those deals after Emoji, but that deal will still include support of Sony’s films in China through Wanda’s vast network. There is a year left in that deal. Sony had no comment.

The Chinese government has put an end to state-owned banks giving out any more loans to companies that are not keeping their investments inside China. Wanda is not alone, we hear as it has also impacted Fosun (financier of Studio 8), Anbang Insurance Co. and also Hainan Airlines (among others), and sources tell us that more Chinese companies doing business outside of the country will also feel the heat in the next six months. In other words, it’s going to get worse before it gets better.

The experts who Deadline spoke with at the beginning of this year warned that this could happen (see story here).

Existing pacts which were already fully funded are not believed to be in peril. For instance, Wanda’s big $20M donation to the Academy of Motion Pictures Arts and Sciences which will name the U.S. film history wing as the “Wanda Wing” was already delivered and into the bank, according to the Academy.

As one dealmaker has cautioned us in the past, “There is no deal unless the money is in your account and you have sole discretion over it. Nothing. It doesn’t exist.”

Deadline was also told that Studio 8 is fully funded, and Fosun’s money as it relates to Studio 8 is already is in U.S. banks. It has White Boy Rick, scheduled for limited release on Dec. 22 and will go wide release on Jan. 26. Studio 8 also has Nosferatu in pre-production with Robert Eggers (The Witch) at the helm and Albert Hughes’ Apha readying for release on March 2, 2018.

Legendary has no money outside what it currently has in U.S. banks and those in the financial community are pointing to the downside of controlled cash flow issues, given China’s crackdown on Wanda. Despite the statement from Legendary saying everything is rosy, this is anything but “business as usual.” Legendary issued this statement last week: “Legendary is well capitalized with liquidity to fund its film & TV slates and operate its business as usual. Furthermore, Legendary has not been presented with any Chinese bank documents referenced by the recent press reports surrounding its parent, Wanda, and has not experienced any change in its relationship with Wanda.” They point to a $700M line of credit from JP Morgan and $580M in “cash investment.”

Here’s the issue, the line of credit goes through 2021 (which translates to $175M per year), which really was designed for use as film financing and is predicated on “a thin equity strip” so it may be prudent to do some sort of transaction and they definitely need to get their films to market. The concern in financial circles is that Legendary has a significant overhead (some 300 employees). Insiders, however, still maintain that they have enough cash.

In 2014, Legendary lost $346M; in 2015, it lost $560M. Wanda paid $3.5B for Legendary in 2016 with plans to turn it into a major studio.

The Great Wall cost roughly $250M and grossed only $331.9M worldwide. Kong: Skull Island cost roughly $185M and grossed $566.1M. Their next film doesn’t come out until next year: the big-budget Pacific Rim: Uprising, the first of which was a certified hit ($411M global), especially in Asian markets abroad. Other titles will be the Kong: Skull Island sequel, Skyscraper starring and produced by Dwayne ‘The Rock’ Johnson (which should do very well in China), Detective Pikachu based on the Pokemon IP and a reboot of Dune from Arrival‘s Denis Villeneuve.

Legendary also has a hand in two Universal films that it co-financed: Jurassic World 2 and Mortal Engines.

At Universal, Chinese company Perfect World has a long-term co-financing deal with Universal. At the time the deal was made, marked a first for a Chinese company investing in a studio slate. Perfect World has seen success from that deal with Fifty Shades Darker ($55M cost/$378.8M take), Jason Bourne ($120M cost/$415.4M take) and Girl’s Trip ($19M cost/$69.2M take).

Legendary is a different story though. “They allowed Wang Jianlin to build a company using publicly owned land and then make it private for the betterment of the Chinese people. The problem was that he took the government’s money and then began funneling it outside the country, including the very public purchase of Legendary,” said one China observer.

What we have been told that when Wang Jainlin purchased Legendary he did so with a ‘friend and family round’ (which was repaid in February). “He is thought of as an honorable man,” added another expert on China, who noted that the Chinese are using him as an example. “The first move (by the Chinese government) was to tell China’s main bank to constrain him.”


How tight are the constraints? We’ve heard unconfirmed reports that his travel to this country is now restricted; Legendary execs have not heard from him since all the bad news started flowing out of China. Attempts to reach Wanda execs in China were unsuccessful.

Wanda needs “to stabilize and reduce their exposure to debt and speak much more softly in terms of such things as driving Disney out of China, buying a Hollywood studio to promote China’s message to the world, etc.,” said USC Professor Stanley Rosen who specializes in China.

“China is trying to present a benign image of a peaceful rise, but Wang Jianlin is making China seem aggressive and that China’s rise will come at the expense of the U.S., at least in terms of cultural expansion. So the push into Hollywood has been put on hold, too much push back within China and in the U.S.,” he said.

“From the Hollywood standpoint,” said one producer, “people are realizing the money isn’t coming in, and they are starting to ask, where is the money now? Because they have to feed the beast and it appears money is drying up now.” Actually, more appropriately, it wasn’t really there to begin with.

For instance, one deal after another promised by the Chinese have fallen apart such as Dalian Wanda Group’s announced deal with Dick Clark Productions. “Money dealmaking with the Chinese is like walking through a house of mirrors,” said one person involved with the Chinese.

The $100M film Starfall announced last year in Wanda’s dog and pony show at LACMA is still moving forward, Deadline has been told. It doesn’t hurt that the Lionsgate, Dede Nickerson (Infinity Pictures) film from Di Bonaventura Pictures will be shot in at Wanda’s Qingdao Studios where and will be also be employing local Chinese. The film is co-financed by Lionsgate, Wanda and Infinity Pictures, which is a China Media Capital-backed company.

The H Collective is another company with backing from the Chinese, specifically controversial exec Jian-hua “Kenny” Huang which put this together (HuaHua). They intend to make several projects from Sid Ganis and Nancy Hult Ganis, producer Mark Johnson and the producer team of Joe Roth and Jeff Kirschenbaum. One of those projects will be a yet untitled xXx sequel, the fourth installment of the action film franchise originally created by Revolution Studios. H Collective is still in its infancy and so far there has been no word from the Chinese about any cash flow constraints.


At Paramount and Viacom, where they are banking on the HuaHua money, they are still under the impression that the investment is coming. This, even though Orient Times Media which has a 51% controlling interest in HuaHua Media just saw its stock price drop 36.7%, according to reports in China. That has brought up some questions about the valuation of HuaHua Media in recent days and also whether HuaHua and Shanghai Films can transfer that much money ($1B) into the U.S. market given the Chinese government restrictions. There has been no word on that so far.

Meanwhile, China remains a vast and growing box office holy grail — and that will keep Hollywood looking for ways to do business there. The United States Trade Representative is currently negotiating hoped-for better terms for the studios in the Middle Kingdom (it remains to be seen if the Trump administration’s reportedly planned investigation into China’s trade practices will have an impact here).

One positive result of the controlled cash outflow — which some see as a warning from the Chinese powers that be that no company should ever think itself bigger than the Party — may have sort of a grounding effect. China watchers expect far fewer mega-deal announcements, many of which, as noted, weren’t capitalized to begin with. They’ll be “more real,” one person says. In the first six months of 2017, outbound investment dropped 42.9% to $49.4B, China’s Vice Minister of Commerce said earlier this week.

As one China watcher says, “With no alternatives for risk tolerant investors on the horizon ready to put money into the traditional film studio business model, Hollywood will be forced to take every overture from China seriously.”

Wanda troubles doesn’t mean that Chinese money is not flowing into Hollywood, as some companies are still funding, but it is certainly has become a great source of fear and uncertainty. Stay tuned.

Nancy Tartaglione contributed to this report.