One banker's take on the China-Hollywood relationship

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Despite Chinese investment in Hollywood going from boom to bust, bank president Dominic Ng insists there are still numerous reasons why Hollywood and China’s film industry will continue working closely.

“The fundamentals continue to support greater cooperation between Chinese and US entertainment companies,” Ng, chairman of East West Bank told CGTN Digital. “US businesses can still benefit from collaboration with Chinese investors in the current environment if they know the right approach.”

Dominic Ng, Chairman and CEO of East West Bank. /East West Bank

East West Bank has been involved in most of the major China-Hollywood transactions over the past five years.

Deal flow has fallen from some 5 billion US dollars in 2016 to less than 500 million US dollars in 2017. And there have been no major acquisitions since February.

Film-related direct investment has been particularly impacted, dropping by 4.6 billion US dollars from 2016 so far in 2017. Several high profile deals have collapsed in the last year, including Anhui Xinke’s 345 million US dollar purchase of Voltage Pictures, Wanda’s 1 billion US dollar purchase of Dick Clark Productions, and Recon Holdings’ 100 million US dollar deal for Millennium Films.

The "iconic "Hollywood" sign overlooking Southern California's film-and-television hub in the Hollywood Hills of Los Angeles, California, US. / Reuters‍

Why did Chinese entertainment investments drop?

It has become very difficult for buyers to obtain Chinese authorities’ approval for overseas entertainment purchases. In August the State Council announced plans to limit domestic companies’ investments abroad in entertainment, sports, property and other fields, following a string of multibillion-dollar acquisitions, citing concerns that companies involved may be taking on too much debt.

With this new reality unfolding for both the Chinese and US entertainment industries, investments came to a screeching halt. But Ng told CGTN Digital that does not have to be the case.

“I remain optimistic about US-China cooperation in film and other entertainment sectors. For one, macroeconomic headwinds have already calmed and will eventually abate,” he said. “China’s external macroeconomic environment has improved in the first half of 2017. Capital outflows have stabilized, and Beijing is no longer seeing tens of billions of dollars leave its shores each month.”

French director Luc Besson waves as he walks the red carpet with Russian director Fyodor Bondarchuk and Chinese actor Zhou Xun during the Beijing International Film Festival, April 16, 2015. / Reuters

Despite curbing overseas investment projects, Beijing encourages international cooperation in such cultural fields like film and television as part of the Belt and Road Initiative.

Belt and Road Initiative film and television efforts:

China has signed agreements on film and television deals with 15 countries and regions along the Belt and Road route.

“The Chinese government has clarified that it will continue to support overseas direct investments that strengthen investors’ core capabilities, “ Ng told CGTN Digital.

Jackie Chan (L) and US actor John Cusack (R) arrive at the red carpet of Shanghai International Film Festival opening ceremony in Shanghai, June 14, 2014. / AFP

He said Beijing is aware that overseas presences are critical for Chinese companies to compete globally, and current regulations are mostly geared toward suppressing speculative and irrational deals.

“The commercial rationale for Chinese engagement in the American entertainment industry remains as strong as ever,” Ng said.

PriceWaterhouseCoopers projects that China’s Entertainment and Media sector will grow from 186 billion dollars in 2016 to 258 billion dollars by 2020, with cinema being the fastest-growing segment. PwC's analyst said that looking at the supply side, the United States remains the unrivaled global champion in producing high-quality entertainment content. Ninety-nine of the top 100 worldwide grossing films of all time are American.

Ng agreed: “Serving the growth in Chinese entertainment demand with a supply of high-quality US content and experience is a no-brainer for any Chinese investor.”