New Chinese laws could put Wanda’s Hollywood dreams on hold

Global Business

FILE – In this Tuesday, Jan. 12, 2016, file photo, a man and his son walk out from the Wanda Cinema at the Wanda Group building in Beijing. The U.S. cinema chain AMC has tried to reassure financial markets it is unaffected by its Chinese parent’s debts, saying the American unit never has relied on Wanda Group for financing. (AP Photo/Andy Wong)

Dalian Wanda’s hopes to become a major Hollywood player may have to be put on hold.

A change to the laws in China are preventing huge sums of money from being lent to its owner to fund his expansion plans. It could mean plans for some big deals may fall apart.

CGTN’s Phil Lavelle reports.

 UCLA economist William Yu explains the word “Capital Flight” as “When a country sees a huge amount of money flowing out in a short period of time, we call it capital flight.”

Yu’s explanation is the short version. The long take is that China is worried about too much money leaving. Authorities, now banning banks from lending Wanda’s owner the cash to buy big overseas companies.

“If the source is coming from the investor’s equity, it should be encouraged. There should be no problem. But if the source is coming from the banks, from the borrowed money, I think it will raise legitimate concerns, because if the investment goes sour, not only investors get punished, the whole financial market will also get affected by this bad investment,” Yu said.

Wanda’s purchase of the Golden Globes producer, Dick Clark Productions, was blocked a few months ago. And now, other deals which were already in the making – like the acquisition of big Hollywood movie producer, Legendary Entertainment and the U.S. – wide AMC Theaters could also be threatened.

“The entertainment industry is a really volatile industry,”  entertainment industry expert Kathryn Arnold said.

“I think the Chinese Government also has something to gain if they stay in,” Arnold said. “I think we’re just going to have to be more creative in terms of the size of investments that are at the range where the Chinese government is able to swallow it.”

According to reports in the Wall Street Journal and elsewhere, the rules are being applied retroactively. There could be much less Chinese cash invested here starting now.

Can the entertainment industry cope if this happens? Entertainment lawyer of Hogan Lovells Stacey Rosenberg gives a positive answer.

“Total Chinese investment in the Hollywood entertainment industry is only at about 5 percent so it’s not the end of the world,” Rosenberg said. “But there’s been a massive amount of Chinese investment into Hollywood over the last few years. So it’s probably not helpful. But it’s not going to be the end of the world.”

Ronald Wan explains the recent issues in Chinese conglomerate Dalian Wanda Group

CGTN’s Rachelle Akuffo spoke with Ronald Wan, chief executive of partners for Capital International about recent troubles of Chinese conglomerate Dalian Wanda Group.