In China Inc.’s biggest move yet into the U.S., Dalian Wanda, the largest entertainment group in China, yesterday announced a $2.6 billion purchase of AMC Entertainment Holdings, the second-largest operator of American movie theaters. The deal is much larger than the previous record for a U.S. purchase by a Chinese company, the $1.8 billion acquisition of IBM’s PC business by Lenovo (992:HK) in 2005.
The purchase might invigorate a campaign by the Chinese government to boost the country’s “soft power,” or cultural influence, in the U.S. and other countries. Communist Party leaders have expressed worry about what they consider to be the outsized influence of foreign culture inside China. Why, they ask, should filmmakers, musicians, and other artists from the world’s second-largest economy attract so little attention around the world? Last October, party leaders vowed to build up China’s soft power and maintain what the official Xinhua news agency called “cultural security.” According to Xinhua, the party’s Central Committee said “China is facing a difficult task in protecting ‘cultural security’ and feeling the urgency of enhancing its soft power and the international influence of its own culture.”
Taking control of AMC helps Wanda move closer to that government goal. But relax: You shouldn’t expect the multiplex at your nearby mall to take down The Avengers to show Chinese propaganda such as The Beginning of a Great Revival, last year’s government-approved celebration of the party’s 90th anniversary. China’s leaders aren’t naive enough to expect results overnight.
More likely, the AMC deal will provide a building block to develop China’s film industry, with Wanda using its American acquisition to gain expertise in operating the kind of large, nationwide cinema chains the nation needs. For all its growth, China remains far behind the U.S. in movie infrastructure. For instance, Wanda has only 86 locations in China, compared with AMC’s 346 in the U.S. The Chinese company can learn how AMC manages that kind of scale. And unlike the Lenovo-IBM deal, Wanda is unlikely to face challenges from critics worried about national security. “Movie theaters aren’t politically sensitive assets, so this deal probably won’t encounter as much regulatory oversight as others,” Ronald Wan, managing director at China Merchants Securities in Hong Kong, told Bloomberg News.
Some of Hollywood’s biggest names figure they can capitalize on China’s soft-power obsession. Eager to gain greater access to Chinese consumers, studios are making deals with local partners. In Shanghai, a barren stretch of land on the western bank of the Huangpu River now houses abandoned warehouses and large oil tanks. If all goes according to plan, the area will become a new cultural district, with theaters, clubs, and a studio that will be the home of Oriental DreamWorks, a joint venture DreamWorks Animation SKG formed in February with three government-backed companies, China Media Capital, Shanghai Alliance Investment, and Shanghai Media Group (SMG).
The DreamWorks deal is one of several recent breakthroughs for Hollywood in China. In February, at the end of Vice President Xi Jinping’s trip to the U.S., the Chinese government agreed to allow improved market access for Hollywood movies. The government also agreed last year to give the studios a bigger take of China’s $2.1 billion box office receipts—ranking third in the world, behind the U.S. and Japan. News Corp. this month bought a stake in Beijing-based Bona Film Group, a movie producer and distributor. In April, Disney teamed up with Tencent (700:HK), the giant Chinese gaming and instant messaging company, to develop animation content; Disney also announced plans to work with Beijing-based DMG Entertainment to co-produce the latest installment in Robert Downey Jr.’s series, Iron Man 3.
Hollywood’s goal is to gain greater access to Chinese consumers. China’s leaders, however, have another objective in mind. The riverfront area where DreamWorks will have its studio is also to include a special zone targeting international recording companies that can help make China’s music industry more global, says Bill Zang, an executive with Shanghai Synergy Culture & Entertainment Group, an SMG subsidiary. Zang, a Shanghai Synergy vice president, wants to make Chinese musicians more popular worldwide. “China is an economic superpower, China is a manufacturing superpower. But the international influence of China’s culture is very small,” says Zang. “We have a lot of good things that laowai [foreigners] don’t know about.”