What a difference 60 days makes.
Two US$1 billion China-Hollywood deals have fallen through in just in the month of March, thanks to new capital controls that are choking both deal flow and the outflow of foreign currency from China.
In late January, China Film Insider reported that Huahua Media and Shanghai Film Group (SFG) were planning to invest $1 billion in Paramount Pictures, in a move that Huahua stated was not a precursor to an acquisition of the Hollywood studio. Fewer than two months later, the deal is off, according to The New York Post, which cited sources on Sunday that referred to the potential cash infusion as “DOA [dead on arrival]” and “dead,” respectively.
“Our vision for the company is to bring the best filmmaking to China, and we often look to Hollywood and other foreign film markets. We found a great partner in Paramount and we are massively interested in their titles and their upcoming slate. So it’s a very big cultural interest [for us],” Huahua Media CEO Wang Kefei told China Film Insider in a telephone interview in January.
This comes less than a month after Dalian Wanda Group’s own planned 10-figure takeover of Dick Clark Productions also failed to be completed.
So quickly has the environment changed from the end of 2016, when the Dick Clark deal, a proposed purchase of The Hurt Locker producer Voltage Pictures for $350 million, and the February announcement that Shenzhen-based Recon Holdings would buy The Expendables producer Millennium Films for $100 million. As of now, only the last deal still appears to be going through, although the collapse of the other deals casts doubt on that transaction.
China’s regulators are trying to stem the flow of $750 billion that left the country last year to purchase private and corporate assets overseas. Although these regulations have been on the books for some time, a Chinese company wishing to make an overseas acquisition must either a) get the Hollywood side of the deal to accept RMB, which they won’t; b) pay directly in US dollars that the company has earned elsewhere in its business; or c) apply to China’s foreign currency regulators, the State Administration of Foreign Exchange, to convert the necessary RMB into dollars. Those applications are not being approved.
“Some people [invested offshore] blindly and were in a rush to do so,” China’s central bank governor Zhou Xiaochuan said during the National People’s Congress earlier this month. “Some of this outbound investment was not in line with our own policies and had no real gain for China.”
Huahua and SFG are missing out on participating in a slate that includes the hit xXx: The Return of Xander Cage and the upcoming Transformers: The Last Knight. The 2014 installment of the exploding robot series, Transformers: Age of Extinction, went on to become China’s highest-grossing movie ever, for a time.
Neither Paramount nor either of the Chinese entities have commented publicly about the status of the agreement.