Superpower Cold War To Have Chilling Effect on China-U.S. Entertainment Business

Patrick Frater and Rebecca Davis

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The East-West tussle between efficient authoritarianism and the wealthy but decaying democratic-capitalist model has seen blood spilled daily on the streets of Hong Kong — even more so now that coronavirus is on the wane and social distancing is being relaxed.

For that reason, there was a palpable sigh of relief from stock markets in Asia on Monday when the clash between global superpowers China and the U.S. did not turn any nastier over the weekend.

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Hong Kong’s Hang Seng Index bounced back up by more than 3% — likely because Donald Trump’s punishment of China for directly injecting a controversial national security law into Hong Kong’s mini constitution turned out to be so tame.

Earlier last week, U.S. Secretary of State Mike Pompeo had certified to Congress that Hong Kong is no longer autonomous, and that China is now in breach of a 50-year agreement that isn’t supposed to expire until 2047. Trump merely promised to sanction a few individuals involved in making the Hong Kong legislation happen. Then he retreated to a bunker beneath the White House, where he sheltered from America’s own street-level conflagration, sparked by the death of George Floyd in Minneapolis.

Yet while the president’s cool shrug at the Hong Kong proxy war may have been a case of conflict averted, there is still a growing list of reasons why the temperature of relations between the U.S. and China is at a new low.

Grievances include: a coronavirus blame game; tussles over Huawei CFO Meng Wanzhou, whose extradition case was pushed forward last week; security and territorial disputes in the South China Sea; a U.S. pushback against Chinese technology prowess, in which Huawei and TikTok are only the tip of the iceberg; a recent tit-for-tat expulsion of journalists; a threat to bar Chinese companies with different auditing standards from U.S. stock exchanges; and a Phase One trade deal that looks destined never to be followed by a Phase Two.

Now, the succession of chills is freezing up business in the entertainment sector, too. “The entertainment industry is on edge,” says Steve Chicorel, a U.S. producer plowing a lonely East-West track from his adopted base in Taiwan.

“(Politics is) very much at the forefront of how people do business” right now, adds Max Michael, head of Asian business development at talent agency UTA. “In the long term, this does nothing, but in the short term, it ruins everything.”

Very few U.S. films have been shot in China in the past two or three years, other than “The Farewell” in 2018 and “Pacific Rim 2” in 2017, and bilateral co-productions have dried up.

“I’ve got a couple of things brewing. No American projects. They are all China-funded projects that might involve foreign crew,” says Aaron Shershow, a veteran producer and line producer with 20 years of experience making films in China. In the near term, travel restrictions mean that Chinese films are being made without contributions from top-of-the-line foreign craftspeople.

“It’s too soon to say if it’s because of political problems, or just the trend that’s been going for the last couple of years. For a lot of reasons, it’s become more difficult to shoot in China: the economics, the censorship, the disengagement between the two industries,” Shershow adds.

Some industry players reckon that U.S.-China co-productions will be essentially non-existent for the next 18 months, with many Chinese firms adopting a wait-and-see attitude at least through the U.S. presidential elections in November, and then likely again through 2021, when the China market will be an even tougher egg to crack.

Next year will mark the 100th anniversary of the ruling Communist Party. It will inevitably be accompanied by a surge in censorship, restrictions on foreign content from countries in the party’s bad books, and laudatory, propagandist films unlikely to find any audiences beyond China’s own borders.

The growing ice wall has the potential to freeze entertainment relations as they currently stand or, worse, to split the entertainment industry apart.

But even the stasis options represent disappointment for Hollywood.

After two years of negotiations and an agreement in sight, the bilateral U.S.-China Film Agreement got caught up in the 2018-19 trade war. The deal on the table is understood to significantly increase Hollywood studios’ share of China box office takings. Not getting it finished is thus money left on the table — or would be, if Chinese cinemas were not currently closed.

With the current chill, the prospect of the agreement being signed this side of the U.S. presidential election this fall looks slim. This may come as no surprise, but more disappointing is that the day-to-day media business relationship is also coming undone. “The back channels are freezing up, too,” a diplomatic source tells Variety.

And as China develops its own business and political models, with coronavirus now in the rear-view mirror, the landscape looks increasingly hostile to Western media and entertainment.

“Given the Chinese government’s pivot towards mass surveillance and increasing control over its population, I cannot envisage Western media ever having unfettered access to the Chinese market. It will continue to be done under China’s rules, or not at all,” says Jeffrey Halley, senior market analyst for Asia Pacific at finance firm OANDA.

But even if an outright split can be avoided, the fractures caused by the Chinese glacier rubbing up against an American rock may give rise to some unexpected consequences.

Shershow says his time in China has included the 2001 U.S. spy plane crash in Hainan, the 2003 SARS epidemic and the 2008-09 financial crisis. Each time, the industry bounced back. “These bad things happen, but then they’re often followed by a period of openness and acceptance,” he says.

Halley sees Hong Kong as a perverse and potential beneficiary of the two superpowers’ inability to talk directly. “Chinese corporations have been more interested in capital-raising via Hong Kong of late. The present hiccups aside, I expect that trend to increase,” he says, noting, “There is plenty of money on the sidelines in Asia that will willingly fund world-class China companies’ requirements.”

And UTA’s Michael sees Hollywood’s interest being channeled towards South Korea instead — a consequence of the eye-opening “Parasite” effect and the fact that Korea is currently one of the few places in the world where production has already restarted post-coronavirus.

“We’ve seen a lot of business, producers and executives looking towards Korea [and its] treasure trove of content creators and talent, in addition to the strong theatrical and streaming audiences,” says Michael. “I think China’s likely going to be a little jealous.”

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