While some feared the collapse last week of Dalian Wanda Group’s $1 billion acquisition of Dick Clark Productions could signal the end of China’s Hollywood love story, industry experts said a growing spate of failed deals is likely just a bump on the road to a happy ending.

The reason for the breakdown has little to do with business concerns or creative conflicts between Hollywood and China’s own soaring production industry, said insiders, but a lot to do with that country’s clampdown on overseas investment that began in November.

“I would not bet against the China-Hollywood partnership,” said Lindsay Conner, partner and co-chair of the entertainment and media group at West L.A.’s Manatt Phelps & Phillips, who has represented several Chinese companies in negotiations with local entertainment studios. “There are compelling reasons for both sides to expand.”

Z. John Zhang, a professor of marketing and director of the China Center at the University of Pennsylvania’s Wharton School, agreed that the future of Hollywood-China partnerships is not in any real danger.

“I think it’s more postponed than canceled,” Zhang said. “The appetite for Hollywood companies will not go away.”

Dalian Wanda, chaired by Wang Jianlin, has joined a growing list of Chinese companies whose Hollywood deals have fallen apart in recent months. Chinese copper processing company Anhui Xinke New Materials announced in November that it would buy 80 percent of Voltage Pictures, producer of “The Hurt Locker” and “Dallas Buyers Club,” among others, for a reported $345 million, but that deal collapsed a month later with Anhui Xinke reportedly alleging that Voltage had failed to provide adequate documentation to Chinese regulators.

Viacom Inc.’s Paramount Pictures Corp. also has yet to receive the first payment from an announced $1 billion deal with Chinese partners Shanghai Group and Hua Hua Media to co-finance movies for the next three years, according to The Hollywood Reporter.

‘Blind and irrational’

While Dalian Wanda and Paramount declined to comment on the situations, industry watchers said the deals are falling apart largely because of the China’s mandate to slow down and restrict the outflow of capital to overseas investments. China reportedly struck a record $225 billion in deals to acquire companies abroad last year.

The restrictions came into sharper focus the day after Dick Clark’s parent company, Eldridge Industries, announced the termination of the deal between one of its affiliates and the Chinese conglomerate.

Zhong Shan, China’s minister of commerce, decried the overseas deals as “blind and irrational investment” in a March 12 New York Times story, noting the country’s officials planned to intensify supervision of some companies.

The crackdown is tied to fluctuations in China’s currency, said Dan Chen, managing director of Santa Monica’s Siemer & Associates, an advisory firm focusing on the media and technology sectors. Siemer was acquired by China-based investment firm CEC Capital Group in October.

“What has happened is, particularly toward the end of last year, there had just been an enormous amount of capital outflow from China to other parts of the world and that ended up driving the yuan to quite a low level,” Chen said. “I don’t think it’s (the Chinese government’s) will to impose currency restrictions ad infinitum.”

Wharton’s Zhang said restrictions could soften when the currency depreciation pressure eases and the level of China’s foreign reserves stabilizes. A guess on how long that might take depends on whether you are an optimist or a pessimist, according to Zhang, though he believes Chinese investment in U.S. companies, including those in Hollywood, could begin to increase by the end of the year, when President Donald Trump’s tax policies are finalized.

“Right now, he is more focused on Obamacare,” he said.

Road to restriction

Government restrictions on foreign investment initially targeted wealthy individuals buying up homes, Siemer’s Chen said.

“I think (we) understand the phenomenon here in L.A., where that marginal buyer has typically been Chinese,” he said. “You’ve heard stories about them bringing in suitcases of cash. … Unfortunately, it’s really true.”

The Chinese government began restricting the amount of individual wire transfers from bank accounts in China to the United States last year, according to Chen. In order to get around the restrictions, Chinese investors “began using their companies to buy up assets in the U.S., some legitimate and some not so legitimate, as a way to transfer assets abroad.”

That practice has in part led to the more recent tightening of government restrictions, Chen continued, noting that transactions of more than $1 billion face increased scrutiny. In the case of transactions by government entities such as state-owned Shanghai Group, the oversight is even tougher, with deals of $500 million raising red flags.

China’s government is also concerned about Chinese firms purchasing businesses in different sectors, Chen said, highlighting Anhui Xinke’s failed attempt to purchase Voltage as a prime example.

The acquisition of Golden Globes producer Dick Clark would have marked the first foray into the TV business for Dalian Wanda, which owns movie theaters, commercial properties, and worldwide luxury hotels, including the One Beverly Hills hotel and condo development expected to break ground this summer. The company also acquired “Kong: Skull Island” producer Legendary Entertainment in early 2016 for a reported $3.5 billion.

The deals for Legendary and One Beverly Hills were consummated before the crackdown, as were those for a number of other Chinese-backed real estate developments in Los Angeles.

Manatt’s Conner said panic over China’s relationship with Hollywood has been overblown because the collaborations are too valuable to both sides for them not to continue. Hollywood wants access to Chinese capital along with the ability to co-produce films in that country, he noted, calling China the fastest-growing box-office market in the world – one that will someday eclipse the United States as No. 1.

Chinese investors, he added, are not content to invest in U.S. productions. Instead, they want to acquire and invest in Hollywood entertainment companies, a strategy that gives China a seat at the table where they can learn the global entertainment business and gain strategic knowledge on how to produce more sophisticated film fare at home.

“They are committed to the journey,” he said.

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