US-China Tensions and the Entertainment Industry
- Rep. Mike Gallagher (R-WI) and other members of the House Select Committee on China will meet top US entertainment CEOs this week in California to talk China. They plan to dig into issues around Chinese Communist Party (CCP) influence on and Chinese investment in corporate decision making, particularly where it comes to US values like censorship.
- China still institutes foreign film import quotas. In the past, some firms have adjusted content that may be deemed sensitive to gain access to the market but faced repercussions in the US for being perceived as submitting to Chinese censorship. There has also been a concern that Chinese financing in the US entertainment industry is impacting content for the global market.
- High-profile members of the US entertainment industry have been challenged by Republicans for advocating liberal values in the United States while not upholding the same principals in China.
- This comes as US-China geopolitical tensions are particularly high – Taiwan’s President Tsai Ing-wen will also be in California on her way back from Central America and plans to meet with Speaker of the House Kevin McCarthy and Rep. Gallagher.
Since the launch of the “House Select Committee on Strategic Competition between the US and the Chinese Communist Party (CCP),” Speaker McCarthy and Chair Rep. Mike Gallagher have had the entertainment industry in the crosshairs. The committee will focus on technology, national security, human rights, and Taiwan, but with the Presidential campaign season kicking-off, House Republicans are positioning themselves against “corporate wokeism.”
The entertainment industry, they note, faces particular reputational risk of being charged with “selling out US values for profit” in China. Even before the Committee was officially launched, Gallagher singled out Disney for its “wokeism” and the NBA for a series of issues, including not standing by comments made in support of Hong Kong protestors.
Instead of a hearing, Gallagher is leading a bipartisan group of lawmakers to California to meet with top entertainment executives to discuss their China operations and market access considerations – like if the Chinese government required content changes. The trip coincides with McCarthy’s meeting with Taiwan President Tsai Ing-wen – the first meeting between a US House Speaker and Taiwan President on US soil, and one the Chinese government has warned strongly against. Gallagher is also expected to meet her.
Against this backdrop with all eyes on California, the entertainment sector must navigate reputational risk in the US, market access considerations in China, as well as Chinese investment in the entertainment sector.
What Does It Mean
The reputational risk could be significant. The House Select Committee on China does not have legislative authority, but Gallagher plans to leverage the committee’s subpoena power to require testimony from executives. The Committee’s first hearing in February made clear that while national security and high-technology issues will be its primary focus, there will continue to be attention on Hollywood and sectors that are perceived to act differently in the US and China. The California meetings will be closed door and provide executives an opportunity to explain their business and build relations with Gallagher, a thoughtful lawmaker by all accounts. But this sector will continue to be scrutinized, and the risk of a future public hearing and being charged with not upholding US values will remain.
If they can agree, Congress could legislate. The Committee’s goal is to build consensus among committees of jurisdiction to pass legislation on priority issues – including proposals that have a chance in the Democratically controlled Senate, though that is an open question. Still, must-pass annual spending and appropriations bills have become must-watch vehicles for China policy. The 2023 National Defense Appropriations Act (NDAA) contained a provision conditioning US government funding on any project that modifies content at the direction of the Chinese government or seeks pre-approval of content from any Chinese government entity. Ideas like this could be expanded.
The entertainment sector has been caught in political crosshairs before. A boom in Chinese inbound investment in the 2010s – beginning with the USD 2.5 billion acquisition of AMC Theatres by China’s Wanda in 2012 – stoked US policymaker concerns on Chinese soft power and influence. In 2016, a bipartisan group of lawmakers called for increased scrutiny of Chinese investment in the US entertainment industry and specifically flagged the Wanda-AMC deal. Ultimately, Congress passed legislation expanding the jurisdiction of national security reviews on certain inbound investments.
Why Does It Matter
China is a significant market opportunity. China is reopening to the international community after three years of strict Covid controls and getting the economy back on track is the number one policy priority. Stimulating consumer spending – a long-term structural challenge – will be critical for economic recovery. It also represents an opportunity for the film industry, with an estimated double the number of screens of the United States, as well as for the broader entertainment industry. For example, China is the largest single-country eSports market in the world, with an approximate market value of RMB 167.3 billion (USD 24.7 billion) – one-third of the global eSports market.
The US film and entertainment industry has already experienced a de facto ban in China during heightened bilateral trade tensions in 2019. But there were early signs US entertainment would be welcomed back to the Chinese market. In early February, China greenlighted the release of two of Disney’s latest Marvel movies for release and – significantly – allowed the Chinese release of Avatar: The Way of Water on the same day the film was made available globally in December 2022. Later in February, we saw the balloon incident send relations spiraling to a new low, which will likely impact future movie approvals.
Where Is It Going
As tensions continue, companies operating in both the US and China should expect continued scrutiny from lawmakers. What companies do and say around China does not exist in a vacuum and is scrutinized by both the Chinese government and US lawmakers. US entertainment companies need to carefully balance dynamics in the US and China to mitigate reputational risk and protect their license to operate and grow in both markets.
Beyond national security and high-tech adjacent industries, companies that reflect US values, or are considered to influence American public opinion, are at high risk for being called out. Fundamentally, this Administration has called upon US businesses to uphold American values in their activities overseas. The House Select Committee is just getting underway and has only hosted two hearings – more will come as it continues to hone its focus and priorities over the next two years.
As tensions simmer, companies remain at risk of being caught in the tit-for-tat cycle of trade, economic and political actions on both sides. How the US and Chinese governments navigate developments – and the President Tsai-McCarthy meeting in particular – will be critical for companies to watch.
Want to know more about US-China tensions and the entertainment industry? Contact Chynna.Hawes@EdelmanEGA.com for our deeper dive on the issue.