Hollywood-China Relationship Faces More Pressure as Chuck Schumer Calls on Trump to Block All Deals

Getty Images
Senator Chuck Schumer

The regulatory headwinds from Washington match a harsh crackdown by Beijing authorities on Chinese investment in Hollywood.

Senate Minority leader Chuck Schumer issued a call to President Donald Trump on Tuesday to block all major Chinese investment in the United States as a means of pressuring Beijing to do more to deter North Korea's nuclear missile program.

If enacted, the policy could mean an ever deeper freeze on Chinese capital flow into Hollywood, which has in recent years come to rely on financing from the world's second-largest entertainment market.

In a letter to Trump, Schumer, the ranking Democrat in the Senate, said the president should use his authority over the Committee on Foreign Investment in the United States, known as CFIUS, to hit Beijing with a suspension on "all mergers and acquisitions in the U.S. by Chinese entities."

"It is my assessment that China will not deter North Korea unless the United States exacts greater economic pressure on China," Schumer wrote. "The U.S. must send a clear message to China’s government."

CFIUS, run by the Treasury Department, usually reviews foreign acquisitions of U.S. companies on a case-by-case basis when national security interests could be at risk. Traditionally, foreign takeovers in areas such as essential infrastructure or aerospace have been the subject of CFIUS reviews. But beginning last year, both Schumer — a noted China hawk — and a group of Republican Congressmen began arguing that the organization's remit should be expanded to cover media and entertainment assets, particularly when Chinese entities are doing the buying.

The lawmakers suggested that American media entities could be at risk of being put to use to Chinese state propaganda interests. When raising the issue, both Schumer and the Republican lawmakers highlighted Chinese entertainment conglomerate Dalian Wanda Group, owner of AMC Entertainment, North America's largest cinema chain, as well as Burbank, Calif.-based film studio Legendary Entertainment. 

CFIUS already has objected to a historically high number of deals this year (in sectors mostly outside entertainment), perhaps reflecting the Trump administration's many vows to take a harder line on trade with China. But using the committee as a tool to punish China over a specific geopolitical priority would be a considerable departure from the body's usual purpose. Republican Senator John Cornyn, a member of the Senate Intelligence Committee, said Tuesday that he felt doing so would be inappropriate.

"That’s not specifically the purpose of CFIUS. CFIUS is a national security vehicle to try to make sure that high-tech investments by foreign countries don’t steal our cutting-edge technology," Cornyn said outside the Senate Tuesday.

Change could be coming to CFIUS regardless of who calls for it though. Last week, William Evanina, the top U.S. counterintelligence official, told Reuters that the Trump administration was already at work on a plan to amend and strengthen CFIUS. "I think it’s going to look a lot different than it does now," he said.

The increased U.S. scrutiny of Chinese dealmaking in Hollywood matches a tremendous uptick in regulatory pressure from Beijing. Chinese dealmakers announced a staggering $246 billion in outbound acquisitions last year, but Beijing's authorities have since slammed the breaks. In an effort to stem capital flight, which was seen as hurting China's currency, the government has instituted various measures to make it more difficult for acquirers to shift capital overseas. Chinese companies also have been under tremendous political pressure to reduce their leverage, as officials have grown increasingly concerned about debt-fueled deals for international media and sports assets, many of which they view as irrational and overpriced. 

The party's strict clampdown has sent chills through Chinese investor circles and sent tycoons scurrying to step in line. Dalian Wanda chairman Wang Jianlin, China's second-richest man, said last week that his conglomerate "will respond to the state’s call and has decided to keep its main investment within China."