Leading Chinese Film Studio Huayi Brothers Forges Deeper Ties to Communist Regime
President of the Huayi Brothers Media Group Wang Zhonglei (C) attends the inauguration “Jurade of Saint-Emilion’s” first chapter in Beijing on May 31, 2014. (Wang Zhao/AFP/Getty Images)
A leading Chinese film studio, Huayi Brothers, has announced it will deepen its ties to the Chinese Communist Party (CCP), after suffering huge financial losses this past year and the apparent cancellation of a high budget war film, “The Eight Hundred,” by Party censors.
me- adding to story
On July 8, Huayi Brothers held a conference to announce the establishment of a Party organization within the company, the “CCP Huayi Brothers Media Co. Committee,” in a move to “solidly integrate the Party’s work into the [studio’s] film content,” said the studio’s party secretary Cao He, according to a July 8 report by state-run media The Paper.
The Party should play a leading role in every stage of the filmmaking process, Cao added.
The studio joins another 1.58 million private firms that have embedded party units in their companies. Party organizations, as designed to make sure employees adhere to the regime’s rules, are already a mandatory part in the workplace of all of the country’s publicly-listed firms. Firms were often eager to follow Party orders in order to stay out of trouble.
The company’s CEO, Wang Zhongjun, said during the ceremony that the set-up of the committee would ensure “the Party’s core socialist values … are more deeply ingrained into the blood of the company.” Wang is himself a Party member.
As of June, Huayi has 115 Party members out of the 1,933 employees, with 85 percent of them being millennials born after the 1980s, according to The Paper.
About 94 percent of Chinese private business owners believed that it was important to maintain relationships with the government, although only less than 4 percent of the companies expressed an interest in the Party’s development, according to a 2018 report from South China Morning Post citing an investigation by now-defunct Beijing-based think tank Unirule Institute of Economics.
Huayi Brothers has previously organized several events to express its Party loyalty since last year, including organizing film screenings and major exhibitions in partnership with Party mouthpiece The People’s Daily. In April, the company organized a themed event called “Party-building classroom” to study the communist party leadership conferences and boost the communist spirit.
One of China’s most established entertainment companies, the Beijing-based Huayi Brothers has suffered a number of financial blows in the past year.
Huayi posted a loss of around $1.1 billion yuan ($158 million) in the past year, according to its annual financial report released in April.
Two of the studio’s films poised to be summer hits—Chinese war film “The Eight Hundred” and comedy Tiny Little Wishes—were canceled days before the films’ scheduled release in July as a result of apparent censorship.
Chinese netizens suspect “The Eight Hundred,” dubbed China’s version of “Dunkirk,” was censored because it depicted the CCP’s old political adversary, the Kuomintang, in a favorable light. The CCP defeated the Kuomintang in a civil war to take control of China in 1949, forcing the latter to retreat to the island of Taiwan.
me- adding to story
Following the cancellation of “The Eight Hundred,” Huayi’s shares, traded on the Shenzhen Stock Exchange, plunged 8 percent. The company’s stock has also been on a consistent decline since June, dropping by over 20 percent compared to its peak at June 13.
As a result of the box office slowdown, the company was forced to sell some of its projection equipment for $40 million yuan ($5.8 million) to pay for operating costs, Beijing Business Today reported. Huayi said in a July 3 announcement that they would rent back the equipment for another 2 years after the sale.
Wu Zuolai, a U.S.-based Chinese political commentator, believed that July 8 announcement suggests the Party is renewing its attempts to tighten its control of private businesses.
“In the 50s all private businesses were nationalized and business owners had to hand in their property to the Chinese Communist Party. Right now the [CCP] can’t achieve that, so they adopted a new way: the Party organization inserts itself into the company so as to assert control over it,” Wu told Radio Free Asia on July 9.
A Huayi that is influenced by Party dictates would assist the regime in further propagating its agenda through media, Wu added.
“Later on all of the content that [Huayi Brothers] created will have some sort of Party promotion, at the very least it won’t stray from the Party’s fundamental principles,” Wu said.
“With the increased Party’s censors, the living space for creative and original works will gradually diminish, to the point where art becomes one with politics.”
me ——- related —————————————————————————————–
Less brotherly love
Investors spooked by Huayi share pledge
Jun 22, 2018 (WiC 414)
Shortly before Jia Yueting’s empire started to unravel last year, the founder and largest shareholder of technology and media group LeEco pledged Rmb39 billion ($6 billion) of shares in the group’s Shenzhen-listed unit, Leshi Internet Information, to 13 different financial institutions.
Jia used the money to fund his aggressive expansion into areas like electric cars and smartphones.
The plan turned out to be a disaster for the company and by January this year Leshi had seen more than Rmb30 billion of its market value wiped out. Jia, whose shares have since been seized by the courts, has taken refuge in California. More recently the tycoon was put on a credit blacklist by the authorities, which blocks him from borrowing from banks or even buying railway tickets (should he return to China).
Since then any news of fundraisings with a large-scale pledge of shares has made investors nervous. In early June, Wang Zhonglei and Wang Zhongjun, major shareholders of Huayi Brothers, pledged most of their stock rights. According to the filing with the Shenzhen exchange where the media firm is listed, the Wang brothers offered a total of about 25% out of the 28.2% stake they owned as of March 31. But the timing of the share-pledge couldn’t have been worse, just a few days beforehand a tax probe was triggered by allegations that actress Fan Bingbing was underreporting the income for her work in upcoming Huayi Brothers production Cell Phone 2 (see WiC412). After the news, investors were worried that the two brothers were trying to cash out, sending the company’s shares tumbling. On June 4, the Beijing-based studio plunged by the 10% daily limit, incinerating Rmb2.3 billion of market value in a single day. It fell further in the following days, losing Rmb4.4 billion in market capitalisation over a two-week period.
Is that an overreaction? Entertainment Capital seems to think so. “The painful lesson from Jia Yueting and LeEco, and what happened to large share-pledges and their explosive outcomes at the beginning of the year, [Huishan Dairy had a similar problem] has remained very vivid in investor minds. So the market now has a reflex reaction to equating large share pledges with a major crisis,” the entertainment blog observed.
Using shares as loan collateral is more common among small and mid-cap companies where controlling shareholders own large stakes. They sometimes reinvest the proceeds in other projects or buy additional shares on the secondary market to boost the share price. According to Huayi Brothers, the loans raised against the share-pledge were for new investment projects. The company said that deploying the shares as collateral “did not indicate that the founders were pessimistic about the future of Huayi” but that they wanted the capital to “meet personal financing needs, mainly for use in other projects and equity investment”.
To stop the landslide of negative press, Huayi also threatened legal action against “malicious rumourmongers,” claiming speculation surrounding the two brothers as libellous, says Tencent News, a portal.
Still, such a large-scale share pledge has raised concerns that Huayi might have a liquidity problem, Caixin warns. In recent years, a large portion of the studio’s revenue has been boosted by one-off investments outside filmmaking, adds Huxiu. The portal points out that when non-recurring income is deducted, the studio had a net loss of Rmb40.2 million in 2016. Similarly, in the first three quarters of 2017, investment income contributed 83% – or Rmb687 million – of its earnings before taxes. That is largely a result of selling down its stake in Yinhan Games, a mobile game developer.
“Since a few years ago, Huayi Brothers has largely filled its annual report with strong performance from technology stocks. However, investment is not its core business. As a listed company, it is still necessary to focus on the development of its core business [filmmaking] and find ways to improve on that.”
In the meantime the speculation about Huayi’s prospects shows no sign of abating. Just a week ago the studio made a big splash at the Shanghai International Film Festival, unveiling an ambitious slate of productions for 2018 and 2019. However, Variety, an industry magazine, noted that no major government figures were present at the event, which it interpreted as ominous.