What happened to Wanda tycoon’s dream of a Chinese Hollywood?
Wang Jianlin’s plan for a Chinese ‘movie metropolis’ seems to have hit a wall after Dalian Wanda agreed to sell most of its hotel and tourism portfolio to a rival
Driving along the western edge of the city of Qingdao, it’s hard to overlook a gigantic sign on a hillside which resembles the classic “Hollywood” sign in Los Angeles – only it’s much bigger.
The sign reads, Dong Fang Ying Du, or Oriental Movie Metropolis, announcing the sprawling construction site of a project designed to become China’s answer to Hollywood.
Promising the world’s best film production facilities, the 200-hectare complex in the eastern city – which will also include a theme park and luxury hotels – is expected to be fully operational in 2018, a year later than scheduled. It had been seen as the jewel in the crown of Dalian Wanda Group, the property-entertainment business empire created by the country’s richest man, Wang Jianlin.
Wang’s dream of creating a Hollywood in China from scratch looked serious in 2013 when he flew in some of the world’s most glamorous stars – including Nicole Kidman, Catherine Zeta-Jones and Leonardo DiCaprio – for the groundbreaking ceremony of the project, which has a price tag of 50 billion yuan (US$7.3 billion).
A year earlier, Wanda had become the world’s largest cinema operator when it bought US-based chain AMC Theatres for US$2.6 billion. Meanwhile, Wanda has been grabbing land across the country to develop hotels, theme parks and residential buildings. In May last year, Wang told state television that Wanda’s theme parks could make Disney’s venture on the mainland “unprofitable” in 10 to 20 years.
But Wang’s grand ambition seemed to hit a wall last week when the company announced it would sell a 91 per cent stake in 13 cultural tourism projects – including the Qingdao film complex – and 76 hotels to Sunac China Holdings for 63 billion yuan.
The single biggest property deal on the mainland has raised plenty of questions, and the South China Morning Post earlier reported three possible reasons behind the deal.
One is that Wanda is under regulatory scrutiny and needs to sell off assets to address funding pressure. Another is that Wanda needs to get rid of property assets ahead of a listing on the A-shares market. The third is that Wanda may buy Sunac’s stake in Leshi Internet Information & Technology Corp, an asset that could have synergies with Wanda’s entertainment pivot.
But there was more bad news for the company on Monday. The banking regulator told the largest state-owned lenders to put six of Wanda’s overseas acquisition deals – which had triggered red flags – under an unprecedented level of scrutiny, according to several sources familiar with the matter.
It’s clear Wanda has sensed that the direction of the wind has shifted against it, economists said.
“Wanda must be under great pressure to sell assets,” said Hu Xingdou, a professor of economics at the Beijing Institute of Technology, adding that the financial and political establishments were no longer fully in the conglomerate’s corner.
“Wanda needs to defuse risks by cashing in its domestic assets as soon as possible, especially after several of its high-profile overseas acquisitions sparked disaffection among the Chinese authorities,” he said.
From a purely business point of view, Wang’s grand plans were often too optimistic and ambitious, analysts said.
“Wanda has underestimated the difficulties in developing cultural projects in China,” said a media analyst at a mainland brokerage firm who has covered Wanda for years. He asked not to be named as he was not authorised to discuss specific companies with the media.
Conglomerates such as Wanda chose to get rid of cultural tourism assets first when they needed money, he said, illustrating the enormous challenges facing the industry on the mainland.
“Brands like Disney have taken decades to build up their reputations. The expansion of Wanda [in the cultural industry] has been too fast,” he added. Wanda’s rapid expansion and wealth accumulation is one of the country’s most dazzling business stories. The mainland housing boom in the last two decades has created a long list of tycoons and Wang is one of the most high-profile developers.
“Successful businessmen in China have one thing in common: they borrow as much as possible to buy assets and wait for asset appreciation,” said Andy Xie, an independent economist based in Shanghai.
Wang is known for his ability to secure land from local governments. Wanda began as a business owned by a district government in the northern port city of Dalian in the 1990s and went on to become the mainland’s most formidable property developer and overseas dealmaker. And Wang, a former solider and low-ranking government employee, emerged as a big-name tycoon.
Relatives of President Xi Jinping and other top leaders held stakes in the company, according to an investigative report by The New York Times in April 2015. In October that year, Wang confirmed while speaking at Harvard University that relatives of Xi had been Wanda shareholders, but he credited his success to the company’s “innovative” business model instead of government connections.
The company started facing setbacks in its global shopping spree as Beijing tightened control over outbound deals and described investments in trophy properties such as soccer clubs and cinemas as “irrational”. The government also began to regard outbound deals – which it saw as efforts to transfer assets overseas – with increasing suspicion.
Wanda failed to obtain regulatory approval in March this year for its takeover of Dick Clark Productions, the company behind the TV broadcast of the Hollywood Foreign Press Association’s annual Golden Globe Awards ceremony. Then last month, Wanda was named by the mainland banking regulator as posing a “systemic risk” to domestic lenders with its overseas deals, according to emails seen by the Post.
While Wanda is known for its elaborate ideas as it tries to win over local governments with its projects, commercial and residential property development forms the key part of its cultural and tourism initiatives at home.
The Qingdao movie complex in Shandong province includes apartment blocks with 7,000 units as well as retail spaces. The flats were popular with investors when they went on sale in 2013, with Wang promising it would become a top tourism destination by the Yellow Sea.
Wang Maoxin, a white-collar worker in the city, bought a shop in the complex for 4.5 million yuan using family savings and a bank loan. He said he stood in line for several hours to buy the shop, even though nothing existed at the time but a plastic model of the development.
He said he believed Wanda would make the project successful and that the value of the property would appreciate quickly.
But it proved to be a bad investment. For the past four years, the 27-year-old has had to pay annual interest of 300,000 yuan but has earned just 100,000 yuan a year renting the store out.
He was shocked to learn that Wanda was selling the project to Sunac. “They don’t care about the future of the development once the buildings sell. If the project hasn’t worked out under Wanda, what can Sunac possibly do to turn it around?” Wang said.
His frustration is shared by many other small buyers who had flocked to cash in on the property tycoon’s Hollywood dream. In a WeChat social media group, formed by about 40 small property investors in the complex, there was heated debate on the future of the project.
“Does this mean the project is doomed?” one investor asked.
Wanda declined to comment on questions regarding the Qingdao project.
During a recent visit to the site by the Post, most ground-floor retail spaces remained empty, with rental advertisements attached to the shuttered doors.
The official opening date of the entertainment complex was originally set for April this year, but that deadline came and went.
A restaurant owner told the Post that some construction workers had turned up recently, but only to buy noodles.
Wang Qingguo, a local real estate agent handling property in the complex, said many owners had been forced to sell their units at a loss to repay bank loans. “They were hoping for quick money … It’s been four years already. They just can’t afford to wait any longer,” he said.
A year before the complex is due to be fully up and running, much of the infrastructure and facilities to support the promised world-class filmmaking complex – including the luxury hotels – is missing.
Mike Sui, an American actor who speaks fluent Putonghua, was shooting a film in one of the studios that is already open. He complained that there was nowhere for him to exercise and the three-star hotel where he was staying – the only one next to the complex – did not have a gym.
“For young actors who have just begun their career, the hotel is fine. But for experienced actors, the facilities are not good enough,” he said, adding that only two or three mainland production crews were shooting there. “I guess it takes some time to build up supporting facilities.”
Photos from the grand ceremony that launched the project four years ago may still be on proud display around the complex – but none of those Hollywood stars have been back.
Additional reporting by Sidney Leng