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The China Chill in Hollywood

April 25, 2017Article
Forbes

After an incredible run for several years that peaked at over $6 billion invested in Hollywood, China investment in Hollywood has slowed dramatically in 2017. The reasons for this slowdown are manifold, mainly due to actions of the Chinese government, and here are some of the factors driving it:

  • First and foremost, the Chinese government is concerned about the slowing pace of its economy, and it is concerned that the less money that is circulating within China, the worse its economy will be. In recent years, there was a significant outflow and exchange of yuan (Chinese currency) into foreign currencies used outside of China, which was weakening the value of the yuan. This weakening of the yuan was having a cyclical effect, since a fear of a weakening yuan was causing Chinese companies to convert more yuan into other currencies for investment outside of China before the yuan devalued further. In order to stop this slide and to keep the yuan circulating in China, the Chinese government has enacted strict currency controls, prohibiting the exchange and export of currency without government approval, which approval is getting hard to come by. The currency control issue is also an important bargaining chip for China in the upcoming trade negotiations with the U.S., since the currency controls strengthens the yuan, which in turn has caused Trump to back off his claim that China is a currency manipulator. For all these reasons, the currency restriction may stay in place for a while. Hollywood was a significant benefactor of the prior outflows of currency, so Hollywood disproportionately feels the brunt of the new restriction.

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