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Walt Disney: Kissing the Dragon

by internationaldirector

Written By: Mike Ross – Corporate Finance

The relationship between The Walt Disney Company and China’s Communist government is perhaps the oddest perversion of the profit motive yet. Disney, the world’s largest entertainment company, has a market value of US$162.96 billion as of July 13, with revenues amounting to US$52.47 billion. Disney’s theme parks and resorts contribute around 30 percent of its overall revenues, with none located in China—until the middle of last month. With theme parks and resorts making such a significant contribution to Disney’s bottom line and their lack of presence in China, the world’s largest entertainment market, entrance into this country seemed to be a logical route for the company. 

However, China, unlike other markets, isn’t very welcoming to foreigners, and the government jealously guards against any culture that would threaten its existence. Disney, widely known for its cartoons and the cult followings its characters attract, is the polar opposite of what the Chinese government flaunts as China’s culture. Freedom of speech and democracy are espoused in Disney’s culture, while China’s government prefers the obedience and “the party knows better” cult. This collision of cultures has contributed to the delay of the construction of Disney’s theme park in China since its inception 15 years ago. 

Robert “Bob” Iger, Disney’s CEO, is a very patient man. Albeit, the opportunities with entrance into China are so massive and important for the company that it would be foolish for them to give up easily. The Shanghai Disney Resort is a US$5.5 billion investment located in Pudong, Shanghai, China spread over 963 acres. It is twice the size of Disney’s first theme park in California but located within three hours by train or car of a population of similar size to the whole of the US. Attendance is expected to be 10 to 15 million people per year. With its enviably huge array of characters to tap into, for Disney no holds are barred. The company even capitalised on its latest hits and acquisitions with Stormtroopers featured on its mascots. 

Despite the massive investment, the country has several competitors to Disney, and most formidable of all is Dalian Wanda, owned by Wang Jianlin, a property and entertainment magnate and China’s richest man. In response to Disney, Wang Jianlin recently opened his largest theme park, Nanchang Wanda City, at a cost of US$3 billion and spanning 494 acres. When asked about Shanghai Disney Resort by China Central Television, Wang Jianlin responded that Disney’s is just a “lone tiger” among a “pack of wolves”, alluding to Wanda’s construction of 14 theme parks across China. 

Even more notable is his comment that Disney “shouldn’t have entered China”. This is a feeling that is held by some in the government and party. A month before the theme park’s opening, these feelings were still being loudly voiced. The People’s Liberation Army’s newspaper in April strongly criticized Disney’s animated film Zootopia, likening it to a Trojan horse being used to inculcate Western values of freedom of speech and democracy to Chinese people. The deputy head of propaganda for Anhui province, Li Xiusong, complained that Disney is spreading other people’s culture to Chinese children and making them unappreciative of Chinese culture. 

How Disney, an American icon of culture, made such a large incursion into China is illuminated by the ownership structure of the Shanghai theme park. The Shanghai Disney Resort is owned by The Walt Disney Company (43 percent) and Shanghai Shendi Group (a company comprised of three state-owned enterprises, or SOEs) (57 percent). The theme park is managed by another company formed by the two owners, but with 70-percent ownership in favour of Disney. The Chinese government through the SOEs has been involved in the theme park and asserted its control boldly. This, and perhaps learning from past mistakes with other foreign theme parks, Disney made considerable effort to bend over backward and accommodate the Chinese. For instance, the refusal to serve wine in its park in France, deemed a cardinal affront to the French culture, may have contributed to Disney strongly infusing the local Chinese cuisine into the park’s eateries. 

The amount of support received from local governments has been astounding, to say the least. The governments have not only provided capital for the venture but shut down more than a hundred factories and cleared prime land for the investment. They also provided the associated transport infrastructure on a massive scale, building a new metro link, subway stations, a new highway to serve the park as well as painting commercial jets with Disney’s mascots. 

Disney’s appeasement to Chinese culture was reflected on the theme park’s opening day, June 16, 2016, making use of the revered number six, a homonym for the word liu, meaning smooth. The support, however, has not been all smooth sailing. Chinese media regulators recently thwarted a joint effort between Alibaba, a Chinese e-commerce giant, and Disney to deliver its content online in China. Regardless of the schizophrenic support accorded to Disney, on the opening day, statements were read from both US President Obama and his Chinese counterpart, Xi Jinping. An awkward dalliance, it seems, amid the simmering tensions over the South China Sea between the countries. 

All in all, Disney is quite comfortable kissing the dragon.  


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