Disney’s ‘Mulan’ Disaster Highlights Dangers of China Deals
The cost of doing business with Beijing has risen sharply and swiftly.
Disney’s Mulan has had a cursed run. First came the comments of its star Liu Yifei, who praised Hong Kong’s police amid the city’s pro-democracy demonstrations, causing outrage in the city. Then there was the pandemic, pushing back the film’s release date and leaving it stuck as an expensive add-on for home screening. When the movie was finally available, it turned out that its credits thanked the Chinese authorities in Xinjiang, where a few of the outdoor shots were filmed. Unfortunately, those authorities are also active participants in an ongoing genocide.
Then came the coldest blow. China, Disney’s last, best hope to turn the movie into a hit, silenced all coverage of the film on the mainland a couple of days before its release. All Disney’s pandering to Chinese authorities meant nothing as soon as there was a whiff of political trouble. With the movie already rated a grim 4.7 out of 10 on Douban, the most popular Chinese film review site, the chance of a word-of-mouth hit was small.
But when Disney began the project in 2015, the idea of a marquee blockbuster geared toward the Chinese market made sense. So, even, did filming in Xinjiang. To be sure, there were human rights issues, but from a cynical business perspective they were fringe concerns, not blared across the front page. U.S. lawmakers were making occasional noises about China, but the government wasn’t banning swathes of Chinese firms and the president wasn’t calling a deadly outbreak “the China virus.” Hong Kong was still an oasis of free speech, not an incipient police state. The whole of Hollywood had spent decades accepting China’s limits on movie content; the last movie criticizing China in any way had been made in 1997. Disney’s own executives had apologized to China’s leaders for making movies about Tibet.
The break-down of China-U.S. relations, combined with the intensification of domestic repression in China under President Xi and the new nationalism of Trumpism, have left businesses struggling to adjust as the ground shifts under their feet. A deal inked only a few years or even months ago can be destroyed overnight. The distance between what firms expected going into dealing with China, and what they’re now coping with, is enormous. To be sure, to some degree that applies to any foreign deal, especially between two countries with a contentious history. But the sheer speed with which the relationships between China and the rest of the world are snapping makes a mockery of the risk assessments of even a few years ago. Businesses are now left trying to span the China Gap between the conditions when they started a deal and today.
Disney isn’t the only foreign firm to have fallen into the China Gap. The NBA has lost hundreds of millions of dollars in television revenue after a controversy stemming from comments about Hong Kong. The English Premier League had its viewership in China slashed by a forced move to a less-watched sports channel because of Britain’s complaints over Hong Kong. Canadian canola oil producers lost their ability to export directly to China, their biggest market, for a year thanks to Canada’s arrest of a Huawei executive. Australian exporters have been repeatedly targeted as Australian-Chinese relations reach new lows. South Korean supermarket Lotte’s entire China operation was closed after a government-sponsored boycott over Seoul’s decision to install an American missile defense system, writing off a $9.6 billion investment.
Then there are the companies attempting deals with Chinese firms or investors, only to find themselves scuppered by their own government’s reaction to Chinese influence or aggression. India has embarked on a vast and hasty project of decoupling following its clashes with China in the Himalayas. The United States is adding to a list of restricted Chinese companies on a weekly basis. The knock-on effects often hit even firms that aren’t directly targeted; it’s now probably illegal, for instance, for any U.S. business to advertise on WeChat—China’s biggest advertising platform.
The instinct among businesses has often been to try and wait these changes out. The scale of the Chinese market is too tempting for anyone to give up on easily. For temporary ructions, such as the fight with Norway over the award of the Nobel Peace Prize to a Chinese dissident in 2011, the government often softens after a few years. Political concerns in China are dismissed with the idea that the pendulum will eventually swing back toward more liberal ideas.
But that doesn’t make sense today. China’s political pendulum has snapped clean off the chain. Barring Xi losing power, political paranoia and the xenophobia that comes with it are only going to grow, as they have done for the last eight years. And Washington’s new tone on Beijing isn’t going to disappear if President Trump loses. As Bill Bishop, writer of the Sinocism newsletter, likes to say about any given day, “Today is the best day in the Sino-US relationship for years, if not decades, to come.”
The other approach for multinational companies is to double down on compliance with Beijing’s wishes. That worked for the hotel chain Marriott, for instance, which offered abject apologies over an employee’s tweet. Foreign airlines complied with Beijing’s demands over Taiwan. Hong Kong-based businesses have lined up to kiss the boot after China’s new National Security Law. But that’s now coming with significant costs back home, as the NBA and Mulan scandals show. Businesses that comply with Chinese demands can expect to find themselves hauled up before Congressional committees, frozen out of U.S. government contracts, and pilloried in the international media.
Yet the temptation of the China market is still there. Finance companies, for instance, have rushed into the country in the last year, and brushed off warnings. That seems like a short-term approach, and one likely to leave them scrambling to get out of the gap that will open underneath them. “If you think China-US bilateral tensions will leave your market untouched, then, in the words of Hannah Gadsby, your confidence is making you stupid,” noted one China analyst. Firms still dreaming of 1.3 billion customers should wake up; even if you think you’re capable of dealing with the China of today, you have no idea what the China of tomorrow will bring.