China’s Third Phase — Stewards of Culture or Sleight of Hand?

Dr Leigh Jenco, London School of Economics

Like any good magician, my great uncle John dazzled me by levitating, pulling rabbits out of hats and magic-ing pennies from behind my ears (ok, maybe just the pennies part.)

Even as children most of us do realise that it is not sorcery or witchcraft but a form of blissful blindness on our part. Based on the assumption that what we think to be true, is in fact always true, is generally how we get things so very wrong….and how rabbits are pulled from hats.

In the lead up to Trump and Xi’s first meeting, the narrative around China’s ‘aggression’ and and unfair trade practices continues. The cheerleaders chanting “bring our jobs back!” are getting louder and the chorus getting larger. But as usual we are looking at the wrong thing. While our gaze is fixed on the Magician’s left hand, we are blissfully unaware that the whole stage and scene is changing before our very eyes.

Magic? Sorcery? Underhandedness? No. Just simple smart strategy and execution.

Wilbur Ross’ antiquated, uninspired and uninspiring opines are only the latest salvo in continuing anti-China rhetoric. A litany of very vocal and unqualified past accusations of currency manipulator, poisoner (yep, poisoner!), rapist, back stabber, thief…

May I be so bold to suggest that whatever your emotional opinions are of 25% of the world’s population — perhaps you’re listening to the wrong people and looking at the wrong things. It’s not about being of our time, the duty of our guides is to set course for the time ahead. We are supposed to be inspired by and admire those that look to the future, informed by, but not hung up on the past. Isn’t it time to do the same on a macro level?

Have you ever considered why China doesn’t retaliate? It’s Simple really. She is getting on with the business of getting on…

While loud voices talk of steel dumping, currency fraud and outright theft there is deafening silence from China. Have you ever considered why China doesn’t retaliate? It’s simple really. She is getting on with the business of getting on — after all; bluster, tariffs, half thoughts and tweets doesn’t maintain 6% growth rates for 1.5 billion people, build out the world’s most modern infrastructure or move 400 million people into the middle class (without, I might add, falling into the middle class trap).

None of this is really news to you, I know, and neither is it news to China — old news maybe. What you might have missed, though it has not been hidden, is China’s newnews — her plans for the future.

Initially unveiled at the Third Plenum of the CPC in 2013 and reinforced at Davos in January, Xi Jinping once again laid out the 3rd phase of China’s global growth story for anyone that cared to listen*. Some did — the Chinese people, entrepreneurs and companies and globally those with foresight and a truly bigger view.

The 3rd phase sets out China’s ambitious role to be a responsible and respected global steward. History has shown us that once economically powerful, nations must then become responsible before being respected. Respect is not earned through deals, guns or hate-speak. It is culture, and contribution to culture, that separates civilizations from mere zeitgeist. Think of all the people, leaders, companies or nations we admire and the word culture almost always follows.

Respect is not earned through deals, guns or hate-speak. It is culture, and contribution to culture, that separates civilizations from mere zeitgeist.

And so it is with China. Culture is the next building block in her economic engine, and the fuel for this engine is us, our content.

What do Angelina Jolie, Spielberg, Ice Cube, Chris Hardwick and Ryan Seacrest have in common?

China.

What about movie theaters, Formula 1, Virtual Reality, the NBA and Premier League Football? (that’s soccer to some of you)

Yep — China.

In the past 5 years China Inc. has invested over $50 billion in soft and hard cultural assets across the world — from Grauman’s Chinese Theatre on Hollywood Boulevard, bought by in 2012 by TCL, to Dalian Wanda’s $3.5B acquisition of super-studio Legendary Entertainment or Alibaba’s participation in NextVR’s $794 million Series C round last year.

Last night I watched Jennifer Lawrence’s latest movie Passengers and 30 seconds into the production headline credits I saw a familiar logo — Wanda — the world’s biggest property company headed by one of China’s wealthiest, Wang Jianlin. Even B Grade apocalypse-drama Colony with equally B grade stars like Adrian Pasdar, have a place in China Inc’s strategy. Produced by Hollywood powerhouse Legendary Pictures, who’s credits include Batman, Straight Outta Compton, Interstellar and the Hangover movies — and also owned by Wanda.

There’s a scene in the last Transformers movie where Cade, played by Mark Walberg, is flying a drone carrying an ATM card to get money out of a hole in the wall (don’t ask). When the camera zooms in, instead of seeing the usual Amex or Visa logo, look carefully and you’ll see China’s UnionPay — the largest payment provider globally by transactions, with over 4.3 billion cards in circulation.

A while ago I was in the car and a promo for Shanghai Hit FM played with the tagine “China’s Ryan Seacrest” — curiosity got the better of me and after a little investigation the connection quickly became clear — Dick Clarke Productions, Mr Seacrest’s employer, was the latest Wanda acquisition. The $1 billion deal subsequently fell through. (I don’t think I’ve heard that promo since then, but will keep an ear out.)

After the $1.2B acquisition of Carmike in July last year, AMC became the largest movie theater chain in the States. European acquisitions followed and by December 2016 AMC became the largest operator in the world, a plan set in motion in 2012 when Wanda paid $2.6B for AMC.

Tencent’s massive $8.6B acquisition of Clash of Clans publisher Super Cell last year was a clear, albeit lagging indicator of a much larger industry, growth buoyed by the morphing of games, livestreaming, esports and social commerce. Warcraft, the movie, for example, involved 26 different Chinese brand partners — that’s TWICE as many brand integrations than any previous property.

In Q2 2016, China became the number 1 country for iOS gaming revenues. A market where Apple only has 16.6% market share.

Chinese companies have also been at the table in the VR / AR space investing in nearly a quarter of all deals last year. Data from CB Insights show that Chinese investors participated in 36 deals investing over $1.2B in the likes of Magic Leap and NextVR.

It goes well beyond just stage and screens; in the sports arena Chinese interest is wide and examples are plenty. From Motor Sports, the NBA to Iron Man (triathlons not Tony Stark, although Iron Man 3 happens to also be a Chinese co-production).

China’s planned investment in football alone is estimated to be $850B over the next decade. That’s $85 BILLION a year. For those in any doubt of that commitment look no further than China Media Capital’s $400m minority investment in City Football Group, parent company of English Premier League giants Man City, or the string of record breaking player signings like Alex Tiexeria’s 50 million Euro ($53 million) transfer to Jiangsu Suning.

Only 3 weeks ago, Sequoia and CMC announced a joint global fund focused on sports.

As the West’s continues to obsess with platforms and enablers and the gig economy, owning, building and growing these important cultural assets gets less sexier by the day.

As everyone scrambles to create and fund the next AI-infused, Uber-of-this, AirBnB-of-that disrupter-of-disruption, China Inc., ever the contrarian, continues its quiet focus on the building blocks of culture and storytelling. Like an executor of a trust, carrying out her duty as de facto guardian of our seemingly unwanted cultural assets…all while the rest of the world ridiculously ascribes greater value to an infant(ile) “camera company” than the sum of created content combined.

Back in 2008 my topic-du-jour was the ubiquity of screens, the emphasis not on mobile but mobility. That future is upon us and the Chinese are living it today. China produces 90% of all digital screens globally and are 3x more engaged with them than the rest of the world. It only makes sense that they’d want to have some say on what’s on those screens, no?

There is a sophisticated single-mindedness behind this 3rd Phase and making sense of the complex overlaps is not easy. Understanding how the players, big and small — BAT, CMC, Wanda, TCL, CIC, CITIC, Lenovo, LeEcho, YY, CTrip, Momo, etc. all work towards this single vision is mind-boggling. (Anand and the CB insights crew, are you up for the challenge?)

This is not meant to elicit fear, but respect. Or simply, acknowledgement. While some view super-power status through the lens of a bully, for China super-power status comes with a profound sense of responsibility. China does not take this responsibility lightly, a view President Xi made clear at Davos, and reinforced by countless others.

Perhaps it’s time to listen, or at least hear them?

…assuming that what think to be true, is, in fact always actually true, is the very foundation for failure.

As any good founder knows, assuming that what think to be true, is, in fact always actually true, is the very foundation for failure. Something I learnt much later in life but is now a guiding principle is that “I am wrong till I can prove myself right”

And with that, the West can either wait for the abracadabra part; gasp, curse and shake your heads in confused disbelief and disapproval as rabbit after rabbit is pulled from a hat, or…….you could ask yourself “Am I seeing all that there is?”

Audience, it’s your choice but it’s looking like the show, the stage and the stadium increasingly belong to China. At least from where I sit.

What’s the view like from your seats?

(*Vitaly Vorobyov’s piece on China’s Third Phase, while focused more specifically on the Shanghai Cooperation Organisation, is interesting reading.)