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Wednesday, June 3, 2020

Disney and Its Brand Face Increasing Uncertainty in China

by Ray Keating
June 3, 2020

In recent decades, seemingly countless U.S. businesses have done balancing acts when it comes to decisions about doing business in China. But few U.S. companies have gone in on China to the extent as has The Walt Disney Company. And the uncertainties regarding this choice are mounting.

American businesses have had to weigh considerable risks and uncertainties of dealing with the communist regime in Beijing that has a grim history in terms of gross human rights abuses, including state-committed murder on a vast scale (see the Tiananmen Square massacre, for example), other wide-ranging forms of oppression, lying, and deception, along with violations of property rights. 

The hope – shared by many policymakers and economists – has been that engaging with China as it partially opened parts of its economy to international markets would benefit the Chinese people. And as economic growth raises living standards, pressure would mount on the regime for increased political freedoms. 

That would require China to follow the path of political opening experienced in places like Taiwan and South Korea. But while many in the media fail to recognize the differences between authoritarian and totalitarian regimes, differences in fact do exist. Authoritarianism is about one person or party having political control, while totalitarianism is about one person or party having control over all aspects of life – private and public. Taiwan and South Korea were authoritarian, while China is totalitarian. The hope has been that China would react to pressure for greater political freedom as did Taiwan and South Korea, but it has been only a hope. Indeed, it has very much been an open question if totalitarian communists would react positively.

The latest signals point to the Chinese communists acting as the totalitarian oppressors they are, especially under President Ji Xinping. Beijing recently violated the “one country, two systems” agreement (achieved when the British handed Hong Kong back to China in 1997) by imposing “national security” laws on Hong Kong. The clear intent was to crush dissent, free speech, and gut Hong Kong’s self-governance, which was supposed to last until 2047. 

For good measure, China has stepped up its provocations directed at Taiwan. And then there’s China’s lying and deception regarding the coronavirus outbreak. (See my  recent Keating Files column on these points).

All of this obviously raises additional questions about doing business in China, including how other countries might change governmental policies directed at China.

Disney is uniquely exposed to these China uncertainties. After all, Disney isn’t just another Hollywood studio with an eye on potential box office numbers from China’s substantial middle-income earners. Disney entered into partnerships with the government on two theme parks.

In 1999, Disney entered into an agreement with the Hong Kong government to open, under joint ownership, Hong Kong Disneyland. At the time, the Michael Eisner-led Disney was seen as cutting an amazingly lucrative deal with Hong Kong. The park opened in 2005. Disney owns 47 percent of the park, and the Hong Kong government 53 percent (originally, it was 57 percent Hong Kong and 43 percent Disney). Disney handles all of the operations. But if things continue in the dire direction that they have been pointed in recently, Disney will be de facto in partnership with the communists in Beijing.

But that would not be new for Disney. After roughly a decade of negotiating, it was announced in November 2009 that Shanghai Disney was approved. Ground was broken in April 2011, and the Shanghai Disney Resort – brought to fruition under CEO Bob Iger – opened in June 2016. The resort is 43 percent owned by Disney, and 57 percent by the Chinese government. And the company operating the park is 70 percent owned by Disney and 30 percent by the Chinese government.

Being in a partnership with the Chinese communist regime is a unique situation to say the least, particularly for a company whose brand – which Disney normally is hyper-defensive about guarding – is overwhelmingly about family fun, wholesomeness and togetherness. That doesn’t exactly line up with the reputation of the Chinese communist government, with recent actions providing grim, stark reminders to people around the world.

As for Disney’s business, Shanghai Disney had 11.8 million guests in 2018, and Hong Kong Disneyland had a record 6.7 million visitors in 2018. Prior to the pandemic, Hong Kong attendance had suffered due to the pro-democracy protests, with The Wall Street Journal calling Hong Kong Disneyland a “ghost town.”

Again, more than most U.S. firms, Disney made a big bet on China continuing to move in positive directions in terms of expanding economic and political freedoms. That bet is in jeopardy more so than at any other point since the House of Mouse invested in the Hong Kong and Shanghai parks. It remains to be seen if the situation grows even more troubling or veers in a more positive direction – for the Chinese people and for Disney.


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Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of The Disney Planner 2020: The TO DO List Solution (now available at a deep discount) and the Pastor Stephen Grant novels. He can be contacted at  raykeating@keatingreports.com.

Get the paperback or Kindle edition of Ray Keating’s new book Behind Enemy Lines: Conservative Communiques from Left-Wing New York.

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