MONDAY AM UPDATE: The SEC probe into Hollywood’s China business practices was sparked by a whistle-blower, The New York Times reports today. Citing a person with knowledge of the investigation, the paper says the Hollywood companies involved were “told to freeze all files, e-mails and other data related to getting films made or distributed in China.” Meanwhile, Han Sanping, the China Film Group chairman whose name I noted yesterday keeps popping up, told the paper he was unaware of the SEC investigation. Regarding whether he’d ever seen evidence of improper payments involving US companies, he said, “How would I know about this? I don’t even have a clue.” Han further told the paper that his work is “not only going through the administrative process, but also a substantial amount of groundwork to make sure the shooting could go smoothly inside China…As the president of (China Film Group), I have this responsibility.”
SUNDAY: Now that the SEC has sent letters of inquiry to all the Hollywood majors regarding their China dealings, one name continues to come up: China Film Group chairman Han Sanping. He’s the “gatekeeper” between Hollywood and China, as one person calls him. The state-run China Film Group essentially controls distribution in the nation of 1.4 billion people. It takes 50% of distribution and also awards a license for the other half. Given CFG’s grip on distribution in China, I’ve been told that unless filmmakers work with Han Sanping and give him a production credit, their movies aren’t going anywhere. His list of executive producer credits includes 2010′s Karate Kid remake and 2006′s Mission: Impossible III. More recently, he’s an executive producer on local hit The Flying Swords Of Dragon Gate with Jet Li as well as propaganda films Beginning Of The Great Revival and The Founding Of A Republic (which he also directed). Han recently made the rounds of Hollywood, meeting with studios and producers. I understand that he’s looking for more projects to co-produce next year. At age 59 he’s approaching retirement from CFG but, as one of my sources says, “you still have to be respectful of him.”
I’m told it is highly unlikely the Hollywood studios are involved in any wrongdoing. There are training exercises in place to teach employees the ins and outs of the Foreign Corrupt Practices Act. But gray areas may exist. In Hollywood, for example, a commonplace practice like awarding exec producer credit for a seemingly small contribution may be seen to run afoul of the federal rules which forbid bribery of foreign officials. Is hiring Han Sanping to produce or provide services illegal? Interesting that, for now, the Chinese exec has not been listed as a producer or exec producer on any upcoming projects that involve the U.S. For instance, Han is not a producer on Disney and Marvel and Beijing-based DMG Entertainment setting up Iron Man 3 to be co-produced in China.
It’s ultimately not that surprising that the SEC would look into Hollywood’s China connection; it’s just that the timing is pretty rotten. Everybody wants a piece of China’s projected $5 billion box office. And it’s clear why with movies like Titanic 3D and Battleship currently breaking records there. And so many new partnerships forming like Disney helping develop China’s animation business or DreamWorks setting up Oriental DreamWorks to develop and produce original Chinese live-action and animated content for that market. The SEC letters also follow China’s February easing of its quota system to allow an extra 14 premium films (IMAX, 3D, blockbuster) to be released per year to give the studios a bigger 25% share of the box office (up from the traditional 13%).