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Inside China: The Fight to Become the World's Cultural Epicenter

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In part 4, we looked at the trade war between the US and China from a bird’s eye view. In many ways the clash was inevitable, and has important implications that investors should be aware of. To read the previous section, click here.  

In 1990, Harvard scholar Joseph Nye coined the idea of “soft power” as a key piece of a new 21st century geopolitical strategy paradigm. In his Fall 1990 Foreign Policy article, Nye noted that 30 corporations were already posting annual sales greater than the gross national product of 90 countries. He did so to make the now well-established point that power is becoming “less tangible,” and not necessarily directly tied to nations.  

Nye explained that soft power is a way to “get others to want what you want,” using “cultural attraction, ideology, and international institutions.” Up until this point, the predominant school of thought was that for a country to further its agenda, that military might, or “hard power,” was the avenue of choice. But as time would tell, the world was rapidly becoming too complex for this single-track approach.

The Fight to Win Over Your Heart

In 2007, former President Hu Jintao stated that “The great rejuvenation of the Chinese nation will definitely be accompanied by the thriving of Chinese culture.” While the government had previously discussed the importance of expanding its soft power, this was the first time that it became a matter of official policy. The following year, China reportedly committed $6 billion to the global expansion of its state-owned media outlets.  

By 2011, Hu’s successor Xi Jinping prepared to begin his term, and declared that it was a national goal to “build our country into a socialist cultural superpower.” Three years later, Xi proclaimed that “We should increase China’s soft power, give a good Chinese narrative, and better communicate China’s message to the world.”

For the last decade, China has been trying to do just that. According to David Shambaugh, a scholar at George Washington University, China spends around $10 billion annually on soft power-related initiatives. The Middle Kingdom notably hosted the 2008 Olympics in Beijing, where it dazzled a TV audience of four billion with its intricate opening ceremony.

According to The Economist, China has opened 500 government-funded “Confucius Institutes” in 140 countries. These institutions facilitate the spread of Chinese language and culture, employing teachers and other staff to give context to the story of the growing giant. And since President Trump has chosen a more isolationist approach to policy, China sees the present as a chance to charm more of the world into its sphere of influence.

History is Written by… Who?

In recent years, China has made many large media investments. Xinhua, the government’s main news agency, currently runs over 170 foreign bureaus, and aims to have 200 by 2020. It opened nearly 40 bureaus from 2009 to 2011 alone.

E-commerce giant Alibaba (BABA - Free Report) purchased the South China Morning Post, Hong Kong’s largest English-language newspaper, for $260 million in 2015. The following year, a state-affiliated media company launched an English-language publication called Sixth Tone, which seeks to draw readers with more opinionated pieces.

In 2017, the country’s largest broadcaster, China Central Television (CCTV), spun off its foreign services division into China Global Television Network (CGTN). CGTN has continued ramping up efforts in regions such as Australia, where in September it ran a three-week marketing campaign in major cities.

China is also heavily involved in Africa, where it has made various infrastructure investments and growth-friendly loans. China’s highest grossing film of all time ($830 million), Wolf Warrior 2, pits a Chinese Special Forces operative against western mercenaries in a fictional African country. The film’s success was largely driven by its heavy-handed nationalism and high-octane action.

In the radio space, China Radio International broadcasts 392 hours of programming a day in 38 languages across 27 international bureaus, according to the Council on Foreign Relations. Chinese companies also target many of the nation’s 50 million overseas citizens, many of whom live in Southeast Asia.

Are You Not Entertained?

Investments in the entertainment industry had been another key element of China’s soft power diplomacy, but have been slowing down. The private property and cinema conglomerate Dalian Wanda made investments around the world. The company’s portfolio included a $2.6 billion stake in AMC Theatres (AMC - Free Report) in 2012, a $1.2 billion Swiss sports marketing company transaction, a 20% stake in the Atletico Madrid football club, and the $3.5 billion acquisition of Hollywood studio Legendary Entertainment in 2016.

But the Legendary move angered the Chinese government, which argued that domestic conglomerates were irrationally burning through money. This led to the 2017 currency controls that dramatically reduced cash outflows (We also discussed this in our section on foreign investments). Wanda has since began to unload some of its positions, most recently agreeing to sell a $600 million AMC stake to private equity firm Silver Lake in September.

But China’s footprint has still become more apparent in US media than ever before. Matt Damon was the star of Chinese film Great Wall in 2016, and while not a major success, was still a milestone in US-China entertainment collaboration.

China also made its presence felt at the 2018 World Cup, where Wanda and other companies spent $800 million on advertising. Four of the 12 official sponsors of the tournament were Chinese firms.

Looking Ahead

A trade war with the US and a slowing economy are short-term concerns for China. But its continued long-term economic growth will play an integral role in expanding the nation’s resource basket. This will prove crucial as the Middle Kingdom continues its battle to become the central cultural influence of the 21st century.  

Up Next

Now that we have a rough overview of China, what comes next? In our next and final section, we will take a look at a few Chinese companies that may not quite be on investors’ radars just yet, but that should be.

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