April 26th, 2012
08:27 AM GMT
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Hong Kong (CNN) – To paraphrase Claude Rains in “Casablanca,” reports from U.S. regulators suggest they are “Shocked! Shocked!” to learn Hollywood studios may be lining pockets in Beijing to get a foothold in the Middle Kingdom's theater market.

The U.S. Securities and Exchange Commission appears to be poking around whether Hollywood studios are buying their way into one of the world’s largest – and most tightly controlled – media market. The investigation, first reported by Reuters, says the SEC has sent inquiries to 20th Century Fox, Disney and DreamWorks Animation.

The investigation centers on bribes to Chinese official to get the right to film and show studio movies in China, according to Reuters, the New York Times and the L.A. Times – all citing anonymous sources. The news comes just two months after China’s Vice-President Xi Jinping – who is widely expected to succeed Hu Jintao as president of China in 2013 – wrapped up a week-long trip to the U.S. with a Los Angeles visit that included a $2 billion deal between two Chinese firms and Dreamworks Animation.

The deal also allowed 14 additional IMAX or 3D films from the U.S. to be shown in China and increased to 25% the box office take foreign film makers can make in the country. Beijing previously had a quota of only 20 foreign film per year, most of them from the United States, and limited profits to about 15%.

Earlier this month, Disney announced that “Iron Man 3” will be co-produced in China with DMG Entertainment in Beijing.

The SEC investigation apparently centers on dealing with China Film Group, according to the Los Angeles Times.

The probe comes as the U.S. has stepped up investigations under the Foreign Corrupt Practices Act, which prevents U.S. firms from bribing officials overseas.

The China movie market – like so much of the nation – is booming with the growth of the middle class and disposable income. China 6,000 movie screens – nearly a third more than three year ago – and expects to have 20,000 screens by 2015, the New York Times reports.

Despite the growth in sales, the world's second largest economy is still perceived as a sometimes shady place to do business. The nation ranked 75th out of 182 nations in the 2011 Corruption Perceptions Index – behind Tunisia but ahead of Columbia.

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soundoff (14 Responses)
  1. Kyle H. Davis

    Hollywood needs to go talk to some other major companies dealing in China before they do that... I have a feeling it is going to do nothing but cause even more losses for the film industry.

    Most major companies dealing in China, are dealing at a loss, waiting for reforms to happen – this has been their failed strategy for 30+ years. The only way they can even break even is to not only film in China, using Chines film, and paying Chinese salaries to their stars. You don't see Coke raking in profits from China, nor any other major brand... they all deal with losses (if they produce in the US), or they deal in profits so small they are not worth the effort to move back across the ocean (if they are producing within China).

    Just ask Disney... when the government forces a company to give up the majority stake in its own business venture in China, that's when you need to ask yourself if it is worth it.

    It's a long long long way off from actually being profitable to think of China as a market for goods yet. Sure, they can produce the heck out of stuff cheaply, in which case we gain profits at home... but we sure are not making any profits off of things in China. You would need to sell 6.3x more product, just to equate to the same profit, and you are dealing with a market that ISN'T 6.3x bigger than the US. – The math don't add up.

    April 26, 2012 at 10:09 am |
  2. Hendrik Verwoerd

    Why is this news? It's a well known fact that the Chinese do nothing without taking a bribe of some sort.

    April 26, 2012 at 11:30 am |
  3. Alex Povolotski

    Of course they're paying. China is the biggest potential market out there, along with India being close second. The problem with China is that everything that enters China gets pirated.

    April 26, 2012 at 4:30 pm |
  4. Optima Moving

    Hihih, yes I agree on that. Too muck of a fake copies in China !


    April 26, 2012 at 5:28 pm |
  5. Green janitor suit commies.

    China will demand that they digitally remove all references to owning private property, talk about how much people hate life in free countries, and ban depictions of the future where people are happy because that is a threat to CCP power structure.

    April 26, 2012 at 7:28 pm |
  6. Andy Halmay

    When it comes to bribery, creative book-keeping and all the classic tricks of the scammer, Hollywood may be an even match to Beijing. In co-productions all Hollywood can realistically expect is to get some production funding and some cheap labor. They cannot expect to take much out of the China market. But then comes Hollywood's turn, which will have global distribution and then China should not expect anything more meaningful out their share than Hollywood talent expects from points. China wants to learn how to make movies that lure global audiences on a consistent basis, and, of course, Hollywood has never figured that out yet. One thing is certain. Hollywood-Beijing co-productions will generate a lot of lawyers' fees and China will never learn how to make popular films because that can only come from film-makers who are a free people.

    April 27, 2012 at 4:32 am |
  7. Remove China from supply chain.

    China wants to learn to make movies? Hahaha.. learn to free your mind first. First things first, basic freedoms like they have in Indonesia.

    April 27, 2012 at 5:10 am |
  8. John

    Rednecks need to learn who is the boss. It will take some time, that's OK.

    April 27, 2012 at 7:58 am |
  9. Remove China from supply chain.

    china is the boss of communist lands.

    April 27, 2012 at 8:34 am |
  10. Lee

    love to see jealous american and Indian trolls here, trying to diss the growth of china

    April 27, 2012 at 8:41 am |
  11. eman

    this site is very good to learn english for free


    April 27, 2012 at 11:23 pm |
  12. medhat

    this site is very good to learn english for free

    May 3, 2012 at 3:21 am |
  13. dgroover

    Either the writer of this article is from another country or someone did not proof read this article. However, I agree with most of what was said in the article, but for a different reason. Whenever a U.S. firm pays to partner with a Chinese firm, we lose our grip on U.S. technology. They should be paying us for our technology instead of us paying to get into their market. As soon as they master our technology, they will open a strictly Chinese Company and force the U.S/Chinese company out of business.

    May 21, 2012 at 6:36 pm |
  14. mearticle

    Yes i agree with u.

    June 30, 2012 at 9:16 am |

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