China’s trade warriors can’t hit Hollywood

'Avengers: Endgame' has become the third-highest grossing film in Chinese history

In 2018, foreign films accounted for 38 per cent of China's box office; the most lucrative among them were American. Bloomberg

China may want to stand tough against Donald Trump’s trade threats. It’s going to have a hard time retaliating, though, and not only because it doesn’t import enough goods to match the US president tariff-for-tariff.

One obvious target would be the $58.9 billion (Dh216bn) in services the US exports to China. These include everything from Hollywood blockbusters to tourism and education. In theory, Beijing could easily enough cut off the flow of American entertainment into China and Chinese students and tourists out of the mainland. Indeed, the nationalist editor-in-chief of the Global Times newspaper has already suggested such a strategy.

China has some experience with this. After South Korea agreed to deploy a US anti-missile system on its soil in 2016, Chinese television stations were informed that programs involving South Korean stars wouldn’t be approved for broadcast, while Chinese venues began canceling appearances by K-pop bands and other South Korean celebrities. On top of restrictions on outbound tourism, the measures helped knock 0.4 per cent off South Korea’s expected growth rate in 2017.

On the other hand, the unofficial boycott didn’t persuade Seoul to reverse its decision. And there are many reasons to think a similar strategy directed at the US would be even less effective.

The most obvious is the simple fact that the US is much less dependent on its services exports to China than South Korea is. While certain sectors might feel some pain, it’s not likely to be strong enough to force the White House to back down. (Indeed, Trump might not mind if liberal Hollywood takes a hit.)

The second reason is more important. Chinese businesses are often as dependent upon US services as American retailers are on their mainland-based supply chains. Restricting Chinese tourism to the US, for instance, would damage China's airlines, many of which have been handsomely subsidised in a battle for dominance over hyper-competitive trans-Pacific air routes.

Similarly, many Chinese industries rely fundamentally upon licensed American services. In 2018, foreign films accounted for 38 per cent of China's box office; the most lucrative among them were American. That trend continues: Over the weekend, "Avengers: Endgame" became the third-highest grossing film in Chinese history.

Chinese regulators are already worried about slowing box-office revenue. In 2016, they even temporarily lifted quotas on foreign films to help cinema owners. It’s unlikely they’d seek to add new burdens now to the struggling industry.

In recent years, the most high-profile buyers of US entertainment content have been China's celebrated tech champions. In 2015, Tencent agreed to pay the National Basketball Association $500 million (potentially rising to $700m) for the rights to stream the league's games, highlights and other content in China. It was a smart investment: The NBA is the most popular professional sports league among Chinese viewers. During the 2017 finals, more than 170 million people in China streamed the games live.

And Tencent isn’t the only Chinese tech company leaning upon the NBA to boost user counts. The league has signed more than a dozen media partnerships in China, including a March 2019 agreement with Alibaba under which the NBA agreed to create content for Alibaba users. (Alibaba vice chairman Joseph Tsai owns 49 per cent of the Brooklyn Nets NBA franchise.)

Ultimately, the biggest impediment to any Chinese boycott of US services may be the Chinese public. Though there's no question that Chinese popular opinion is behind Beijing, there's little evidence so far that the trade war has diminished consumer enthusiasm for American movies and vacations. During the key Chinese New Year travel period, the US was the most popular long-haul travel destination for Chinese tourists. Los Angeles reported a 6.9 per cent boost in Chinese visitors last year.

While some Chinese might just switch to illegal streaming services and pirated downloads if cut off from their favorite American TV shows and movies, trying to bar them from visiting the US, sending their kids to university there or seeking medical treatment could quickly provoke a backlash among middle-class citizens. Especially at a time when growth is slowing at home, that’s a constituency the government can’t afford to alienate.

Of course, none of this means the Trump administration should think its services exports are entirely immune. As American culture becomes more globalised, it becomes easier to emulate. China's film industry is getting more polished in spite of censorship. Yao Ming is steadily improving Chinese basketball in spite of China's state meddling in sport. And low-cost airlines give Chinese access to a wide variety of destinations just as compelling as Los Angeles. For now at least, though, China will have a hard time restricting what it can't replace.