How a Celebrity’s Revenge Is Roiling the Chinese Movie Industry

Deloitte, one of the "Big Four" accounting organizations and financial service providers, released an analytical report in 2017 on China’s film industry. According to the report:

China's culture and entertainment industry has entered into an unprecedented “golden age”. With box office revenue of RMB 44 billion [around $6.8 billion] in 2015, China is the fastest growing film market in the world. By 2020, China's box office is expected to reach RMB200 billion [around $31 billion] and will exceed North America as the world's largest market in box office revenue and audience numbers.

Yet the whole multibillion-dollar industry is shaking now.

For the first time, through social media, audiences at home and abroad were given a glimpse of the problematic industry behind the extremely glamorous facade. And it was all triggered by a celebrity’s revenge.

“Don’t call me a national hero. It’s only my personal revenge.”

Cui Yongyuan, 55, is one of China’s most well-known TV hosts and producers. He is a former employee of China’s state television network CCTV, a current professor of the Communication University of China, and unusually outspoken on social media.

In late May, Cui decided to pursue public revenge against his equally famous enemies in China’s movie industry — Liu Zhenyun, a top novelist and screenwriter, and Feng Xiaogang, one of the best known Chinese movie directors and most successful commercial filmmakers.

Accusing Liu and Feng of making a sarcastic movie based on his personal story without his permission, Cui vowed to get payback.

A master of public opinion manipulation, Cui started to gradually post negative information and sarcastic comments about Liu and Feng on his own Weibo account, which has 14.51 million followers.

Perhaps in an attempt to attract more professional media attention, Cui soon expanded his ire to all those who have expressed support for Liu and Feng.

Fan Bingbing, the leading actress in Feng’s movie, became Cui’s first direct victim.

Fan, 36, China's biggest female celebrity, has been ruling China’s silver screen since her teenage years. Her Weibo account has 62.71 million followers as of this writing, and any small development related to Fan can bring in hundreds of thousands of views.

In particular, Cui posted the images of two contracts — one for 10 million yuan ($1.56 million) and the other for 50 million yuan ($7.8 million) — which Cui claimed were both for Fan’s role in the same film.

Cui explained that such deals, called “yin-yang contracts,” are a widely adopted trick in the Chinese movie industry for celebrities to evade taxes. Cui further announced that he has collected “a full drawer” of contracts, involving almost all the big names in the Chinese movie industry. Cui hinted that he would post those “dirty secrets” of Chinese celebrities in the following days.

This announcement immediately silenced almost all Chinese celebrities, but, at the same time, excited ordinary Chinese people.

Numerous Chinese netizens praised Cui for revealing the dirty deeds of Chinese celebrities. Hundreds even referred to Cui as “national hero” for his one-against-many courage.

In a series of video interviews, however, Cui refuted that praise. “Don’t call me a national hero,” he said. “It’s only my personal revenge.”

China’s Taxes: Robbing the Poor to Pay the Rich?

Personal revenge or not, Cui hit right on a sore spot for both the Chinese government and China’s ordinary people.

The Chinese government has long aimed to teach these flashy celebrities a lesson. Early in 2016, the State Administration of Radio and Television (SART) had released a statement, vowing to “resolutely curb sky-high salaries to stars.” Then multiple state-run newspapers also published commentaries condemning some stars’ flamboyant lifestyle and their unreasonably high salaries. However, such criticism, faced with the booming Chinese movie industry together with millions of loyal movie fans, could hardly make a dent in Chinese top stars’ market price.

Cui’s latest action finally gave the Chinese government a good chance to launch a special operation.

On June 3, soon after Cui released images of the alleged secret contracts, the State Administration of Taxation (SAT) issued an announcement on its official website, stating that it has noted the issue of “yin-yang contracts” in the film industry. The SAT thus has instructed all local taxation authorities to carry out special investigations according to law.

“If any violations of laws and regulations are found, the authorities will deal with them in a strict way,” the announcement added. “The SAT will further intensify the tax collection and management particularly involving those high-income practitioners in the film and television industry.”

On the same day, the People's Daily said on its Weibo account: “The market decides the stars’ salaries, but the law decides the tax.”

Most of China’s average citizens fully support the government’s investigation against stars. However, more so than individual tax evaders, ordinary Chinese are upset with China’s personal income tax system itself. Many argue that the current personal income tax system is so unfair that it’s robbing the poor to pay the rich.

Since 2011, China's personal income tax threshold has been 3,500 RMB (about $543) per month — meaning the monthly tax-free amount is 3,500 yuan for Chinese local employees. Every individual’s salary is taxed according to progressive rates, ranging from 3 to 45 percent.

In comparison, dividends, interest income, and gains on the transfer of capital assets (such as securities, equity interests, land use rights, buildings, equipment, vehicles, and other assets) are generally taxable at a flat rate of 20 percent.

Faced with soaring inflation, many ordinary Chinese citizens thus complained that hard-working employees have to pay more taxes than the super-rich who live on non-employment income, such as financial assets.

Besides the questionable income tax system, the growing gap between the rich and poor has divided society.

According to Bloomberg, while residents of Shanghai and Beijing are almost as well off as those in Switzerland by some income measures, average people in remote inland areas live more like they do in Guatemala, thanks to a $46,000 wealth gap.

Unsurprisingly, this extremely wide wealth gap, together with the unfair income tax system, has triggered a strong hatred against the rich among ordinary people.

Thanks to Cui’s revelations, movie celebrities now have naturally become the best target for public hatred. Profanity-laced comments like “Confiscate their dirty money!” and “Lock them up!” have bombarded the Weibo accounts of Fan, Feng, Liu, and other celebrities.

Cui hasn’t stopped stoking the fire, either. He has repeatedly posted images of Fan’s and Feng’s multimillion dollar luxury houses, located in Canada. He alleged that Wang Zhongjun and Wang Zhonglei — the brother movie tycoons who founded Huayi Brothers Media Corp, the leading Chinese multinational entertainment company — have more dirty secrets. Cui claimed that he would report all the evidence he has collected about the movie circle’s crimes to the SAT as well as to other Chinese authorities.

When the Movie Industry Meets the Financial Market

The Chinese movie industry is one of the most financialized markets in China. Including Huayi Brothers, all major Chinese film companies have gone public in China’s stock market.

Cui’s breaking announcement thus rocked the market. On June 4 — the day after the SAT decided to launch a national investigation — the stocks of all major Chinese film companies tumbled. Huayi Brothers, in particular, plunged by 10 percent, reaching the limit for a price drop in a single day. From June 1 to June 19, Huayi shares have fallen from 8.18 to 6.29 RMB per share, wiping out nearly 5.2 billion RMB ($810 million) of the company’s market value.

Meanwhile, Chinese investors found that both Wang Zhongjun and Wang Zhonglei have recently pledged a total of 694 million shares — nearly all the shares in their hands, or about 25 percent of the company’s total — for “personal finance needs” and “plan to use the funds for projects and equity investments.”

This new finding led to market rumors that the brothers are planning to abandon the company and flee the country as Cui is about to leak all their dirty secrets.These rumors spread like wildfire.

To be fair, share pledging, meaning taking a loan against the shares one holds, is a common way for shareholders to raise money.

However, Chinese investors’ worries are not unfounded. In late 2017, Jia Yueting, once a high-flying billionaire and high-profile businessman in the movie industry, fled to the United States, leaving his company, listed on the A-share market, on the verge of bankruptcy.

As for Huayi’s alleged “dirty secrets,” they are even more believable to Chinese investors. As an Chinese old saying goes, “No businessman is not evil.”

Faced with the unprecedented trust crisis, Huayi’s chairman, Wang Zhongjun, on June 18 announced that he will invest no less than 100 million yuan (about $16 million) in the company over the next year and he won’t transfer any share he holds in the following six months — an apparent attempt to instill confidence.

So far, the scandal started by Cui has involved the whole Chinese movie empire, and it’s still developing. It’s unclear now whether the tarnished celebrities can survive the scandal without significant consequences, but one thing is for sure: the Chinese movie industry — despite its glamorous facade — is more fragile than analysts had expected.