There has recently been a sharp drop-off in Chinese investment in Hollywood. In 2016, Chinese investment in the U.S. entertainment industry was $4.78 billion. As of Sept. 30, 2017, that investment had slowed to only $489 million.

The difference is eye-popping to say the least. If current trends continue, we will see at least an 80 percent decline in Chinese investment into entertainment this year.

This is a trend that we have been watching all year long and it has been somewhat surprising. Hollywood, along with the rest of the U.S. financial industry, seemed to believe that China would continue to open up in terms of its financial reforms and external investments, but we've seen the opposite happen.

What seems to be going on is that, in classic Chinese style, the clampdown on external investment was not announced by edict or overt direction from the Chinese government, but rather is a result of subtle maneuvering by local officials who place key phone calls to decision-makers behind-the-scenes.

So, what happens from here? There's no clarity in the markets right now.

We hoped for some clues after China's 19th Party Congress in October, but the main take-away from that event was simply that Chinese Premier Xi Jinping has consolidated power.

Our View: China probably does want to have a free-flowing capital market, but the government's higher priority remains “stability," especially given the country's history of many small regions with different and occasionally conflicting interests. It seems that they want to achieve free-market principles through stronger authoritative control, whereas in the West we achieve that end through more democratic means. We wonder whether stronger authority will really work to achieve free-market principles, since in many respects the two ideas seem to be mutually-exclusive.

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