Chinese authorities move to restrict pay of actors following controversy

Fan Bingbing Photo: Getty Images

After whistleblower Cui Yongyuan, a former anchor of state broadcaster China Central Television, exposed the exorbitant pay and tax evasion practices in the country's showbiz industry, the Propaganda Department of the Communist Party of China Central Committee, the State Administration of Taxation, the Ministry of Culture and Tourism and other related government agencies have responded with a document aimed at capping entertainers' salaries and combating tax evasions in the entertainment circle.

The document, which describes astronomical payments and tax evasions as a malaise that hinders the healthy development of the film and television industry and enhances the production costs of television programs, stipulates that the total salaries must not exceed 40 percent of a production's total cost while the remunerations of big stars must be less than 70 percent of the total payments.

The document also urges the regulators to strengthen supervision on variety shows, parent-child programs and reality shows attended by entertainers in accordance with the related regulations, in an effort to ensure that payments of stars are reasonable.

The government's move comes after the State Administration of Taxation launched an investigation into tax evasions in the entertainment industry following a public spat between Cui and billionaire actress Fan Bingbing. Cui had posted several photos of different documents on his social media account, which he said were the "twin contracts" that Fan signed to evade taxes. But Fan had denied Cui's allegations.

It is not the first time that the Chinese government has paid attention to domestic entertainers who are paid sky-high remunerations.

In 2016, the then State Administration of Press, Publication, Radio, Film and Television said that it would instruct industry associations and large film and television production companies to formulate self-discipline protocols to curb unreasonable salaries of actors and actresses with a proposal aimed at guiding the ideological and aesthetic value of films and television series and optimizing the cost structure of film and television production. Besides, the popularity of stars must not be used by television stations and video streaming platforms for purchasing and broadcasting television series, said the media watchdog.

Coincidentally, the government's move was also the result of a report by China Central Television which exposed that the minimum payment for some high-profile Chinese actors and actresses had reached 25 million yuan, with some even receiving as much as 100 million yuan.

In 2017, the China Alliance of Radio, Film and Television, the China Television Drama Production Industry Association and the China Netcasting Services Association jointly released a proposal which suggested that the salaries of performers should not be more than 40 percent of a production's total cost, with the remunerations of the leading performers accounting for less than 28 percent of the total cost.

The efforts by the regulators and industry organizations continued in 2018, when Tencent Video, Youku and iQiyi, the three largest video streaming platforms in China, spontaneously advocated an initiative to curb unreasonable remunerations of performers and back away from the standard seeing stars' popularity as the key factor for purchasing productions in what they called a move to purify the industry.

A capital game

An industry insider revealed to Caixin that there was no better way for many film and television production companies to control the salaries paid to big stars except for the government's compulsory requirements.

If half of a production's total cost is used for stars' payments, the quality of the production must be sacrificed, a founder of a film and television production firm told Caixin, who refused to be named. "Currently, the only way that a company can use to lower stars' salaries is to use a good screenplay to attract them," said the founder.

The phenomenon of stars receiving unimaginable remunerations is largely caused by their enhanced influence in the companies they work for.

Take Huayi Brothers for instance. The Chinese entertainment company is considered as a pioneer allowing its employee entertainers to double as big shareholders of the listed company, which in turn increases these stars' influence and wealth.

One the other hand, Huayi Brothers has customarily bought companies controlled by entertainers with valuation adjustment mechanism agreements targeting bigger returns, a way that it can use to deepen economic ties with big stars. As a result, the business practice has largely pushed up the salaries of stars and the share prices of the buyers.

Recently, there were rumors that the co-founders of Huayi Brothers had pledged most of their shares, triggering concerns about the company's liquidity. It also fueled speculation that the company was evading taxes. In a statement, Huayi Brothers said that the pledge of shares was not a stock sale and would not affect the company's operations. The company also threatened lawsuits against what it called "malicious rumormongers", which it thought "seriously impaired the legitimate rights and interests of the firm and its shareholders".

China-Hollywood comparison

The salaries of Hollywood actors and actresses are normally determined by the market, with A-grade performers enjoying an average salary of $20 million and flexible bonuses that account for 10-20 percent of a film's profit, Caixin quoted David Lee, a Hollywood film producer, as saying.

The more salaries actors and actresses earn in the United States, the more taxes they will pay, said Lee, adding that the maximum tax rate can reach 40-50 percent.

Olga Rodriguez-Aguirre, the national director of theatrical contracts at the American Federation of Television and Radio Artists, said that the remuneration would be more if the star could bring more box office success or if the broker had wonderful negotiating skills.

Compared with the soaring remunerations of Chinese performers, the salary level of top performers in the United States has remained unchanged for nearly two decades due to the maturity of the American film and television industry, according to Lee.

According to statistics from Guduo Media, a total of 295 teleplays were produced exclusively for Chinese online video streaming websites in 2017, which led to higher demand for performers and consequently pushing their salaries up.

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