Talking Point

Slammed and dunked

The NBA’s fallout with China comes at a time of trade and tech tensions

NBA-China w

On tour in China: the Los Angeles Lakers play the Brooklyn Nets in Shenzhen

Sport often plays a role whenever there’s a rejigging in Sino-US relations. For instance, in August 1979 the Washington Bullets were the first NBA team to play in China – the same year that Beijing resumed official ties with Washington. When the Bullet’s head coach held a teaching clinic during the trip, nearly 20,000 Chinese basketball coaches showed up. Hundreds of millions more watched on TV as the NBA champions beat a team from the People’s Liberation Army in Beijing and another from Shanghai on their home courts. Playing in the second game was Yao Zhiyuan, the father of Yao Ming.

However, the seminal moment for the NBA came 10 years after the Bullets first arrived. In 1989, according to a report by ESPN last month, the organisation’s then commissioner David Stern waited almost an hour in the lobby of state broadcaster CCTV before clinching a deal to show NBA highlights on Chinese TV.

“I could say I was in the cold shivering, but it was summertime… But it was too good of a market to give up on,” he recalled, explaining that he effectively gave the rights away for free in exchange for the exposure to the vast Chinese audience.

The NBA’s popularity then exploded when Yao Ming was drafted as the number one pick in 2002 by the Houston Rockets. Yao’s involvement is believed to have won over at least 300 million new fans, also turning the Rockets into one of the league’s most valuable franchises (Leslie Alexander bought the team for $85 million in 1993 and sold it for $2.2 billion two years ago).

But Houston was back in the headlines this month after a now-deleted tweet by its general manager commented on the political situation in Hong Kong. As a result, the NBA’s prospects went into freefall in China too.

Why the rift with the NBA?

“Call it the butterfly effect,” a widely forwarded comment on Tencent’s WeChat platform explained, highlighting how what began with a Hong Kong man killing his girlfriend in Taiwan “has resulted in fans in mainland China being blacked out from NBA games”.

The comment refers to a murder case in Taiwan that later prompted a proposal for a broader extradition bill in Hong Kong that sparked a backlash from Hongkongers who opposed it.

Subsequent unrest in the city has attracted extensive coverage in the international media. But when Daryl Morey, the general manager of the Houston Rockets, tweeted his own views on the city’s political situation on October 5, it proved to be a costly contribution for his sport.

The Chinese consulate general in Houston immediately issued a statement in protest and demanded a clarification. Almost as quickly, the Chinese Basketball Association (CBA) – now headed by Yao Ming – announced that it was suspending cooperation with the Rockets. In response the Rockets’ owner Tilman Fertitta made clear that his general manager wasn’t speaking for his employer. Morey also deleted the tweet in question, explaining that he was “merely voicing one thought based on one interpretation, of one complicated event”.

Chinese basketball fans weren’t satisfied and they were irked further by comments from the NBA’s commissioner Adam Silver during a tour of Japan. He said the league was “apologetic” about the situation but he defended Morey’s right to freedom of speech.

On October 8, CCTV announced it would stop broadcasting the NBA’s preseason games. And despite inking a $1.5 billion deal to stay on as the NBA’s digital broadcast partner in China, Tencent said it would also stop showing NBA games on its streaming platform – where more than 500 million Chinese have tuned in to watch the action.

NBA merchandise was soon being pulled from Alibaba’s e-commerce sites and a slew of business partners such as New York-listed Luckin Coffee put out statements suspending commercial cooperation.

“The NBA has spent more than 30 years opening up the door to the Chinese market. It only took 3 days to slam that door shut,” National Business Daily concluded.

Is American basketball collateral damage in the trade war?

With its growing economic might China has flexed its commercial muscles in a series of similar disputes. Dozens of foreign firms and celebrities have been forced to make public apologies after doing or saying something that was perceived as a slight on the country or its people. For example, Italian fashion house Dolce & Gabbana came close to disaster a year ago after putting out a series of ads that were deemed racist by Chinese netizens (see WiC434).

The NBA’s accidental arrival in Chinese politics comes at a time when national sentiment has been stoked up by celebrations marking the founding of the People’s Republic 70 years ago. But the NBA’s Silver was caught in almost impossible position. China is the brand’s most lucrative overseas market: the league makes $400 million a year selling the broadcasting rights alone. Much more is at stake if other commercial interests are considered, including its superstars’ sponsorship deals.

Additionally, the spat came just days before the arrival of Chinese Vice Premier Liu He in Washington for the 13th round of talks aimed at defusing a full-blown trade war between the world’s two biggest economies. And just a day before CCTV announced that it was dropping NBA games from its channels, the US Commerce Department also banned American firms from selling software and hardware to 20 Chinese public-security organs. It also blacklisted eight artificial intelligence companies from China which the government claimed have been facilitating Beijing’s surveillance programme in Xinjiang.

As many as 273 Chinese entities are now on various ‘entity lists’ compiled by the US government, Beijing News reports, only slightly fewer than the 317 from Russia.

Indeed, the list is now so extensive – and interpretations of its reach so ambiguous – that “McDonalds’ franchisees in Mexico initially refused to sell burgers to Huawei” wrote Beijing News (see page 7 for how another ban on Chinese shipping giant Cosco has been great news for owners of oil tankers).

A similar blacklisting on telecom maker Huawei since May is expected to cost it about $10 billion in sales this year, its boss Ren Zhengfei has told foreign reporters.

In potential response the Chinese Ministry of Commerce has spent months preparing its own list of “unreliable entities” aimed at punishing foreign firms or individuals deemed harmful to Chinese interests. The parameters for what (or who) to include have been largely finalised, Reuters reported last week, citing two Chinese government sources. But whether the list is published depends on how the trade talks progress, it added.

Any breakthroughs from the latest round of talks?

Donald Trump has said repeatedly that he wants an all-encompassing deal with China. Following the latest two-day meeting between negotiators from the two countries, he announced that both sides had reached a “phase one” agreement, although it will still take a while to finalise. “We have come to a deal, pretty much, subject to getting it written. It’ll take probably three weeks, four weeks, or five weeks,” Trump told reporters at the Oval Office last week, adding that a key date for the next phase of the agreement would be the APEC summit in Chile next month, where he is likely to meet Chinese President Xi Jinping.

As part of the temporary truce, China would purchase up to $50 billion in American agricultural goods annually which, according to Trump, would be three times the sales at their highest point thus far.

“So I’d suggest the farmers have to go and immediately buy more land and get bigger tractors. They’ll be available at John Deere and a lot of other great distributors,” Trump advised.

At the same meeting, Trump’s Treasury Secretary Steven Mnuchin said a deal on the Chinese currency “around transparency” has also been struck. Yet the most solid breakthrough appears to be coming from China’s opening up of its financial services industry, where Mnuchin said the latest talks had almost reached “a complete agreement”. That was vindicated this week when the Chinese government announced that all limits on foreign stakes in mutual fund firms and brokerages will be abolished from January next year (foreign firms were only allowed to raise their minority stakes in the sector to 51% last year).

In return, the Trump administration is delaying tariff increases to 30% (from 25%) on at least $250 billion in Chinese goods which were otherwise set to kick in this week.

Back in China, state-run media outlets have been more cautious in announcing the latest truce. Xinhua, the official news agency, even avoided the phrase “phase one agreement” and only attributed it to a quote from Trump himself.

A commentary published on CCTV’s WeChat platform suggested that there are three possibile outcomes from the trade negotiations: an all-compassing deal, a complete breakdown in talks, or a sort of trench warfare that is often referred to by the Chinese as “fight fight, talk talk” (see WiC452).

The last scenario, CCTV suggested, is the most realistic outcome for the foreseeable future.

“While the negotiations do appear to have produced a fundamental understanding on the key issues and the broader benefits of friendly relations, the champagne should probably be kept on ice, at least until the two presidents put pen to paper,” the China Daily agreed.

How about the NBA? Are games back on Chinese screens?

Back in its home market, the NBA ran into heavy flak from US politicians angry at how it had handled the response to Morey’s tweet.

“This is bigger than just the NBA,” Marco Rubio, a senator from Florida, fumed on Twitter. “It’s about China’s growing ability to restrict freedom of expression here in the US.”

Elsewhere, newspapers lamented that while the US had once exerted tremendous ‘soft power’ through its best known brands and dominant commercial culture, American companies were now kowtowing to Beijing in a bid to maintain access to the Chinese market.

The creators of the South Park cartoon series (itself blocked in China after an episode that ridiculed the censors and the American companies that submit to them) lampooned the issue in a pretend apology for its behaviour on its Twitter account. “Like the NBA, we welcome the Chinese censors into our homes and into our hearts,” it spoofed. “We too love money more than freedom and democracy.”

Other columnists have argued that the NBA is actually in a stronger position than American brands like Facebook and Google to resist pressure from Beijing, because there’s not an equally attractive alternative in China. Even in the event that the embargo was to persist, basketball fans would soon be disappointed that they couldn’t watch any of their favourite teams and millions of them would turn to VPNs and other technical workarounds to catch up on the action, it was claimed.

However, if the NBA really is a reliable barometer of the China-US relationship, things already seem to be heading back in a healthier direction. After a few days of national fervour Beijing moved to tamp down the public’s anger, the New York Times said, apparently fearful that the backlash could hurt China’s image ahead of the Winter Olympics it will host in 2022.

Live broadcasts of the NBA’s preseason games have now resumed on CCTV as well as Tencent’s streaming platform, although games involving the previously popular Houston Rockets are still unavailable.

LeBron James, one of the best players in the league, also tried to dial down the tension. “I don’t want to get into a [verbal] feud with Daryl Morey, but I believe he wasn’t educated on the situation at hand,” he said before a preseason game in Los Angeles this week. “And so many people could have been harmed not only financially, physically, emotionally, spiritually. So just be careful what we tweet and say and do, even though, yes, we do have freedom of speech, but there can be a lot of negatives that come with that, too.”

Other interested parties have played peacemaker as well. One of them is Alibaba’s Joseph Tsai, who completed a $2.3 billion takeover of the Brooklyn Nets franchise only a few weeks ago (see WiC465). In an interview with the Wall Street Journal, Tsai said the NBA called him last week and he had “jumped in to help”.

Of course, his ownership of the Nets also runs counter to the narrative about the accelerating decoupling of the Chinese and American economies. And his experience also raises the question of whether Chinese tech firms like Megvii and SenseTime might likewise be advised to seek out more senior stakeholders from the US on their boards as well – people like Warren Buffett, for instance – to put them in a better position to win more of Washington’s trust and get them off the various US blacklists. Perhaps that’s another lesson from the NBA debacle this month… ­­

 

 

 

 

Keeping track, Apr 12, 2019: The NBA’s problems in China continue, Reuters reports. State broadcaster CCTV did not air the opening game of the season on Wednesday between the Toronto Raptors and the New Orleans Pelicans, nor the second between the LA Lakers and LA Clippers – choosing to show instead the World Military Games in Wuhan. The channel is upset with the league after political comments made by Houston Rockets GM Daryl Morey. Tencent, however, did stream the opening two matches but did not list any games featuring the Houston Rockets in its schedule of coming games.


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