Lucas Wilson had only been at his new job for four weeks when he traveled from Australia to the Spanish island of Mallorca to host a private dinner for 24 luxury yacht owners. As the sun set over the bay where the Sunseeker yachts were moored, their owners — British and American tech entrepreneurs and restaurateurs — filed in for dinner at La Fortaleza, the 400-year-old fortress on the cliff.

“My job was literally to travel the world, looking for wealthy people,” Wilson recalled, looking back.

It was April 2016, and Wilson had just joined Dalian Wanda Group, the private sector Chinese conglomerate that was expanding aggressively overseas. At that point, Wanda had spent more than $10 billion scooping up marquee global brands in sports and entertainment — including Sunseeker, AMC theaters, Ironman Group, the Atlético de Madrid soccer team, and Legendary Entertainment, the American film and TV production company. Wanda had become a symbol of a newly confident China.

Wilson was brought in as the sales and marketing director for the Jewel Residences, Wanda’s luxury development on the Gold Coast in Australia that had Wanda’s five-star chain of Vista hotels at its core. He and the sales manager of another of Wanda’s international properties — One Nine Elms, a skyscraper alongside the Thames in London — were in Mallorca to leverage the Sunseeker relationship into apartment sales.

That evening, Wilson quietly pitched Jewel’s multi-million dollar luxury apartments one-on-one, while the guests enjoyed free-flowing drinks and watched a scantily clad dancer perform inside an inflatable ball on top of one of the swimming pools.

But Wilson ran into the same problem he was encountering everywhere in his travels: With the Jewel priced significantly higher than other luxury developments on Australia’s Gold Coast and the sheer size of the project swamping the market, there just wasn’t demand. Four months later, having found buyers for just 20 of its 500 units, Wanda sold its stake in the Jewel, along with another failing project in Sydney, at a huge loss.

“It was a house of cards,” Wilson said of the Jewel. 

The Jewel was just one of many flops for Wanda as it pushed into unfamiliar markets at home and around the globe — such as theme parks, film studios, and real estate in the U.S. and Europe. While it still owns some of its prized overseas assets — such as AMC theaters — the company largely shelved its global ambitions in 2017, after Beijing tightened credit and forced Wanda and a few other aggressive private companies to pay down their debts.

Many observers saw Beijing’s move as political: the government was reining in Wanda out of fear that some of the country’s biggest private firms were borrowing too aggressively from state banks and then deploying that money irresponsibly, buying up high-priced overseas assets.

“When you had companies that big, with control of that much capital, it made Beijing nervous,” said Anne Stevenson Yang, founder of J Capital Research, noting that their global expansion gave them wealth beyond the immediate reach of the state. “There was too much money going overseas, and to avoid depreciating the currency, Beijing used its administrative authority to capture their capital.”

But the company’s problems were deeper than its profligate spending. A Wanda spokesman did not return requests seeking comment. But in interviews with The Wire, a group of former employees who had been involved in Wanda’s global diversification said that by 2017 it became clear that the corporate culture that had propelled Wanda into one the most successful private companies inside of China — the “Wanda Way,” as the company called it — proved to be a liability outside of China.

The company’s organizational structure caused it to race into deals, grossly misjudge the markets, and then, when faced with that reality, to double down on short-sighted decisions.

“They set out with a great dream and a great vision, and we felt privileged to be part of it,” said Lance Bignell, who between late 2015 and mid 2017 served as director of hotel construction for Wanda at the Jewel. But Wanda’s culture, he says, disregarded his skills and expertise. “As a local, I knew how things worked [in Australia], but that wasn’t something that was valued in their system. At the end of the day, it was like we were just making hamburgers. They had us just making reports, not decisions.”

In a desperate attempt to partially offset the Jewel’s spiralling construction costs, for example, Wanda decided not to outfit the apartments with refrigerators. According to Wilson, the Jewel kitchens were built to accommodate a particular model of LG fridge that was subsequently discontinued. An exasperated Wilson complained that not only would it be difficult to sell luxury apartments without fridges, but that even if he could sell them all, “500 people are now going to be looking for the same fridge in Australia at the same time and find it’s unavailable.”

According to former employees, just about every project involving foreign clientele or development has its own “refrigerator” story — an almost comical error of judgement — that, when taken together, constitutes the Wanda Warning — a warning that China’s next generation of entrepreneurs with global aspirations may want to heed.

RANK AND FILE

In many ways, Wang Jianlin, Dalian Wanda’s chairman and founder, is the archetypal China CEO. Wang’s father fought in the Long March for Mao Zedong, and Wang himself served in the army for 16 years before setting out to take advantage of China’s economic opening. He was named chairman of a small, state-owned residential real estate company in the city of Dalian, in northeast China, when he was 35, and quickly privatized the company, and set about growing it into a national property developer.

Wang’s timing was perfect. The government only began allowing citizens to buy and sell residential property in the 1990s, and he quickly profited, beginning with residential complexes and then venturing into branded, Wanda Plazas, with shopping malls, hotels, movie theaters, and shops, in just about every urban center of China.

As Wang’s empire grew, with China’s booming economy and Wang’s political connections, he began steering his company overseas, snapping up sports and entertainment properties, as well as high profile skyscrapers in big cities, like New York, London, Chicago and Madrid.

In 2016, Forbes crowned Wang the richest man in China, with a fortune valued at $28.8 billion.

In growing Wanda, Wang brought a degree of military-style discipline to the firm and built a corporate culture that, within China, is legendary for its hard-driving, top-down leadership.

Wang is not shy about his aspirations for Wanda — and China — to beat the West at its own game. The company’s name, according to promotional materials, means “all things are attainable.” And over the years, Wang has said his massive movie studio development in the coastal city of Qingdao, in north China, would be a bigger and better Hollywood, that his new chain of Chinese theme parks would prove more successful than Shanghai Disneyland, and that the Vista hotel brand would come to rival global brands like the Peninsula or Ritz Carlton.

True to Wang’s military roots, Wanda employees are expected to abide by a strict dress and hair code. They’re required to punch-in upon arriving at work and explain in writing why they’re late. At the head office in Beijing, employees are required to remove their coats before entering the elevator. Receptionists at each level keep check for violations as people exit. A first violation is met with a fine; a second results in being docked half a month’s pay; after a third, the employee is let go.

“At Wanda,” Wang liked to say, “corporate rules are like high voltage lines, and those who touch them will get punished.”

At the heart of Wang’s management style is “the manual,” an internal book that former employees say runs hundreds of pages long and outlines the steps involved in managing a construction project from beginning to end. Former employees told The Wire that the manual not only covers every aspect of a project — from construction, to sales and marketing, to finance — but aims to cover every possible contingency, and crucially, what level of management needs to give approval for each action.

The result is a rigidly bureaucratic and hierarchical organization — one that prevents corruption by institutionalizing oversight and keeps projects on time and in budget by using a unique approach of naming and shaming employees who fall short. Managers who miss targets — either from delays or budget overruns — have their failure publicly broadcast inside the firm.

“It leaves these managers no choice but to try harder to keep pace with or even exceed others,” Wang said in a 2014 speech at the China Europe International Business School in Shanghai. “This sort of corporate culture is so engrained at Wanda that not completing a task well will be felt as a humiliation by every Wanda employee.”

The strategy worked — up to a point. Wanda developed a reputation for delivering property projects on time and under budget in China, where there are fairly uniform development laws across the country. But former employees say the downside is an institutional fear of acknowledging when things go wrong. In particular, there is a cultural aversion to telling higher-ups that something costs more than planned, partly because of the potential for personal professional consequences, but also because of the reluctance of higher-ups to even acknowledge the problem.

This can manifest itself in strange ways, especially in interactions with developed markets or overseas, where local employees and rules don’t fit into the company’s pre-existing guidelines.

Over the past 20 years China has gone through a lot of changes, but Chinese firms still rely on the big boss, his gut feeling, his instincts.

John Ling, managing director of LinVest Consulting

While working at Wanda’s movie studios in Qingdao, for example, Aaron Shershow, an American producer, asked the Wanda staff for waste-paper baskets for the office. “The people at Wanda said it was easier if I just bought it myself,” Shershow said. “They said, ‘requisitions through us is just too hard.’”

To circumvent such a cumbersome process, Wanda developed an over-reliance on going straight to Wang for approvals — a shortcut that was not without its own tolls since Wang’s lieutenants are trained to implement his wishes, no matter the cost. As a result, Wanda developed a reputation for overpaying for assets.

In November 2016, for instance, Wanda agreed to pay close to $1 billion for Dick Clark Productions, the TV production company that produces the Golden Globes. Dick Clark had previously changed hands in 2012 for $370 million. China’s National Development and Reform Commission declined to approve the deal, partly over concerns about the massive differential, said a former Wanda employee.

Wang is also notoriously hands-on — a trait common among Chinese executives, according to John Ling, managing director of LinVest Consulting, which helps Chinese businesses invest in the United States.

“Over the past 20 years China has gone through a lot of changes, but Chinese firms still rely on the big boss, his gut feeling, his instincts,” Ling said. “You sometimes end up in a situation where everyone’s afraid to tell the boss bad news, so they try to hide it, because no one has the guts to tell the big boss what the real situation is.”

Given the magnitude of Wanda’s projects, this trait proved especially farcical and disastrous.

For example, upon reviewing the designs for the Vista Tower — a luxury 101-storey residential tower in Chicago — Wang instructed that the trash chutes be removed, not knowing that the city’s building code required them, one former employee said. Having the chute reinstated was a painstaking process that involved U.S.-based staff taking photos of actual trash chutes to explain how they work.

Another person said that Wang put his personal imprint on the room design of Wanda’s planned Beverly Hills hotel, insisting that the bath tubs be placed immediately inside the entrance. This way guests could enjoy the ocean views while soaking — but it required them to circumnavigate the bathtub in order to enter the bedroom, a feature that routinely raised eyebrows among people who saw the designs.

Wang also ordered that the dumpsters outside the sound stages at Wanda’s studios in Qingdao be hidden when dignitaries from overseas production houses visited. A person working at the studio at the time said that only confused the guests. Given that films generate a lot of trash, particularly from set construction, dumpsters are an integral part of any production. Their absence gave the studio a Potemkin feel.

The Qingdao studio, in a way, serves as a microcosm for Wanda’s grand ambitions and deep pockets — and then its propensity to hobble itself with wild miscalculations. 

In 2013, the company broke ground in north China on what would eventually be the world’s biggest movie studio, with post-production facilities, two massive water tanks, and 40 state-of-the-art sound stages — sound-proof warehouses that give film productions a controlled environment in which to film. Wanda even built the biggest sound stage in the world, at more than 10,000 square meters. By comparison, the largest sound stage at the Warner Bros. studio in Burbank, Calif., is 3,000 square meters; at Universal Studios, it’s 2,700 square meters.

It appeared that, with Wanda’s help, China could be home to the next Hollywood. Wanda paid some of Hollywood biggest stars — such as Leonardo DiCaprio, Nicole Kidman, and Ewan McGregor — to fly to China to attend its elaborate groundbreaking ceremony in September 2013. They were accompanied by senior executives from Sony Pictures, Warner Bros. Entertainment, Universal Studios, Paramount Pictures, and The Weinstein Company.

At the time Wanda boasted that it had “reached preliminary agreements with a number of global film and television giants and talent agencies to have about 30 foreign movies shot and produced at Qingdao Oriental Movie Metropolis every year.” And by the end of 2016, Wanda was ready to start welcoming film productions. Things started reasonably well. In mid-2017, Legendary Entertainment (which Wanda acquired in 2016 for $3.5 billion) was using the Qingdao studios to shoot part of “Pacific Rim: Uprising.” At the same time, three local productions — science fiction epic “Wandering Earth,” sci-fi comedy “Crazy Alien,” and fantasy comedy “The Island” — were also in production.

Given the scale of “Pacific Rim” and “Wandering Earth,” about 70 percent of the studio’s square footage was being used, a respectable start for a new studio. But the productions occupied only a handful of the studio’s ultra-large sound stages, which meant most of the small ones were idle.

Wang, clearly concerned about the underutilization of the site, deduced that demand favored the large stages and that it was a mistake to have small ones. A person involved with the studio at the time said Wang ordered that the unused small stages be torn down and additional large ones built in their place. After studio staff explained that noise from the demolition and construction would drive productions away, effectively closing the studio for a year, he decided not to demolish the existing facilities. 

Instead, he ordered the construction of five additional 3,000 square meter sound stages and five 5,000 square meter stages, a massive expansion of capacity for which there was no obvious demand. Most of them now sit empty.

RED WITH AMBITION

During the height of Wanda’s global aspirations, in late 2015 to early 2016, Wang gave speeches on “Going Global the ‘Wanda’ Way” to elite audiences around the world, including Oxford and Harvard Business School. In these appearances, Wang is formal in a dark suit, white shirt, and conservative tie, and speaks deliberately in Chinese about his ambitions, especially Wanda’s goal to transition from just acquisitions — “Some people on the Chinese media say Wanda only knows to buy, buy, and buy.” — to efforts to bring China into the market of global luxury services.

Wanda’s Acquisitions

Between 2012 and 2016, Dalian Wanda expanded globally, primarily into movies and sport.
Selected acquisitions, with Wanda’s investment amount. Data: Wanda and media reports

“The biggest luxury product in the world is hotels. To say a piece of clothing is luxury is quite an exaggeration. You can’t really have a luxury leather belt,” Wang said at Harvard.

Wanda’s Vista, he went on to say, was going to be the first global luxury hotel brand from China. 

“Wanda already has a lot of 5-star hotels in China,” he noted. “To establish a global luxury brand requires at least 10 or 20 years, so we’ve decided that, to start with we’d build our high-end hotels, in seven landmark cities, including three in the U.S. — New York, Chicago, and LA — and in London and Madrid, all in landmark areas.”

The strategy of investing in global cities made sense, according to Michael Shindler, president of Four Corners Advisors, a hotel development consultancy. 

“You may need to over-pay to be in one, but you do it because you need the presence,” he told The Wire.

Shindler is based in Chicago where the one remaining overseas Wanda Vista hotel is being built — Wanda having sold off all the others after the Chinese government forced it to bring its debt under control. The hotel is just part of the predominantly residential Vista Tower, the third tallest building in Chicago, that is 90 percent owned by Wanda and nearing completion. But, given the Vista’s lack of global presence, Shindler isn’t optimistic about the hotel’s chances.

“No one in the U.S. has heard of Wanda Vista as a hotel brand,” he said. “The Vista name doesn’t bring the same premium as a Waldorf or St. Regis would.”

Wanda’s global retreat came on the heels of a round of bad news. The company was aggressively expanding overseas, with Beijing first encouraging Chinese firms to “go global” and then pressing some fast-moving firms to restrain themselves and hold down their debt.

Wanda also had to cope, in early 2015, with a remarkable expose published in The New York Times that described Wang’s ties to China’s elite families, including business links to the family of President Xi Jinping and former prime minister Wen Jiabao.

When asked about the news report at Harvard, Wang denied the central assertion that his political affiliations had contributed to Wanda’s “rapid growth,” but — surprisingly — offered more detail about Xi’s relative’s Wanda holdings. He said that Xi’s brother-in-law had acquired the shares in Wanda’s commercial property subsidiary in 2009 at market price, along with other investors, but had sold them before the IPO for far less than what he could have earned had he waited for the listing.

“I feel that this isn’t evidence of corruption. This is evidence that the way Secretary Xi governs is extremely strict.”

Within two years, Beijing started looking into Wanda and a small group of other privately owned firms that had similarly spent big on prestige assets overseas. One of those, Anbang Insurance Group, no longer exists — its assets were seized by the state and then restructured into a new firm, Dajia Insurance — and its chairman at the time, Wu Xiaohui, went to prison for corruption.

HNA, the airlines, property and resorts conglomerate, also had its assets seized by the state, after borrowing too aggressively to buy overseas assets.

Wanda, though, has survived. After being publicly scolded by the authorities, Wanda fell back in line quickly. It divested billions of dollars worth of assets between 2017 and 2018 and shifted to a less debt-intensive model of growth, one that focuses on services — such as construction and hotel management — rather than owning the facilities it builds.

It’s impossible to say whether Wanda’s overseas property developments would have proved successful had Beijing not intervened — with the exception of the Jewel, most never reached a stage where demand was really tested. But over the course of its diversification campaign, Wanda spent heavily to expand into markets where it had no prior experience, only to misjudge the market. In North America, its AMC cinemas are in trouble too.

Beijing’s intervention, then, may be what saved Wanda from itself. 

Wang, for his part, seems appropriately grateful. He no longer jets around the globe boasting about the Wanda Way, even though, with more than 100,000 employees, Wanda remains a behemoth. Instead, the company hasn’t abandoned its ambitions so much as funneled them in a different direction. 

In April 2019, for instance, Wanda broke ground on a theme park project in Yan’an, the Chinese Communist Party’s base during the Second World War and a town steeped in CCP mythology. The site plans include a “mega” ice lake, ice and snow tubes, an ice carnival, and an acrobatics show. 

According to Wanda’s website, the “red-themed” project “will be presented as a gift to the 100th anniversary of the founding of the Chinese Communist Party.”

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