Business News

In China, 'Disney' deals turn out to be fantasy

Sui-Lee Wee
People walk at Shanghai Disney Resort during a three-day Grand Opening event in Shanghai, China, June 15, 2016.
Aly Song | Reuters

In 2013, Meng Dekai, a Disney executive in China, signed a deal with the mayor of Hefei to build a $1.3 billion "Disney cultural and industrial park."

It was one of several agreements with multiple cities in China that Mr. Meng apparently signed.

The only problem: He was not allowed to do so.

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The Walt Disney Company said on Wednesday that it had parted ways with Mr. Meng — it did not say whether he resigned or was fired — after opening an investigation into allegations that he had signed deals with local governments for Disney-related projects.

The brazenness of the apparent duplicity highlights the risks for foreign companies operating in China, where counterfeiting and corruption are still rampant despite repeated government campaigns to crack down. Reports of Mr. Meng's deals across the country have also led to widespread confusion about Disney's future plans across China, the world's second-largest economy.

The company said it started the investigation after The Paper, a Chinese news website, reported in February that Mr. Meng had signed deals for projects with several Chinese cities.

A Disney spokeswoman said the company was "investigating," when asked whether it would push for a criminal inquiry. Mr. Meng could not be reached for comment.

"This is the weirdest thing I've ever heard of when it comes to fraud against a foreign business," said James McGregor, chairman of the greater China region for the consulting firm APCO Worldwide. "I mean, it's so big and it's so public, it's such a big name company. What was he thinking?"

Along with the Hefei deal, Mr. Meng, who was employed by Disney as a director of special projects, signed agreements in the cities of Ningbo, on the eastern Chinese coast, and Zhengzhou, in the center of the country.

The Henan Daily said on its public account on WeChat, an instant-messaging app in China, that Walt Disney Company (China) Limited had signed a memorandum of understanding with the Henan government to build a site in Zhengzhou, which could include "even the Disneyland parks that everyone knows so well."

"Disney is here! Disney has really come to Zhengzhou!" the paper said.

And the Hefei Network, a news website, said in 2013 that the "Disney project" that Mr. Meng signed with the city's mayor, Zhang Qingjun — who has since been dismissed for corruption — would stretch across 1,300 acres and be built over three years.

In January of this year, the state-run Jianghuai Morning News reported that a Disney project in the same province would consist of a theme park based around the mobile video game Angry Birds (which is not produced by Disney, but the Finnish company Rovio), film special effects production offices, and other offerings. It is unclear whether the 2013 deal announced in Hefei, in one of China's poorest provinces, is the same one.

In February, The Hangzhou Daily reported that a building in Ningbo was emblazoned with a Disney logo.

A search on Tianyancha, a corporate database in China, showed that Mr. Meng's name was linked to 21 companies in the country, with him listed either as the legal representative or executive director. Most of the companies' names start with the same Chinese character for Disney, "Dee Magic," and contain "America" in them. Mr. Meng had also registered two companies in Hong Kong, a search on the city's database found.

The Disney spokeswoman said that neither Dee Magic nor any of its affiliates had been authorized by Disney to promote projects or sign deals on behalf of the company, and that they had been told "to immediately cease any unauthorized activity."

She added that while Disney had signed a memorandum of understanding with the Henan government for a "very limited consumer products license agreement," it appeared that "they've maybe gone beyond the bounds of the licensing agreement."

Last year, Disney opened a $5.5 billion resort in Shanghai, its first in mainland China. It also has a park in Hong Kong, the autonomous former British colony.

Perhaps because of its high profile in the country, the company's products have long been copied and faked. In 2015, a Chinese government agency singled out Disney as the focus of a new "special action" to stamp out imitation goods that infringe on its trademarks, including fake Snow White dolls and "Frozen" backpacks.

Mr. Meng, 43, is from the eastern city of Jinan and obtained a doctorate from Shandong University, where he is also a part-time professor, according to The Paper. It said Mr. Meng co-founded a heavy-industry company with the chairman of Yiyi Group. Yiyi started several real estate projects with names that sound similar to the word Disney such as "Di Qu Happy Town" and "Dimo Starworld."

Yiyi's website said "Di Qu Happy Town" had obtained "intellectual property authorization" from Disney.

Disney said that Yiyi had only a limited license with its China unit to install temporary movie-themed promotional displays in shopping malls, subject to approval from Disney, and that "Yiyi has absolutely no authority for any work" with Disney beyond that.