Yesterday, real estate and entertainment conglomerate Dalian Wanda Group announced (in Chinese) that it had sold a 12.77% stake in its film subsidiary, Wanda Film, for RMB 7.8 billion ($1.24 billion dollars). The buyers of the minority stake are e-commerce giant Alibaba and the state-backed Cultural Investment Holdings. Alibaba will be acquiring a 7.66% stake in Wanda Film for RMB 4.68 billion ($744 million), and Cultural Investment Holdings will be paying RMB 3.12 billion ($496 million) for 5.11%.

The acquisition will make Alibaba the second-largest shareholder of Wanda’s film group, with Wanda still controlling a 48.1% stake in the company.

Jack Ma in 2006 (Image credit: JD Lasica/Flickr)

The deal comes as less a surprise as Wanda has, since last year, been undergoing a series of asset trimming as a response to the Chinese government’s calls for private companies to reduce leverage and decrease risk in the overall economy. Last August, an opinion piece published by China’s state media The People’s Daily excoriated (in Chinese) companies like Wanda and LeEco for using cheap debt to “barbarically expand” their business empires. A slew of measures were issued by the government to curb what was perceived as “irrational spending,” including a notice (in Chinese) by the National Development and Reform Commission and the State Council that outlawed investments in certain sectors—like the gambling and sex industries—and restricted investments in industries like film, entertainment, real estate, and sports.

The government’s crackdown on aggressive asset acquisitions has led to Wanda selling off several of its properties and embracing an “asset-light strategy”. According to a company statement (in Chinese) this January, Wanda had offloaded its assets by 11.5% to RMB 700 billion ($109.4 billion) during 2017. Last year, the company seemed to have walked back on its ambitions of creating a global movie enterprise when it announced that it was selling a 91% stake of 13 cultural tourism projects, including a movie studio complex in Qingdao that Wanda believed would be China’s answer to Hollywood, to its rival, Sunac China Holdings. And last week, Xinhua reported (in Chinese) that a consortium of investors—led by internet giant Tencent with participation from JD, Alibaba-backed Suning, and Sunac—would be spending RMB 34 billion ($5.3 billion) to buy out a minority stake in Wanda Commercial Properties, a real estate subsidiary underneath Dalian Wanda.

Wang Jianlin (Image credit: Fortune Live Media/Flickr)

Wanda’s most recent deal with Alibaba and Cultural Investment Holdings is one that will have a momentous impact on China’s movie industry. It is an acquisition that will certainly privilege (in Chinese) Alibaba, as the company has made clear that one of its goals for 2018 is to make sure Taopiaopiao, Alibaba’s online ticketing platform, has the largest market share in China’s movie ticketing industry. By partnering with Wanda, China’s biggest cinema chain operator—Wanda currently owns 516 theaters and 4,571 screens, which accounts for 14% of China’s film market—it will be far more likely now thar Taopiaopiao will defeat its biggest competitor in China, Maoyan-Weiying.

Wanda has characterized this equity transfer as one that is motivated by seeking out “shareholders of strategic value,” and not merely “fund raising”. The company has announced (in Chinese) that it will collaborate with Alibaba on areas such as movie distribution, marketing, and financing and with Cultural Investment Holdings on pre-screening advertising and cultural tourism opportunities. Alibaba’s strengths in big data as well as its multiple media and entertainment assets, including IP-producing units like streaming site Youku Tudou, Alibaba Pictures, Alibaba Music, Alibaba Gaming, and Alibaba Literature, will also have long-term benefits for Wanda Film, particularly in the sectors of movie production and movie merchandise sales, an important growing market in China.