Can the International Film Industry make it in China?

1. 32 SHANGHAI BUSINESS REVIEW FEB 2012 www.sbr.net.cn
cultural, political, social and creative angles,”
says Mintz.
Home-grown Talent
Local films are growing in popularity in the
mainland. “Initially, Hong Kong directors
and actors dominated the screen space in
China, mostly due to the commonality in
cultures between the two regions,” says Mor-
gan. “Today, there are several popular stars
and directors from the mainland.”
Steady government support and the avail-
ability of financial resources is giving rise to
apoolof creativewriters,actorsanddirectors.
“Government efforts to slow down interna-
tional competition until China catches up
have paid off well. Domestic films are grow-
ing tremendously. There is a new generation
of gifted Chinese filmmakers who are now
well-trained to make films of superior qual-
ity,” says Morgan.
Ross Pollack, CEO of Celestial Pictures
agrees, “International co-production on
Chinese films is a major positive trend. Hol-
lywood and Hong Kong based production
companies continue to seek partnerships
with Chinese directors, producers and dis-
tributors as local box office and screens grow
exponentially.”
State-owned enterprise China Film Group
Corporation (CFG) is also making efforts to
showcase Chinese talent internationally. A
newly formed animation division of CFG
recently announced a co-production with
Yian Studios to make Wushu Warriors, a
sci-fi 3D animated feature. This wholly local
production is unique in the way that it will be
presented in 90 per cent English and only 10
per cent Mandarin. “The idea is to present to
the rest of the world what Chinese animators
are capable of in terms of storytelling and
production qualities,” says Allen V. Dam,
president of Yian Studios.
Thishasservedtoencouragedynamicgrowth
in Chinese films. According to PwC’s report,
the number of local productions rose by 15
per cent in 2010. Budgets also are expanding.
Lights, Camera – Action?
n the past few years, the Chinese film
market has enjoyed staggering growth
in box-office figures and cinema infra-
structure. China's box office grossed
Rmb10.2bn (USD1.53bn) in 2010, up 64
per cent from the previous year’s earnings of
Rmb6.21bn (USD936m). The Pricewater-
houseCoopers (PwC) Global Entertainment
and Media Outlook report predicts that
China will overtake Japan as the largest film
market in Asia by 2012.
According to the State Administration of
Radio, Film and Television (SARFT) the
number of cinema screens in the mainland is
now more than 9,000, compared with 6,200
in 2010. China will hit the 10,000+ screen
milestone in 2012. There has been a sharp
increase in the number of modern multi-
plexes as well. “There are currently about
2,700 multiplexes in mainland China,” says
TJ Green, chairman of Apex International
Cinemas. “The modernisation and expan-
sion of cinemas has continued over the years
as more shopping mall developers saw the
value of having an entertainment-anchored
destination,”
Hollywood Eyes China
Growth in screen numbers has increased the
demand for content. “A combination of af-
fluence, leisure time and disposable income
has given rise to a need for entertainment,”
saysAndreMorgan,co-founderof theRuddy
Morgan Organization, which has produced
films such as My Kingdom, Warlords and
Perhaps Love in China, and The Godfather
and Million Dollar Baby in Hollywood. This
needforscreencontentisbeingfulfilledpartly
by local and co-productions, and partly by
imported Hollywood films.
Hollywood’s interest in China is not new, but
its efforts to establish a grip on the market
have only gained traction in last couple of
years. “Realising its potential, Hollywood
studios tried to enter the Chinese motion pic-
ture industry in the late 1990s,” says Morgan.
“At the time, they were unable to overcome
the regulatory challenges, and they all left
between 2002 and 2004. They are now trying
to return. While there have been no drastic
modifications in regulations, the Chinese
market is just too huge to ignore”.
This is shown by the box office performance
of films like Avatar and Inception, which
grossed USD214.4m and USD70m respec-
tively in China, a significant chunk of their
worldwide earnings. Currently, the govern-
ment restricts the import of international
films to twenty a year, which means that only
a handful of films can take home earnings
fromtheChinesemarket.Independentstudio
films that are unable to make the quota are
forcedtosellthefilmrightstoalocaldistribu-
tor for a fixed fee, making their take-home
earnings minimal.
East Meets West
The quota is encouraging international
companies to create co-produced features by
partnering with state-owned film studios or
other qualified local private companies. For
a film to qualify as a co-production, it must
have at least one sequence filmed in China
and must include at least one Chinese actor.
SARFT rules consider co-productions as lo-
cal productions, thus not subjecting them to
the 20 film quota.
“With the growth of China’s film industry,
everyone,especiallyHollywood,islookingto
be a part of China through co-productions,”
says Dan Mintz, CEO of DMG Entertain-
ment. (The Beijing based firm announced a
USD300m film fund last year to bring big
budget, co-produced films to China.) “We
are leading this trend with Looper. The film
stars Bruce Willis, Emily Blunt and Chinese
actress Xu Qing, and it also features Chinese
elements in the story. Thus, it is a movie that
global audiences will want to watch, and is
also very relevant to Chinese consumers.”
These partnerships with local companies not
only provide funding and market access to
international companies, but also give them
a better understanding of Chinese culture
during and after the filmmaking process. “It
is important to know the market well not
only on a business side, but also from the
Can the international film industry make it in China?
By Kinnari Mathrawala
I
FEATURE
continued on page 38 . . .

2. 38 SHANGHAI BUSINESS REVIEW FEB 2012 www.sbr.net.cn
very large, international cities such as Lon-
don, Paris, New York, or Hong Kong and
Tokyo, Shanghai and Beijing still have a lot
of work to do. They still have a lot of room
to grow in terms of infrastructural capacity,
as well as the quality of the infrastructure,”
he adds.
Having set up representative offices in
Shenyang, Wuhan and Ningbo, and with
another pending in Chengdu, AECOM is
expanding to second and third tier cities
which also enjoy significant growth of op-
portunities.
As a firm focusing on setting a benchmark
for the whole industry, Bureau Veritas sees
a different type of potential in big cities.
With more mature and sophisticated design
and construction companies in play, there
tends to be a greater understanding of the
quality requirement for construction in these
larger centres. “We’re very pleased to be
part of major local projects in more remote
areas of China. The fact that both the local
government and developers are seeking out
an international technical consultant and
project management company to support
theirprojectsisanindicationof theincreased
attention to construction quality in China,”
says Nicholls.
Hebelievesconstructionfirmsinfirsttiercities
are in a better position to meet international
or local design and construction regulations
or quality and safety standards. “The design
institutes and construction companies head-
quartered in larger cities have a significant
competitiveadvantage.Theirexposuretohigh
quality construction and genuine implemen-
tation of local and international standards
makes them preferred partners. If you are
seeking implementation of a higher quality
and safety standard, you will seek out a more
experienceddesignandconstructionpartner,”
says Nicholls.
Lights, Camera – Action?
. . . continued from page 32
Previously, budgets had been averaging
around Rmb5m (USD750,000) per film,
but they are now growing to as much as
Rmb100m (USD15m). At USD100m,
Zhang Yimou’s Flowers of War, featuring
Christian Bale, is reportedly the most expen-
sive Chinese movie ever made.
This growth has brought new problems. Co-
productions need to appeal to both a local
and international audience to achieve box
office targets, and the challenge remains in
finding projects that appeal to both markets.
Furthermore, rapid growth in the industry
hasbroughtaninflowof localinvestmentand
established talent is becoming increasingly in
shortsupply.“Thefilmindustryhascaughtthe
imaginationof China’snewwealthyasaplace
toinvest,”saysZoeChen,generalmanagerof
Ruddy Morgan China. “As a result, profes-
sionalproductioncompaniesaimingtomake
commercially successful films are having to
battle for talent with productions that are not
so commercially focused, driving up the price
of talenttolevelsthatmakeitincreasinglyhard
to make good films that turn a profit.”
Co-productions also require the two cultures
to get along professionally. “The China film
industry still has a long way to go to achieve
theslickprofessionalexecutionof Hollywood,”
says Ruddy Morgan’s Chen. “International
companies that enter into co-productions in
Chinaneedtobeveryawarethatthewaythings
getdoneherecanbeverydifferent.If theyareto
succeedtheyshouldensurethattheyhavegood
local representation that really knows its way
aroundthebusinessinChinaandcanrepresent
their interests effectively.”