48 Business The EconomistAugust 29th 2020
21and angering American politicians. The
great screen romance between Hollywood
and China is turning into more of a drama.
China raised the curtain on regular Hol-
lywood releases in 1994. The market was
tiny—“The Fugitive”, the first American
film to be shown in cinemas that year,
made just $3m—and the bureaucracy sti-
fling. Imports were limited to ten a year.
Their makers were allocated just 13% of a
film’s box-office takings. The rest reserved
for cinemas and distributors.
Slowly the rules were relaxed. In 2001
the foreign-film quota doubled to 20. A de-
cade later it rose to 34, and producers’ rev-
enue share went up to 25%. Foreign studios
also discovered co-production. Movies
made in partnership with a Chinese com-
pany qualify as domestic and are thus ex-
empt from the quota system. They also en-
title the studio to as much as 43% of the box
office and better release dates; usually only
domestic films are awarded slots during
the four main holidays—spring, summer,
national day and Chinese new year—when
around half the year’s tickets are sold.
At the same time, China’s growing mid-
dle class was developing a taste for cinema.
In 2005 China had 4,000 theatre screens,
slightly more than Britain at the time. Last
year it had nearly 70,000, according to Om-
dia, a market-research company, almost
equal to America and Europe combined. Blow-Up
By 2007 American studios ruled the Chi-
nese box office, making 16 of the 25 highest-
grossing films, according to Box Office
Mojo, part of imdbPro, a data company. In
2013 “Pacific Rim”, a robots-versus-mon-
sters romp produced by Legendary Pic-
tures, became the first American block-
buster to take more money in China than at
home. After that, recalls Peter Loehr, for-
mer head of Legendary’s China division,
Hollywood studios that did not yet have of-
fices in China quickly established them.
As Chinese audiences flocked to watch
American films, Chinese media and tech
companies rushed to invest in them. In
2016 Dalian Wanda Group, a conglomerate,
bought Legendary for $3.5bn. It also
snapped up real estate next to the Beverly
Hilton hotel in the heart of Tinseltown. In
2013, at the launch of its own huge studio in
Qingdao, the Oriental Movie Metropolis,
Dalian Wanda paid stars including Leonar-
do DiCaprio and Nicole Kidman to attend.
This marked the start of a “three-year feed-
ing frenzy, where everybody was happy to
take these idiots’ money”, recalls one for-
mer Hollywood bigwig. Like the Japanese
and the Arabs before them, he says, the
Chinese discovered that when you hand
out dosh, “people here will take it from
you, in exchange for allowing you to come
to a party with some semi-famous people”.
In the past few years, though, Chinesestudios have grown less infatuated with
Hollywood—and more sophisticated. They
have splurged on sound stages and other
studio infrastructure. Hengdian World Stu-
dios in Zhejiang, Shanghai Film Studio and
August First Film Studio in Beijing, as well
as Dalian Wanda’s Movie Metropolis, have
been enlarged and upgraded. Co-produc-
tions with Americans have sharpened Chi-
nese film-makers’ skills and given them in-
ternational contacts, notes Wendy Su of
the University of California, Riverside.
Special effects, where the West remains in
the lead, can be farmed out. “The Eight
Hundred”, a recently released war drama
produced by Beijing-based cmc Pictures,
subcontracted its visual effects to compa-
nies including dneg, a British firm, and
Rising Sun Pictures, an Australian one.
Rao Shuguang, secretary-general of the
(Communist Party-led) China Film Associ-
ation, says that along with “substantial”
improvement in quality, China is exploring
new genres. This month film authorities
issued new guidelines for science-fiction
films, which they used to frown upon.
Sci-fi is to “disseminate scientific thought”
and “raise the spirit of scientists”.
Chinese films, sci-fi or otherwise, are
certainly getting more entertaining. “The
Wandering Earth”, a sci-fi thriller made by
the China Film Group Corporation (cfgc)took around $700m last year. So did Beijing
Enlight Pictures’ “Ne Zha”, an animated tale
of demons and spirits based on a 16th-
century novel. These slick, home-grown
blockbusters pushed Disney’s “Avengers:
Endgame”—the highest-grossing movie in
history by worldwide receipts—into third
place at China’s box office. In a reversal of
fortunes from a decade ago, 17 of the 25
highest-grossing films in China were Chi-
nese, including eight in the top ten; only
eight were American (see chart 2).
Audiences in big Chinese cities like
Beijing and Shanghai can relate to Western
fare, says Lei Ming of abd Entertainment,
an audience-analysis firm, but people in
smaller, provincial cities do not. And they
are the fastest-growing audience: third-
tier and fourth-tier cities, roughly those
with fewer than 3m residents, account for
40% and rising of China’s box office, ac-
cording to Maoyang, a ticketing platform.
Now Hollywood’s commercial chal-
lenges are increasingly compounded by
political ones. Peter Shiao, who in 1998 pro-
duced the first Sino-American co-produc-
tion, “Restless”, talks of a “climate of in-
creasing suspicion on both sides”.
Under Xi Jinping, China’s party chief
since 2012, a period of relative openness to
outsiders has given way to a more national-
istic sentiment. In an effort to make China
a “strong cultural nation”, Mr Xi’s govern-
ment has not only put the brakes on extra-
vagant foreign investments, forcing Dalian
Wanda to sell its Hollywood digs, among
other things, but also made it harder for
American studios to do business in China.
It is strictly enforcing rules that require co-
productions to have at least one-third of
their investment from Chinese partners, at
least one scene shot in China and a cast that
is at least one-third Chinese.
These days co-productions are “almost
impossible to approve”, Mr Shiao laments.
Disney, which had hoped its Shanghai
theme park might buy it more access to
Chinese television, has been disappointed.
In 2016 Netflix tried to enter China but hit
snags with technology and, above all, con-Onceupona timeintheEast
Box-officerevenues*,$bnSources: Ampere Analysis;TheEconomist *Excludingsalestaxes †Forecast1129630
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