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It’s the biggest obstacle to outsiders looking to grab a slice of the world’s fastest-growing market: China’s quota system, which limits to around 20 the number of foreign movies allowed into the Mainland annually on a revenue-sharing basis.

Every year there is speculation about when, or even if, it will be relaxed, but every year the status quo remains, and that’s fine with many Chinese filmmakers.

The Five Year Plan by the State Council, China’s cabinet, stresses the importance of the quota system to help promote domestic pics, saying the country’s growing ranks of cinemas must devote two-thirds of screening time to Chinese films.

Many local filmmakers, both in the Mainland and Hong Kong, fear that an end to the quota system would mean a disaster for the biz here, as local shingles do not have Hollywood’s muscle.

“If China eventually removes the quota system on imported revenue-sharing films, the door will be opened for more U.S. studio films to enter the market. They are extremely competitive and I fear that the China market may soon go the way of Taiwan, Korea and Japan and be dominated by Hollywood studio films over indigenous local films,” says Albert Lee, chief executive of Emperor Motion Pictures in Hong Kong.

Lee adds that while he’s not advocating restrictive market access, he doesn’t think local distribs can compete compete on equal terms with the Hollywood studios.

Hong Kong, the former Crown colony that reverted to Chinese rule in 1997, does not qualify under the quota rules because of favorable regulations and trade deals.

The number of tie-ups between Hong Kong and Mainland companies is growing.

“Personally, I believe most Chinese companies perceive Hollywood more as a competitive threat than an opportunity. No Chinese company is equipped to go to Hollywood and compete. The U.S. domestic market is an incredibly difficult market for foreign-language films to succeed,” says Lee, who adds that because of the demise of various U.S. specialty distributors over the past few years, it’s even harder to find someone who is willing to gamble on a foreign-language film.

One insider working at a private shingle says were the quota system to be relaxed, they would be more active in distributing international films, as would other distributors.

Also, many local Mainland filmmakers say the censorship system in China means that even if the quota were relaxed, the conditions for making movies is still restrictive.

Ironically, China has no official motion picture rating system, and films must be deemed suitable for all audiences to be allowed to screen.

Filmmakers have to get script approval from the Film Bureau before shooting begins and anything deemed politically incorrect or immoral is excised. This includes a wide range of sensitive subjects such as portraying Chinese culture and revolutionary leaders in a bad light, police brutality, Tibetan independence, food scares, corruption and porn.

Industryites often struggle to guess what will get past the censor’s eye, and foreign movies often have had to make cuts to get into China. Ang Lee’s “Lust, Caution” lost key scenes because of sexual content, rendering the final version difficult to follow.

At Filmart in March, one of China’s senior industryites, Yu Dong, chairman and CEO of Bona Film Group, urged the Beijing government to reform its film censorship system to help the world’s biggest developing market achieve its full potential.

“In the next decade, we will enter a golden era but we also face the challenge of censorship,” he said. “The market needs more stories, more scripts, different categories. We need a new system of censorship as the existing one won’t allow us make use of resources.”

While Yu gave no specifics on how to reform the censorship regime, he said over-rigorous control of subjects and ideas was in danger of choking creativity, and the system needed to be more coherent.

However, another industryite, who requested anonymity, says: “The general feeling is: the removal of the quota will not happen at all.

Most of the people don’t understand this at all. The people with knowledge feel the quota will still be there for quite some time in one way or the other. They have all the ways to do lift it if they want, but they keep it for protecting Chinese movie industry and for preventing Western culture to penetrate more into China.”