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One of China’s senior industryites has urged the government to reform its film censorship system to help the world’s biggest developing market achieve its full potential.

Yu Dong, chairman and CEO of Bona Film Group, the country’s biggest privately owned distributor-producer, said China’s biz was on the brink of a boom but it was being held back by censorship. Bona raised $100 million in an initial public offering on the Nasdaq in December.

“In the next decade, we will enter a golden era but we also face the challenge of censorship,” Yu told an Asian Producers Forum at Filmart in Hong Kong. “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.”

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 beady eye and foreign movies have had to make major cuts to get into China. Ang Lee’s “Lust, Caution” lost key scenes because of sexual content, rendering the final version difficult to follow.

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.

Yu said censorship was less rigid in the southern China, and perhaps one approach would be to censor movies on a regional basis.”We are entering a very severe situation of competition for resources. We need new ideas for stories. If 100 or 500 movies are censored, censorship is limiting and killing new ideas,” he said.Chinese B.O. zipped past the $1.5 billion threshold last year for the first time, 64% up on 2009, leaving it well placed to become the world’s second biggest film market in coming years.Yu said he expected to see more than 1,000 movies made in China next year. In 2010, over 520 films were made but fewer than 150 were released theatrically, because of growing competition.

He also expected many new film companies to go to the capital markets to seek a listing in the next two or three years. At least 10 were planning to seek a listing at the moment.

The focus was also switching to building cinemas and in five years the expansion had been massive. Over the next three to four years, the number of cinema screens across the country is likely to increase to 13,000 from the current 8,000, and next year, the increase in the number of screens is forecast to be around 1,000.

Last year, the Bona group announced a 37.6% increase in net revenues to $52.8 million, largely driven by the group’s movie theater business.

Yin Hong, associate dean at Tsinghua U.’s School of Journalism and Communication, said the Chinese biz needed to be more systematic in its approach.

“What is important is an efficient method of filmmaking. If we had an effective system, it would start to attract talent. We cannot just rely on one or two directors, we need a system. We have five to seven companies that could become the leaders of the filmmaking industry. If they are to go ahead and make a profit, they can continue and build a system. If they lose money, or fail, it will have a very negative effect on the film industry.”

Lee Tain Dow, a professor at the U. of Shih Chien in Taipei, said there needed to be greater focus on protection of copyright and on distribution.

“Hollywood is very comprehensive in terms of distribution. We need to consider if the film industry cannot connect effectively, we cannot just keep running for money,” he said.

Nansun Shi, who produces Tsui Hark’s films via Film Workshop, and is executive director of Asian sales outfit Distribution Workshop, said the market in China has changed drastically.

“Money is what we have in China, we have lots of money for filmmaking,” she told the forum.

Hong Kong producers and helmers had taught the Chinese cinema much, and now China was returning the favor by investing heavily in films.

“We are benefiting from general economic growth,” she said, adding that she believed the money would come from private sources, not government sources.