BEIJING Legendary Pictures’ plans for Hollywood-China movie production venture Legendary East suffered a setback yesterday after a key investor, Hong Kong’s Paul Y. Engineering Group (PYE), put its $220.5 million investment on hold because of shaky financial markets.

Deal was one of the biggest of a raft of agreements between Hollywood shingles and Chinese players aimed at getting into the booming Chinese market.

PYE said in a statement that although the stock placing had received a positive response, it was not enough to complete the placing before the year-end deadline and the company decided to put the placing on hold.

“However, we maintain that diversification with an investment in Legendary East is beneficial to PYE. We intend to work out an improved structure with the goal of re-launching the transactions,” PYE chairman James Chiu said.

PYE is publicly traded on the Hong Kong stock market and attempted to raise the Legendary East funds by placing new company stock with private equity firm AID Partners, and through UBS AG, to other institutional and professional investors.

PYE said it would try again in 2012 by working with the partners to modify the structure of the deal.

Under the original proposal, PYE planned to take a 50% stake in Legendary East. Thomas Tull’s Legendary Entertainment would have been left with a 40% stake in Legendary East and China’s Huayi Brothers would have the remaining 10%.

In June, Tull paired up with Chinese-born Hong Kong media and finance entrepreneur Kelvin Wu to launch Legendary East. The goal had been to make one or two big-budget movies a year starting in 2013 that were aimed at global auds but also commercially viable in China.

The movies were to be mainly in English and feature themes based on Chinese history, mythology or culture.

Wu, formerly of Orange Sky Golden Harvest Entertainment, serves as Legendary East’s CEO and is a principal at private equity firm AID Partners, which entered into a “subscription agreement” to invest $35 million in PYE to become a significant shareholder in the company.

PYE is best known for its property management biz in Hong Kong’s booming real estate market and for engineering work that has helped shape the city’s ever-changing skyline.

One of PYE’s towers, the Center, which is Hong Kong’s fifth tallest skyscraper, was used as a location in “The Dark Knight,” which Legendary co-financed with Warner Bros.

Legendary East was to enable Tull to bypass Chinese government restrictions that put a 20-pic limit on foreign films that can play in the country’s theaters, and allow him to benefit from the growing box office in the region.

Chinese B.O. surged 64% to $1.5 billion in 2010 and is expected to grow 30% in 2011 to $2 billion.