China: Market loosens quotas, but still cautious

American Film Market 2012: Global Locations - China

China as a global location has become even more attractive because of the looser quota rules, but tighter conditions for co-prods means Hollywood shingles seeking a foothold need to respect the local rules to take advantage of what the world’s second largest film market has to offer.

In February, there was considerable excitement in Hollywood when China added 14 3D and large-format films to its existing quota of 20 on a revenue-sharing basis. However, the increase did not apply to films in ordinary formats, and there is still the same number of films having to go through the approvals process.

“Despite this distinction, the general perception is that China is more attractive after the loosening of the quota,” says Mathew Alderson, Beijing-based partner at Harris Moure Attorneys. “Certainly, Hollywood is happier now than it was before.

“A great deal of attention is given to the quota,” he adds. “It is generally assumed that the quota is the biggest problem for Hollywood, but the biggest problems are getting films approved by the Chinese censors and then getting paid a full share of box office.”

An SEC probe into possible corruption in the way Hollywood does business in the booming China market showed how it remains far from easy.

At the same time, China now has the largest foreign box office market in the world, which makes it a very attractive proposition for Hollywood. But still-rampant piracy means there is a lack of ancillary revenue streams such as downloads, home rentals or merchandising.

The country’s State Administration of Radio, Film, and Television recently highlighted that its rules for co-prods require at least one third of production funding coming from China, along with one third of the main cast, while scenes must also be shot in China.

Co-prods help boost China’s image overseas while benefitting from learning expertise.

“Co-productions were definitely not intended as de facto quota busters, which is how they are often regarded in Hollywood,” says Alderson. “The authorities are now more vigilant about what they call ‘stick-on’ productions in which the Chinese elements are contrived and insubstantial.”

The Chinese are sensitive to the idea that Hollywood might be cynically taking advantage of its booming film market. Zhang Peiming, deputy head of SARFT, accused “Looper” and “Cloud Atlas,” accusing them of making superficial attempts at co-prod status.

“These co-productions get around the quota system and take domestic investment away and threaten Chinese movies,” Zhang said at the time.

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