Four Things to Watch in China’s Film Industry

China’s film market has become one of the two major drivers of global box office growth in recent years, but if strong growth is to continue, its local industry will need more confidence, patience, and professional workers, market watchers say.

This is especially true in a market in which foreign films play a limited but still significant role. The number of Hollywood releases has been capped at a few dozen a year since 2012.

The global box office grew year-on-year by just 1.2% in 2018 to $41.1 billion in revenue, according to a recent China Film Association report. The North American market — the U.S. and Canada — grew 7% to $11.9 billion, while China’s box office grew 9% to about $9 billion.

Other major markets have basically stopped growing in the last decade, elevating the importance of these two markets to the global industry, said Liu Jia, a film expert at the Beijing Film Academy, at an event for the release of the film association report held as part of the Shanghai International Film Festival last week.

While rapid growth in the number of cinemas last year made China the country with the most screens in the world — over 9,000 were added in 2018 to bring the total to just over 60,000 — a considerable number of theaters have been struggling. A total of 288 theaters shut last year, 59.12% more than in 2017. The number may be even higher this year — box office revenue dipped 8% in the first quarter.

The slump this year has been blamed on factors including a slowing economy and a high-profile crackdown on tax evasion in the industry.

However some maintain that the country’s film industry still has great growth potential. While bigger cities will remain the biggest contributors to the box office this year, third- and fourth-tier cities will become increasingly significant as the market looks to secure new growth, said Liu Jia.

One of the co-authors of the film association’s report, Chinese National Academy of Arts researcher Liu Fan, mentioned several things to watch as the sector moves forward.

Cash is drying up

Filmmakers found it difficult to raise funds last year, amid a financial crackdown and a deleveraging campaign. To an extent, this is a positive thing, Liu Fan said, as it has helped to pop “bubbles” inflated by a flood of investment into the sector in recent years. But as Beijing has unveiled policies to help small and midsize enterprises, state support may flow towards some firms in the sector in the near term.

Star scandals

In China, all films need government approval before they can be released. That approval can be withheld if people associated with a film — especially its star — engage in behavior of which the authorities do not approve, ranging from illegal activity to sexual misconduct. Liu Fan pointed out that studios which rely heavily on stars saw their market value shrink sharply last year.

The most high-profile crackdown on misbehavior in the sector kicked off last summer, with a tax probe into A-lister Fan Bingbing eventually shedding light on various aspects of the sector’s business practices, including tax evasion and sky-high paychecks for stars. In October, tax authorities launched a two-month campaign asking individuals and companies to examine and correct their practices.

Liu Fan said companies need to adapt to greater scrutiny over their integrity.

The government overhaul last year did away with the old media regulator and created the State Radio and Television Administration — which unlike its predecessor is directly under the Publicity Department of the Communist Party. “I believe pressure from regulators will continue to grow on us after the change of governing body in Beijing,” said Liu Fan.

Professionalism pays

There is a shortage of highly professional production teams in China at the moment, Liu Fan said, and those that do exist are highly-sought after by investors. He cited the teams built by producer-directors Ning Hao, Xu Zheng, and Hong Kong’s Peter Chan as examples.

This is all the more important for smaller players, he said.

As big studios are able to keep more of the process in-house — using their own cash and distribution networks — rather than collaborating, minor firms can only thrive through quality.

Currently there are few such firms, but as China’s movie market matures there will be more space for them, he argued.

This year, Lebanese flick “Capernaum,” which had a budget of just $4 million, raked in 400 million yuan ($58 million) in China, showing that smaller movies can be big successes, he said.

Quality requires tolerance

Liu Fan said that if studios are to make quality films, tolerance will be required from both investors and industry watchdogs. Investors have to give filmmakers a chance to innovate and polish their works, while China’s regulators should not take an excessively strict approach.

“If there had not been tolerance from industry watchdogs, (sensitive) films such as ‘Dying to Survive’ would not be released,” he said.

The third-biggest earner of last year and China’s most-discussed film of 2018, “Dying to Survive” was based on the real-life story of leukemia patients buying smuggled generic drugs because officially approved drugs were simply too expensive. It surprised observers with its portrayal of social problems amid the strict regulatory environment.


–This article originally appeared on Caixin Global