JUST BEFORE THE release of his new film, One Nite in Mongkok, last month, director Derek Yee Tung-shing spent sleepless nights in the editing suite, examining every frame of his category IIB film. 'You now have to work on two versions of a film,' he says. 'For China, the violence has to be watered down. I'm lucky [the censors] didn't insist on all the violent scenes being cut out.' Yee isn't the only director who's had to grapple with this issue. In fact, he's one of the luckier ones, because he only had to come up with one other edit. Other directors have had to film two endings: one to keep the more sophisticated Hong Kong audience happy, and the other to stay within China's strict censorship laws. 'China' has become something of a mantra for the film industry. With the Hong Kong movie market shrinking and the traditional Southeast Asian market all but gone, filmmakers are increasingly looking north for a return on their investment. While the industry undergoes restructuring and development, there are still no official nationwide box office figures available. It's an issue that has to be addressed to give the industry legitimacy. However, sources put the mainland total receipts for 2003 at 800 million yuan. Half of that went to the 20 foreign films such as Harry Potter and the Chamber of Secrets and Spider-Man that were allowed in under the foreign import quota. About 200 million yuan went to Zhang Yimou's highly lauded Hero, with 100 million yuan to China/Hong Kong co-productions and the same amount again to domestic productions. Insiders say these figures mark just one-tenth of the market's potential. And it's a market that's almost within reach since the Closer Economic Partnership Arrangement (Cepa) came into effect on January 1 this year, allowing greater trade between Hong Kong, Macau and the mainland. Under its terms, Hong Kong films co-produced with mainland partners can be released on the mainland as local productions (and, therefore, not subject to foreign import quotas) as long as they meet the other criteria of labour quotas, subject matter and content. The challenge for filmmakers is to come up with a script that's acceptable to the China Film Bureau - which handles censorship duties - and still appeals to a wider Asian audience. There are many taboo subjects on the mainland that do big business elsewhere: horror and police dramas, for starters. The official government line that ghosts don't exist means that films such as The Sixth Sense would never get past the first stage of censorship. Gunfire in public places is also frowned on by the authorities, who fear it may prompt panic, so street shoot-outs would never see the light of day. That's not to say, however, that gunfights set far from civilisation are completely out of question. These sensitivities have scared some filmmakers from the market, but those who've worked within the limitations say it's just a matter of being aware of the rules of the game. Sol Cheang Pou-soi, director of Universe Films' The Death Curse, got around his horror restrictions by turning supernatural sequences into pranks perpetrated by an unscrupulous villain. 'We knew from the start that we'd be working with China on this and that there could be no ghosts,' he says. 'That was why I had to add a lot of gags and comedy to it.' Even so, he experienced problems with his first draft. 'They sent it back asking us to make it less scary,' Cheang says. 'Imagine being asked to make a horror film less scary.' At a recent seminar of Hong Kong and mainland filmmakers during the Hong Kong International Film Festival, one well-known mainland director suggested horror films should all end as dream sequences to appease the censors. 'You could leave the dream sequence in for the mainland version and edit out that last part when you release it overseas,' he said, amid peals of laughter. The director (who asked not to be named for fear of repercussions) may have been half joking, but his comments drive home the point that what's acceptable in most countries isn't necessarily so on the mainland. The script for another new horror film, Hua Pi, rumoured to be budgeted at $30 million and to star Crouching Tiger, Hidden Dragon actor Zhang Ziyi, is believed to have been approved because the supernatural sequences are portrayed as a figment of the lead character's imagination. Jiang Hu, an Anytime Pictures triad-themed film that was originally planned as a co-production, failed to get its script past censors even though no gunplay was used. Yet Media Asia's Infernal Affairs III managed to get through, even before Cepa came into effect. Andrew Lau Wai-keung and Alan Mak Siu-fai, directors of the original Infernal Affairs, had to shoot two endings. In the Hong Kong version, Ming (Andy Lau Tak-wah) - the triad plant in the force - escapes scot-free after committing several murders. In the version released in Southeast Asia and on the mainland, Ming is brought to justice because censors didn't like the idea of criminals going unpunished. (Malaysian and Singaporean censors share similar concerns to those of their mainland counterparts). Media Asia's head of production, John Chong, says his main worry isn't so much the subject matter of the films as the policy governing the background of mainland movie characters. 'It's very good that they have decreased the mandatory percentage of mainland lead actors from 50 per cent to 30 per cent,' he says. 'But it becomes a problem when the backgrounds of the characters they play have to have a connection to China.' He says this is less of a problem with costume dramas because most of the characters have Chinese backgrounds, but in contemporary films, with a mishmash of international characters, it can be a problem. 'It means that an actor like Jiang Wen can't play the role of an overseas Chinese character in a film unless we say the guy was originally from China,' says Chong. Filmmakers say the restrictions will eventually be relaxed - but at Beijing's pace. Mainland directors, who work under even greater limitations, say Hong Kong filmmakers should be more patient. 'Don't push the reforms too fast,' says Big Shot's Funeral director Feng Xiaogang, who is now directing a Media Asia co-production, A World Without Thieves, starring Andy Lau and Ge You. 'Taking it one step at a time is better than taking one big step and then being pushed back 10 steps,' he says. 'There are always reform critics who are looking for loopholes to attack. It's best to let it happen slowly but surely.' Does this mean Hong Kong audiences will soon be fed a diet of scary movies that aren't even scary, or action movies without action? Producers say no. Universe Films, which produced movies such as Heroic Duo and Death Curse, plans to make eight titles this year, of which only half are co-productions with mainland studios. 'But we're not doing co-productions for the sake of making co-productions,' says chief operating officer Alvin Lam. 'If we can sustain the film without the Chinese market and the subject matter is interesting, then we'll still go for other subjects [that may not be accepted in China].'