CHINA has re-assured the local film industry that it is free to shoot whatever films it wants after 1997, even ''category IV or V films''. The director of the State Council's Hong Kong and Macau Affairs Office, Lu Ping, told an industry delegation that the territory would have its own cultural policy and enjoy a high degree of artistic freedom after the changeover of sovereignty. According to the chief executive of the Motion Picture Industry Association, Peter Tsi Ka-kei, Mr Lu said there would be no change to the censorship system and they could even shoot ''category IV or V films''. Category III films are restricted to those aged over 18. About 40 members of the association visited Beijing for four days last month. Mr Tsi said Mr Lu also promised that Hong Kong could continue to participate in international film festivals as a member itself in the name of ''China, Hong Kong''. Mr Tsi said it was becoming more popular for Hong Kong to shoot films on the mainland. He estimated that up to 40 per cent of Hong Kong film makers shot part or all of their films there. Mr Tsi also revealed that the association was planning to impose a box office levy on local films starting in January. The proceeds would be used to set up a fund to combat piracy in China. Piracy of Hong Kong films is widespread on the mainland, costingthe industry millions of dollars.