THE statement that movies are a mimicry of real life could not be more apt when applied to the mainland's film industry. While state industries like coal mines, steel mills and textile factories are suffering chronic losses every year, most film studios and cinemas in China have also been put on life-support machines just to prevent bankruptcy. Although box office hits such as To Live and Farewell My Concubine have earned directors like Chen Kaige and Zhang Yimou the credentials they needed in seeking foreign financing, other directors have been forced either to make television commercials or simply not to make anything at all. In fact, film critics are now using phases such as ''cultural wasteland'' and ''complete ruin'' to describe the film industry in China. Xue Xiaohong, an independent film producer in China, recently told a group of academics in Los Angeles that since Beijing lifted its monopoly on the film industry more than a year ago, film-making had virtually been taken over by producers from Hong Kong and Taiwan and private financiers on the mainland who cared more about making money than making films. The fact that the film industry in China was going rapidly downhill like other state industries was a sad reminder of the fearful power of the market force, she said. Although China began to dismantle its centrally planned command of the economy about a decade ago, reform did not happen in the movie industry until last year. Under the old system, mainland film studios were paid a flat rate of 700,000 yuan (about HK$630,700) of ''production fees'' by the state-run China Film Distribution and Release Corporation (CFDRC) for every movie they produced - regardless of whether they were a box-office success or failure. The CFDRC sold the films to cinemas across the country and since studios were not allowed to market their movies directly, producers often paid little attention to market response. This script was revised in January last year by the Ministry of Radio, Film and Television, which smashed the iron-rice bowls of the film studios and the CFDRC. Ms Xue said the end of the state monopoly did not mean greater artistic freedom for film-makers. Instead, the industry was sent into a tailspin as film studios struggled to raise funds. In 1993 - the first year the reform was introduced - the 16 state-owned studios only managed to produce 14 movies with their own capital - less than 10 per cent of the 151 feature films made in China that year. A total of 56 movies were made in the form of ''joint-production'' with film-makers from Hong Kong and Taiwan - meaning that the mainland studios were responsible for providing film-makers with cheap production crews and locations. In the same period, 81 films were produced with capital raised from the private sector. However, Ms Xue said only about ''three to four'' of these 81 movies were ''barely up to standard''. In other words, 90 per cent of the films were either foreign productions or movies made by mainland private producers, resulting in huge losses for most state-run studios and cinemas. While studios like the Beijing Film Studio - a favourite partner to Hong Kong and Taiwan film producers - earned a handsome profit last year and even paid off more than 40 million yuan in debts, studios such as Changchun in Jilin had to sell properties just to get by. The CFDRC also suffered in the restructuring. According to Ms Xue, the CFDRC owes various film studios more than 35 million yuan because it had difficulty collecting 74 million yuan in royalties from cinemas. The influx of Hong Kong and Taiwan film-makers has led Beijing to impose a quota of joint productions each year, said Ms Xue. Under a new regulation, China would approve only 25 joint productions a year and producers must have their films developed in China, not at foreign laboratories. Ms Xue feels the industry will recover in the long-term. ''This crisis is part of China's transition from a planned economy to a market system. There is nothing to be afraid of and it will be solved eventually,'' she said.