China quietly opens door to more foreign films

China is quietly allowing more foreign films to be imported even though talks between Beijing and Hollywood about an official deal to allow greater access to the world’s fastest growing film market have stalled.

Under a quota system designed to limit the number of foreign films screened in the country, only 34 foreign releases are allowed to be distributed on a revenue-sharing basis.

But in recent years that quota has been exceeded “albeit unofficially and for tactical reasons,” according to a report from the London-based global information provider IHS Markit, paving the way for more international blockbusters, such as the November debut of Crazy Rich Asians.

The report said 38 revenue-sharing films had been imported in 2016 and 40 in 2017, including works from the US, India, South Korea, and France.

“It is possible that China intends to open the market more, or test the market, but the government doesn’t want to make it official yet due to the tension between USA and China,” Xin Zhang, senior analyst for film and cinema, wrote in the report.

A five-year agreement between Hollywood and China that covered the number of international films allowed to be shown in the country expired last year, but talks about a new deal have been put back amid the current trade war and changes to the Chinese media regulator.

As the months drag on, there is greater uncertainty over whether the US negotiators – Motion Picture Association of America, the trade body for Hollywood’s six major film studios, and the US Trade Representative – will succeed in pushing for a higher film quota and a higher share of the revenues for the studios.

China’s film market is set to be the world’s largest, giving Hollywood studios an extra incentive to appeal to Chinese audiences.

China’s film companies flee Xinjiang tax haven in wake of Fan Bingbing evasion scandal

American releases that flop domestically can be saved by foreign markets. For instance, the American fantasy film Warcraft garnered only US$47 million in the US – but China accounted for half its US$433 worldwide ticket sales.

Under the current deal, international studios receive 25 per cent of Chinese box office revenues (compared with around 40 per cent in other markets), with the rest going to local co-production studios, Chinese distributors and cinemas.

Analysts said that bringing more foreign films into China may also be part of Beijing’s bid to generate more revenues, after its box office growth slowed to 3.6 per cent in 2016 compared with 48.7 per cent the previous year.

It saw a turnaround in 2017, with 13.45 per cent growth in ticket sales, according to official data.

“China is trying to keep the market growth, and there are not enough domestic films being produced to meet audience demand,” Dede Nickerson, a veteran Hollywood producer and founder of Infinity Pictures in Beijing.

“In addition to the revenue-sharing slots for the six major studios [in Hollywood], there is a non-revenue sharing quota as well.”

Foreign films can also enter China on a flat-fee basis, where state-backed distributors China Film Group or Huaxia Film Distribution will pay for the local rights.

There were 59 foreign films imported under the flat-fee model in 2016 and 49 in 2017, according to IHS Markit.

The quotas and other restrictions – such as “blackouts” of international films during the key holiday periods – are designed to give China’s domestically produced films a leg up, as well as ensuring that content deemed unsuitable by the censors is kept out.

China showing for Crazy Rich Asians, summer box office hit, announced

Critics argue Chinese films still struggle without foreign competition, hampered by a media regulator more focused on promoting “socialist values”.

Even the highest-grossing movie in China last year, jingoistic mega-blockbuster Wolf Warrior II, relied on the help of a Hollywood stunt team, US actor Frank Grillo, who played the Western villain, and American composer Joseph Trapanese to take 5.7 billion yuan (US$820 billion) at the box office.

While negotiations with the Hollywood studios remain stalled, those in the industry hope the ongoing US-China trade war will not escalate further so that cross-border productions can continue.

“I think the stall in negotiations is unfortunate – the past years have seen an incredible growth in education and cultural exchange between the two countries and I would like to see those collaborations expand, not contract,” Elizabeth Dell, producer and chairwoman of the international committee for the Producers Guild of America, said.

“As China’s film industry grows stronger, I think the market for Chinese films also grows stronger and deeper, reducing any need for restrictions on outside content.”