Alfred Cheung Kin-ting, a veteran film director based in Hong Kong, said he expected there to be two years of “cold winters” in China’s film and television industry as investors avoided uncertainty and put their productions on hold.

But he said he was not surprised by the recent revelations about Fan, as tax evasion was commonplace in the industry.

“Before the Fan incident, most production houses on the mainland would use one way or another to dodge tax payments, like offering lump sums off the books to their actors,” he said.

But since then, neither producers nor stars had gone near such deals, he said.

Fan was found guilty of using split, or “yin-yang” contracts to disguise her true earnings from the tax authorities.

Tin said the spurious agreements had been ubiquitous, but now nobody was sure how the mainland authorities would deal with them.

In the meantime, the tax administration has set a December 31 deadline for companies and individuals in the entertainment industry to voluntarily declare and pay any previously evaded taxes. Those that come clean will not face administrative punishment or fines, it said.

Not just Fan Bingbing: five other lawbreaking Chinese entertainers

Aside from the tax scandal, the entertainment industry has been facing growing pressure as a result of the Communist Party’s efforts to tighten its ideological controls.

Under President Xi Jinping’s restructuring and fusion of party and state organs in March, the government’s film censor was merged into the party’s Central Publicity Department.

While Xi laid out the focus and direction of propaganda works at a summer work conference, both Tin and Cheung said many in the industry had no idea how the new regulatory guidelines would affect film and television production.

It was another factor likely to deter investors from committing to new productions, they said.

Last month, the newly restructured State Radio and Television Administration issued a draft regulation for public consultation, which set out more restrictions on the number of overseas producers, leading actors and hosts – including those from Hong Kong, Macau and Taiwan – that can be used in mainland television and online video programmes.

Before the events of recent months, China’s film business had been booming. Box office takings last year rose more than 13 per cent from 2016 to 55.9 billion yuan, with domestic productions accounting for more than 53 per cent of the total, according to the now defunct State Administration of Press, Publication, Radio, Film and Television.

But now the market is facing a slowdown, and Hong Kong filmmakers will be among those who feel the chill.

Fan Bingbing whistle-blower takes jab at ‘huge fraud’ Air Strike

According to the Hong Kong Trade Development Council (HKTDC), the city’s film industry is heavily reliant on overseas revenue, especially from China’s mainland. The two sides have a trade pact which means films co-produced by Hong Kong and mainland companies do not count as imports, on which Beijing imposes a strict quota.

According to the latest figures available from the council, the number of co-production permits issued by mainland authorities in 2016 rose 11 per cent from the previous year to 89.

Of the 60 movies China co-produced with overseas partners last year, most involved Hong Kong, including Andrew Lau Wai-keung’s The Founding of an Army, Stanley Tong’s Kung Fu Yoga, and Hark Tsui’s Journey to the West: The Demons Strike Back.

And according to the HKTDC, mainland-Hong Kong co-productions are “always” in the box office top 10.

Four luxury brands caught up in Fan Bingbing’s fall from grace

Despite the expected downturn, a source familiar with the Hong Kong and mainland film industries said that a number of major collaborations were still in the pipeline for release early next year.

“One of them scheduled for the Chinese Lunar New Year is directed by Wong Cho-lam, with a cast that includes Eric Tsang Chi-wai and Teresa Mo Shun-kwan,” the person said.

Director Cheung said that despite the fallout from the tax scandal involving Fan, whom he directed in Contract Lover in 2007, the incident might provide a catalyst to introduce a curb on stars’ salaries, which had become a huge drain on production budgets.

“Over the years, the payments to superstars have become so high that the quality of the movie is compromised as the rest of the filmmakers, such as scriptwriters and producers, are all underpaid.”

Director Teddy Chan Tak-sum said the incident might also help to drive out speculative short-term investors who had flooded the market in recent years.

He said he hoped filmmakers would now be freer to focus on producing quality films.