Due to its location and perhaps also timing, the recent CineAsia conference in Beijing (Dec 13-15) turned out to be an opportune platform for the US studios to air some of their long-held opinions and grievances about the China film market.

Likewise, China's major film organisations didn't hold back on expressing their own views about how this complex and potentially huge market should be developed.

The two sides got down to business on the first night when Zhao Shi, vice minister of the State Administration of Radio, Film & Television (SARFT), and MPAA president and CEO Dan Glickman delivered an opening address.

Zhao, who is regarded as China's top film minister, outlined the various ways in which the China film market is being reformed, including the move towards a free market model, efforts to fight piracy and recent technological advances, including the installation of hundreds of digital screens.

She also mentioned the upcoming Film Promotion Law which aims to provide the local film market with a much-needed legal infrastructure.

But while no-one is arguing that changes aren't taking place, they just aren't happening fast enough for Hollywood.

"Progress has been slow to date and fallen below expectations," said Glickman when he took the podium at the Great Hall of the People. He then compared the relatively sluggish growth in the film market to other sectors of China's soaraway economy and urged China to open its market to more US films.

It's seems unlikely, however, that the doors are going to swing wider in the next year or two. Zhao also spoke of her duty to "protect the cultural uniqueness of China's film industry."SARFT officials have also said that they're concerned about protecting the Chinese audience which, despite the emergence of a middle class, is mostly poor, uneducated and (the authorities believe) impressionable.

CO-PRODUCTIONS ENCOURAGED

One of the clearest messages to emerge from the Chinese side at CineAsia is that co-production is the most effective method of gaining market access, at least in the short-term. Full co-productions bypass China's import quotas and allow for a greater share of box office than the 12-13% on offer for revenue-sharing films.

Sony and Warner Bros have already taken this route and Disney announced its entry into China co-production, with family-themed feature The Secret Of The Magic Gourd on the second day of the conference.

Speaking at the two-day production conference that ran parallel to CineAsia, the head of Sony's Hong Kong-based production arm, Barbara Robinson, said the company had seen a $330m return on the $40m it has invested in making films in China. Of the nine films produced to date, five were full co-productions, including Crouching Tiger, Hidden Dragon and Kung-fu Hustle, while the others were "assisted" co-productions, which use Chinese locations and facilities but aren't classed as Chinese films.

Warner Bros, which set up the first joint venture film production company, Warner China Film HG Corp, in Beijing at the end of last year, co-produced two films in China this year John Curran's The Painted Veil, starring Ed Norton and Naomi Watts, and Finnish kung-fu movie Jade Warrior.

Like Merchant Ivory's The White Countess, which was also filmed in China as a full co-production, neither film is Chinese-language and both are aimed at an international, as well as Chinese, audience.

According to China Film Co-production Corp president La Peikang, co-productions don't even have to be filmed in China."You can shoot 100% outside China and still be classed as a co-production," La said.

However, according to official regulations, co-productions are still subject to script approval; require one third of the cast and crew to be Chinese citizens, and the plot needs to have a "strong Chinese cultural element."

Meanwhile, Disney's announcement that it's co-producing Chinese-language The Secret Of The Magic Gourd, with Hong Kong's Centro Digital Pictures and China Film, surprised many, especially as the film has been quietly shooting in Hangzhou since the end of October.

"We were encouraged to co-produce but it's taken us a few years to find the right project," said Buena Vista International executive vice president Larry Kaplan.

Disney is also developing a martial arts take on Snow White And The Seven Dwarves which is expected to shoot in China. Other studios are also expected to set up co-productions and Paramount Pictures recently signed Beijing-based producer Dede Nickerson to a first-look producing and consulting deal. Formerly Miramax's Asia consultant, Nickerson helped put together pioneering co-productions The Great Raid and Kill Bill.

IMPORT QUOTAS HOLDING BACK GROWTH

Due to its splatterfest content, Kill Bill could never have been made as full co-production or legally imported into China. But the options, even for much less violent films, remain limited.

In addition to the annual quota of 20 revenue-sharing films, China imports a certain number of foreign movies for a flat fee. But the total number of imports can't exceed one third of the total number of films released.

Working within these limitations, this year was even more frustrating than usual for the US studios. Most of the revenue-sharing quota was used up in the first part of the year, when the studios don't have large films to release, while the latter part of the year appeared to be reserved for Chinese productions.

The studios also had to contend with unofficial blackouts, during the peak box office months of August and December when they weren't allowed to release new films. This meant that some titles such as War Of The Worlds had to go out months after their US release making them more susceptible to piracy.

According to Film Bureau distribution director Mao Yu, US films accounted for 16 of this year's 20 revenue-sharing imports, which is consistent with an average 80% share of the quota over the past five years. The top-grossing US film in China this year was Harry Potter And The Goblet Of Fire with $11m (RMB96m).

When Glickman brought up the issue of import quotas during his speech, he pointed to a trade imbalance. Chinese films are enjoying huge success in the US, he argued, and Crouching Tiger grossed more than $125m alone. "In sharp contrast, the total box office generated in China for all US films in 2004 was about $60m," Glickman said.

As the China market was worth $186m last year, this gives US films a 33% market share, while Chinese films jostle for a small slice of the 6-8% of the $9.4bn US market that is accounted for by niche or foreign-language films. Despite the success of the recent crop of martial arts blockbusters, its difficult to imagine Chinese films ever accounting for one third of the US market.

But many people, both inside and outside China, argue that limited film supply is holding back development and more foreign films will stimulate growth. This is unlikely to happen if there's any chance that imports will swamp the market share of domestic films. Therefore, it's in everyone's interest for home-grown blockbusters such as Chen Kaige's The Promise to rake in as much at the box office as they can.

CINEMA OWNERSHIP RULES REMAIN UNCLEAR

Another issue that came up at CineAsia is the regulations concerning foreign investment in China's cinema industry.

A pilot programme, that allowed foreign investors to hold stakes of up to 75% in cinemas located in seven key cities, has been rescinded and SARFT is currently drafting new rules.

The uncertainty could discourage foreign investors at a time when China's cinema industry is on the brink of massive growth. SARFT recently announced that 55 new cinemas opened in China this year with a total of 272 screens. Similar growth is expected in 2006.

During a CineAsia seminar, Warner Bros International Cinemas president Millard Ochs said his company is keen to "invest a lot of money in this market" but, in keeping with US accounting policy, would like to hold majority stakes.

Other companies also expressed doubts about the China market if their investments were capped at the current level of 49%.

DISTRIBUTION STILL OFF-LIMITS

Meanwhile, other areas of the film business, including theatrical distribution of either local or foreign films, remain off-limits to foreign companies. China Film remains the sole importer and only two state-owned companies - China Film and Huaxia - can distribute foreign films

However, it's possible to own minority stakes in video distribution companies and Warner Bros took advantage of this by setting up a joint venture with Shanghai-based China Audio Video earlier this year. Launched with the aim of thwarting piracy by providing a low-cost, legitimate alternative, the joint venture, CAV Warner Home Entertainment, also handles titles from Universal Pictures.

BRICK WALLS AND MAGIC CASTLES

In the wider media environment, Rupert Murdoch famously said that he'd "hit a brick wall in China" in September and this year saw several retrenchments in the opening up of China's media market.

Foreign companies are currently limited to one joint venture with Chinese partners and China's provincial broadcasters have been banned from creating new channels in partnership with foreigners.

This has slowed the ambitions of media giants such as News Corp, Viacom and Disney to launch new channels in China. It also put a stop to TV production partnerships, although existing joint ventures, such as Sony's hook-up with Hua Long Film Digital Production Co and Viacom's joint venture with Shanghai Media Group for children's programming remain intact.

Taking the longer view, this year's clampdowns are consistent with a cycle in which China opens its media market slightly, watches the results, then pulls back before the next round of opening and change.

The test for global media giants is whether they can remain patient with the shifting regulatory goalposts and, in the short-term, focus on more open areas, just as Disney has done with merchandising, theme parks and now co-production of family fare.