Investment is pouring into Chinese films, but the industry still relies too heavily on big-budget costume epics, many of which are losing money.

China could hardly be hotter than it is right now. Investment is pouring into local production and US stars including Christian Bale, Russell Crowe and Joseph Gordon-Levitt are lining up to work on Sino-US co-productions or high-profile local films.

As a box office territory, the country has come from nowhere to overtake Germany and become the world’s fifth largest market in 2010. And Chinese film, media and internet companies have become the darlings of the New York Stock Exchange.

But beyond the headlines, there are still some issues that the Chinese film industry, or at least the government authorities that control it, have yet to face. The market is still heavily skewed towards big-budget blockbusters – last year the top ten films accounted for 45% of the box office. Less than one third of the 500 films that China produced last year found their way onto cinema screens. And among those that did, only 20% actually turned a profit. Qin Hong, head of China’s SMI Corp, drolly describes this as “paying the tuition fees”.

There are many reasons for the losses – China’s distribution sector remains monopolised and under-developed and marketing costs can soak up profits. But there are also problems with the content itself. The market is flooded with martial arts epics, and as there’s a surplus of investment, many are made for budgets that can’t hope to recoup.

There have been attempts to diversify in recent years, but less costly hits have proved elusive. The problem is that, due to the limitations of censorship, it’s just not that easy to make a low-budget film. All the subject matter that drives low-budget filmmaking in other countries – horror, social satire, erotica – is still frowned upon in modern China.

While this is holding back the local film industry, it’s also a problem for foreign studios. A healthy film market needs a mix of US studio, home-grown and foreign-language fare. But China’s gate-keepers won’t give greater access to foreign films unless the local industry has at least a 50% share of the market. And you can’t build a sustainable industry on costume epics alone.

In fact, China is stuck at the stage that Hollywood was in the 1950s. Spectacle and melodrama are the order of the day and story-telling is secondary to

flamboyant costumes and flashy sets. What China needs now is some Hollywood of the 1970s – cinema that reflects the shifting zeitgeist and is challenging as well as wildly entertaining.

But any attempts to portray the reality of China’s “ant clan” – the college leavers who are struggling to find work and define themselves in a society that’s transforming at warp speed – are usually nipped in the bud. Ning Hao struck a chord with comedies Crazy Stone and Crazy Racer, but his latest effort has been stuck in the editing room for over a year because it was filmed in the sensitive region of Xinjiang. Films that satirise the powers that be don’t even make it to the shooting stage.  

To be fair, it could also be self-censorship or a lack of great writers that’s at fault. There is evidence that when satire is done really well, it slips through the net. The best example of this is Jiang Wen’s Let The Bullets Fly – now China’s biggest ever local film – on the surface a rip-roaring action adventure, but according to some critics also a clever piece of political satire. Whether or not this is true, the internet has been buzzing with viewers discussing the hidden meanings in the film.

But not everyone is as clever as Jiang and if the ant clan doesn’t find an outlet on the big screen, they’re sure to find it on Facebook or its local equivalents. China already has the hardware. Now the software needs more space to tell the stories that Chinese people really want to see.