High rents and rampant piracy have forced video rental giant Blockbuster to quit the Hong Kong market and scrap plans to expand into mainland China.

The company will close its 24 Hong Kong outlets as their leases expire over the next 18 months and lay off 200 staff, according to a statement issued on Friday.

"Hong Kong has always been one of the film capitals of Asia, but it has been a very expensive market to develop and operate, with store lease costs being among the highest we have anywhere in the world," said Blockbuster International president Chris Wyatt in the statement.

Blockbuster entered the Hong Kong market through the acquisition of the territory's biggest rental chain, KPS, in 1998 and saw it as a strategic location to establish a foothold in China. But the company says it has now dropped all plans for the mainland.

Piracy accounts for about 90% of the mainland video market with counterfeit VCDs selling for as little as 10 yuan each. And although Hong Kong's Customs and Excise Department has worked hard to reduce piracy, the territory's close proximity to China makes it difficult to wipe the problem out.

Blockbuster has also had to contend with the structure of the Hong Kong video market where the rental window is practically non-existent and legitimate VCDs are sold to consumers for only US$4-7 each.

In addition, the company recently had to renegotiate its rental terms with film distributors after the launch of a territory-wide crackdown on unauthorised movie rental shops. A group of 15 leading distributors formed the Hong Kong Video Development Foundation last year in an attempt to overhaul the market.

Rental rights are not covered by Hong Kong law which encouraged some smaller rental outlets to buy DVDs and VCDs at the same low cost as consumers and rent them out at rock bottom prices.