Mid-budget producersin Asia are facing a crisis as investmentdollars are drained into mega co-productions, leading to a "drought" of talent,according to Applause co-founder Peter Chan Ho-sun.

Speaking at Filmart'sSeminar On Film Financing yesterday, the director said the commercial realitiesof mounting large-scale China epics means the films "must be big,spend $10-$30m, must be period, martial arts. So we end up in the situationwhere all the directors are chasing the same thing. It's completely unhealthyand it is part of what new money is buying in China."

According to JooickLee of Korea's Boram Entertainment, it's anAsia-wide problem of a "winner-takes-all" approach.

"Five percent ofChinese directors take all the money and the rest are suffering because all themoney is drained out - Korea has the same problem. Success has ledto spiraling costs and I don't see it as a very healthy position. Eventually itwill backfire if we don't modify it," he said.

And producer BillKong, mid-way through shooting the $35-$40m Untitled Zhang Yimou Project withChow Yun-fat and Gong Li, acknowledged the problem.

He told Screen: "Thebig budget films do draw talent which small films need - if you have Andy Lauand Tony Leung making two films a year, it's difficult to get them to make asmaller film.

"But the flip side isyou are getting more investment in big budget films than ever before - up from1-2 per year to five-to-six."

According to Chan,with the current China box office ceiling at $30m,bigger-budget films can't break even domestically, yet high ticket prices meancinema-going there remains low and limits the number of large-budget films toaround six. So, "if you are making a film which does not cater to China, it is hard to survive. Budgets ofbetween $1m and $10m are very dangerous ground."

While "aChina-centric and China-driven market is the future," said Chan, 2005 wasprobably the worst year ever in Hong Kong and "2006 and probably 2007 will be even worse". Kongestimated the number of local productions could drop to below 30 this year.

"Foreign feeds offChina, and China makes its films from foreign," said Chan, meaning there was arole for a "seasoned" Hong Kong industry to "put these projects together withthe interests of the Chinese market as a major perspective," a view echoed byBeijing Polybona Film Publishing's Yu Dong. Other panel speakers includedStandard Chartered Bank's Susan Ho, Fortissimo co-chairman Michael Werner andEntertainment Farm's Yakushi Kotani.