China Film Group Corporation is to lose its dominant position in the handling of foreign-produced films in the People's Republic of China, opening up the local distribution system to internal competition.

The move, announced by Yang Buting, chairman and chief executive of China Film, during the Shanghai International Film Festival, is one of the areas of reform that Hollywood has lobbied for during the negotiations concerning China's accession to the World Trade Organisation.

"This change is a vitally necessary reform of the film distribution system in China," said Yang. "It will come into force very soon."

While the timetable and details of the change have yet to be finalised, several local companies have already begun jostling for position. While China Film will remain in place as the sole official importer of foreign films, observers said that they expect three major distribution groups to emerge around the key studios - Shanghai, Beijing and Changchun - as the market opens up to internal competition.

"Distribution rights will be attributed through competition between a few capable companies," said Yang. "Competition must be fair and films will only go to fit companies."

The measure, one of the most significant reforms to the running of the Chinese film industry, will do little to change the volume of foreign films brought into China in the short term. The total number is fixed at 50% of the number of local productions in any single year. Under current rules, ten foreign films a year can be imported on a revenue-sharing basis, with the rest bought in at a flat fee.

But China has already agreed that the number of revenue-sharing titles will increase to 20 this year. This may rise to 40 soon after WTO entry.