What the Relativity Media and Legendary Pictures deals say about China rallying forth into the world.

Two of Hollywood’s biggest financiers – Relativity Media and Legendary Pictures – have recently established China-based entities with high-profile local partners, backed by oodles of Hong Kong and Chinese private equity.

Both intend to make US-China co-productions, which under Chinese rules are classified as local pics and can bypass the country’s quota system.

Legendary has formed a joint venture – Legendary East – with Beijing-based Huayi Brothers and Hong Kong-based entrepreneur Kelvin Wu, which is raising $220m from the Hong Kong stock market and private equity.

Relativity has allied with China’s Skyland Entertainment and state-owned distributor Huaxia in a production and distribution venture, that is raising a $100m fund with Skyland investors SAIF Partners and IDG. Relativity has also acquired a stake in Skyland, which will distribute some of its upcoming films in the notoriously restricted China market.

Announced around the same time, these two deals give the impression that Hollywood is finally starting to breach the Great Wall of China – appropriately the first pic from Legendary East is an action adventure called The Great Wall, to be directed by Ed Zwick.

But on closer inspection, it appears these deals are as much about China rallying forth into the world as about the world getting its films released in China.

Legendary East will handle the co-production in English of one or two major “global” films a year that tap into Chinese culture. Likewise, Relativity and its partners will be making “Chinese-based material with global appeal” – language not specified – which Huaxia boss Gu Guoqin says will “offer international audiences a better understanding of Chinese culture.”

And that is what makes these deals likely to succeed – at least on paper. Both Legendary and Relativity are taking into account China’s concerns. China is keen to export its soft power, not just the goods produced in its factories, hence the establishment of hundreds of Confucius Institutes around the world. Movies can play an important role in that process, but so far very few Chinese movies have travelled successfully to the West.

It’s not an issue of production values or even of money – China has plenty of that – but the history behind Chinese period epics is unfamiliar to Western audiences, and the drama, romance and comedy of a developing nation isn’t always relevant to the West. The Forbidden Kingdom was one of the rare films that worked in both the US and China, but there are only so many times you can get Jackie Chan and Jet Li to star in the same film.

So what’s the answer? Bring in Hollywood experts to coach on universal story-telling, Hollywood-style financing and global distribution. But retain the Chinese-ness of the films – US-China co-pros are required to have a strong Chinese cultural element, along with some local cast. This should add firepower to Chinese stories, but it’s more difficult to make this work with material from the West. 

Meanwhile it’s unclear how much these deals will further the distribution of purely US films in China. Technically Relativity’s films will not be able to bypass the quota, although being friends with Huaxia perhaps means it can secure a few of the 20 revenue-sharing slots each year.

Anyway, preoccupation with the quota may be missing the point. China has a wide range of gate-keeping mechanisms and, if you do the math, the quota has been unofficially widened in recent years. Naturally China wants to keep the upper hand in a booming market, make money and not see all the profits flood back to the US. So if China wants you in, you’re in, and it wants you out, there’s not much you can do about it. The trick is to find a reliable partner to make sure you’re on the right side of the fence.

But even those who are “in” today need to be wary. China has a habit of inviting companies to manufacture in the country, learning all their processes and then setting off on its own with very successful imitations. Once the training wheels are off – in terms of script development, financing and global distribution – China won’t have much use for Hollywood. The best Hollywood can hope for is that this process takes long enough to get a foot in the door.