The credit crunch may be inflicting damage on China's export and real-estate industry but major players in the country's nascent film business are optimistic they can escape with just flesh wounds.

September 2008 is known around the world as the start of the global meltdown; in China it was also the month when the film market peaked. Queues formed at cinemas in major Chinese cities such as Beijing and Shanghai to see films including Gordon Chan's Painted Skin, Benny Chan's Connected and Hollywood hit Journey To The Center Of The Earth.

Wang Ran, CEO of China eCapital, a finance consultancy firm specialising in new media and entertainment, believes there will be little or no damage to China's film industry. "As witnessed by the movie-going fervour during the Christmas and New Year holidays, movie-going is still a much preferred entertainment for many Chinese consumers," he says.

Major production and distribution companies such as China Film Group, Polybona Film Distribution and Orange Sky Entertainment have bullish production slates for 2009. Huayi Bros Pictures has announced it will produce five projects, one more than in 2008.

"Most Chinese production companies are not heavily reliant on bank financing. Funds are mostly raised from box-office earnings or enterprise investments. Productions are less likely to be harmed," explains Jimmy Wu, producer and chairman of ChinaPlex Ltd.

But this time last year, China Film Group, Huayi Bros and Shanghai Film Group all unveiled plans to float on the Chinese stock exchange in early 2009. Those plans appear to have been shelved - for now. "We will choose a suitable time, which is not necessarily in 2009," says China Film Group spokesperson Weng Li.

One sector affected is exhibition. "Cinema development projects might be affected if they are related to large real-estate projects, as some developers may face trouble with capital flows," says Wang Ran. "But for pure cinema expansion or renovation projects, things will not be delayed."

The MGM World Studio in Shanghai, a planned mall and entertainment complex, has been delayed due to difficulties in securing loans. The project is financed by Shanghai Tianhong Real Estate and managed by Hong Kong-based Tengxun Entertainment and Management. Originally due to open before the Shanghai World Expo in 2010, Tengxun says the project has been put back indefinitely.

A shortage of funds has also eliminated the number of bidders wanting to run the cinemas. "Some companies may have secured a deal to rent and operate a multiplex before the crisis, but eventually breached the deal because of a lack of money. I've seen two cases like this in one month," says Johnny Liu, co-founder and president of Apex Cinemas International.

As a cinema developer and manager himself, Liu says the credit crunch may make it harder to win trust from partners, but it also reduces the irrational hiking of bidding prices. "After all, cash is king," he says.

The most affected area in the entertainment industry is the digital distribution business, namely China's video-sharing websites, which boomed in the country two years ago with the emergence of around 200 sites. But as most of the businesses rely heavily on venture capital investments, many sites started to run out of supply as the credit crunch took hold. By the end of November at least four well-known sites had announced they were laying off staff, with leading company reportedly losing around 60% of its employees.

"Compared with last year, it is 10 or 20 times more difficult for an internet company to raise funds," says Wang Wei, CEO of

Li Zhu, CEO of, predicts 2009 will see the end for many video sites. "There might be only three or four major websites left," he suggests.

As a result there is pressure to reduce expenditure, but internet companies are also exploring new directions. plans to move into film financing and is producing $10m sci-fi film Kungfu Cyborg Attraction. Liu Hong, vice-president of, says production investment is a move to strengthen their hand when acquiring movie rights. The company has just picked up internet distribution rights to John Woo's Red Cliff Part II.

Despite the general optimism, Ying Hong, media professor at Tsinghua University, is concerned. He points out high prices may make a difference in a recession. "A ticket costing $11.70 (yuan80) for a new release is a large outlay for an urban resident with an average monthly disposable income of $168 (yuan1,148)," Ying recently told the Hong Kong-based South China Morning Post.

Many Chinese economists predict the first two quarters of 2009 will see the global credit crunch have a more obvious affect on China. Film distributors and exhibitors have begun accordingly to avoid risk by moving release dates closer to the holiday season. The real difference may appear after the Chinese New Year in February. "It is hard to tell if there will be a drop in movie sales. If so, it might happen in the first quarter of the year," says Weng Li of China Film Group.