While Hong Kong has high hopes for the international success of big budget summer films like The Touch, Highbinders and Hero, many feel that mainland China will prove a bigger market for Hong Kong movies than the West.

The first half of 2002 has been disappointing for Hong Kong film, despite the optimistic mood back in January. Bolstered by strong results at the local box office in 2001, several production houses announced their intention to ramp up production at the start of the year. International ambitions were also running high with many slates featuring big-budget projects aimed at overseas audiences.

But only 41 local films were released in Hong Kong between January and June, compared to 69 in the first half of last year. According to industry body the MPIA, domestic productions grossed $19.1m (HK$149m) in the first six months of this year, a 30% decrease on the same period in 2001.

So far this year, only two films - Golden Harvest's Marry A Rich Man and China Star's Fat Choi Spirit - have passed the $2m mark and both were released during the lucrative Chinese New Year holiday period. Last year, nine films grossed more than $2m.

Meanwhile, the number of films going into production appears to be contracting rather than expanding. Some attribute this to an increasing reliance on the handful of stars considered a safe bet at the box office. "Films without big names just aren't performing which makes it difficult for smaller companies," says Media Asia executive director John Chong. "There's only so many films that stars such as Sammi [Cheng] and Miriam [Yeung] can make, and their fees are beyond the reach of most independents."

The slow-down can also be explained by the mixed fortunes of individual companies. Several projects set to star, and be co-produced by, Andy Lau have been put on hold due to a legal battle between the Hong Kong superstar and his partners in Teamwork Corp, CCT Telecom Holdings. New player Celestial Pictures is taking longer than anticipated to crank up its first productions while one of Hong Kong's oldest studios, Golden Harvest, appears to have shifted its focus to distribution and has not produced any films since Marry A Rich Man was released in February.

All of which puts even greater pressure on the territory's summer releases. Expectations are high for China Star comedy My Left Eye Sees Ghosts, which grossed a very healthy $1m in its first five days on release. And Hong Kong is holding its breath for the August 1 release of Michelle Yeoh's debut production, The Touch, one of three films - along with Jackie Chan vehicle Highbinders and Zhang Yimou' s Hero - that encapsulate the territory's global ambitions. August also sees the release of the next picture from Columbia Pictures Film Production Asia - Corey Yuen's martial arts drama So Close - and Applause Pictures' horror omnibus Three.

Several other projects, currently shooting or in pre-production, could give the territory a much-needed boost in the second half of the year. China Star is preparing Mighty Baby, a sequel to last year's comedy hit La Brassiere, and period comedy, Lion Of The East River, to be directed by Joe Ma. Universe International Holdings (UIH) has a busy slate headed by Adrian Kwan's romantic comedy If You Care and Mei Ah Entertainment is lining up a sequel to hit Joe Ma comedy, Love Undercover. EMG has four projects in various stages of production (apart from Highbinders which isn't due for release until next year) including The Twins Effect, a vampire-themed action comedy starring white-hot singing sensation, Twins.

With the exception of The Touch, So Close and Three, most of these pictures are aimed almost exclusively at hometown audiences. Although many production houses have international projects in development, there's a feeling that, in the current environment, the most prudent strategy is to focus on your own back yard. Local producers are also waiting to see how films such as The Touch and Highbinders fare overseas before attempting similar large-scale projects.

"The [US] studios are all looking for partners out here, but it takes time to get a big-budget movie off the ground," says UIH chairman Daneil Lam. "We can move more quickly when producing for the domestic market, so for the time being our production is targeted at mainland China and Hong Kong."

Indeed, many feel that the mainland may eventually prove a bigger market for Hong Kong movies than the West. Co-production is regarded as the best method of gaining access to the Chinese theatrical market, as only films classified as full co-productions with mainland companies can bypass quota restrictions. Two China Star productions - Lion Of The East River and Mighty Baby - and UIH's melodrama Sprits Of War have been set up as co-productions with mainland partners.

But according to others, producing for the international market doesn't necessarily entail big budgets, complex financial structures and Western stars. Media Asia's martial arts actioner Naked Weapon has pre-sold to four Western territories, but is being produced for a modest $3m with local stars. "You just need the right elements," says Media Asia head of distribution Jeffrey Chan. "This is an English-language movie with high production values and a concept - action and sexy girls - that's easily understood."