As the finishing touches are being made to Beijing's sports venues, there is an air of nervous anticipation in the Chinese capital.

The Beijing 2008 Olympics (August 8-24) will either be the biggest international coming-out party that China has ever seen, or a public-relations nightmare, with human-rights protesters spilling onto the streets and the Chinese government unsure how to deal with them.

Within the film industry, there is more of a mood of nervous resignation. Local producers are grumbling about further censorship restrictions, as the Film Bureau attempts to avoid films that portray China in anything but a shining light during the Olympics.

Meanwhile, the US studios are concerned about an extended blackout on their product in the first quarter of the year, although Sony's The Pursuit Of Happyness was recently scheduled to open on January 17.

And as always, local cinema owners are worried they will not have enough films to screen in the gleaming new multiplexes springing up alongside the 'bird's nest' national stadium and Watercube swimming centre in Beijing.

Six years after China became a member of the World Trade Organisation (WTO), the number of revenue-sharing imported films is still restricted to 20 a year, along with around 30 flat-fee foreign films.

There is no doubt China's film market is growing - Film Bureau officials estimated the box office broke the $400m (rmb3bn) barrier in 2007. However, it could be growing much faster without the on-going problems of piracy, censorship and quota restrictions.

And it is still the case that the only way to guarantee a blockbuster is to produce a government-endorsed film. All the stops will be pulled out for John Woo's $80m epic Red Cliff, which is part-financed by state-owned film giant China Film Group Corporation.

The Chinese government regards the film as a showcase of Chinese culture and wants it released in July in the run-up to the Olympics.

Therefore it is likely to have a massive print run and receive marketing support from China Film sister companies such as broadcaster Cctv, which incidentally has the rights to broadcast the games.

Meanwhile, the rest of the industry grapples with scheduling around a major international sporting event - the first of its kind in China - and Asia's biggest ever movie.

Some believe the games will keep people out of the cinemas. 'This is a big event for the Chinese people and they'll want to stay at home and watch it on TV,' says Twentieth Century Fox's China business director Luke Xiang.

China Film spokesman Weng Li agrees major sporting events have historically had a negative impact on box office: 'During the (football) World Cup in 2006, the movie market was indeed affected by the event.'

However, others argue the games will create a festive mood that will have the Chinese population opening their wallets. 'It's like a big holiday for the Chinese people and they will generally feel like spending money, especially on entertainment,' says Polybona CEO Yu Dong.

The bigger question is what will be released and when. This year will see a bumper crop of Chinese-language films, in addition to Red Cliff, including Stephen Chow's CJ7, Daniel Lee's Three Kingdoms - Resurrection Of The Dragon, Lu Chuan's Nanking! Nanking! and Derek Yee's The Shinjuku Incident, starring Jackie Chan.

Prime release slots are fast running out and no-one wants to go head-to-head with Red Cliff. However, small to medium-budget films may benefit if released at this time.

'Some people think it's a good idea to go in just behind or around the same time as Red Cliff because you might be the only other film in the cinemas. But it's a risk,' says JA Media's Jeffrey Chan.

And while China is still not a sophisticated movie market, there has already been talk of counter-programming. 'The Olympics will not be a problem if you have good movies, especially animation or family films, as children are not interested in the games,' says Johnny Liu of Avrio Films, which releases foreign films in China on a flat-fee basis.

Quasi-propaganda films

Exhibitors are also expecting a rash of Olympics-related, quasi-propaganda films for one month before the games, such as Hou Yong's The One, based on the true story of a Chinese athlete who escaped Japanese-occupied Manchuria to participate in the 1932 Los Angeles Olympics. However, they are not expected to set the box office on fire.

As for the US studios, there are bigger questions about what kind of release slots they can secure.

At the end of last year, the studios were complaining about an apparent ban on Hollywood movies in the first part of this year. China always reserves the Christmas and Chinese New Year (mid-February) holidays for local product, but there were rumours those two blackout periods would be combined and extended until May.

Studio executives believed they were being punished because the US complained to the WTO last year about China's failure to enforce copyright protection.

Chinese officials are also concerned about the market share of local product, which they strive to keep above 50%. Last year, there were no major Chinese blockbusters until the end of the year, while there was a string of US hits led by Transformers ($38m), Spider-Man 3 ($20m) and Harry Potter And The Order Of The Phoenix ($19m).

Since then, Sony's The Pursuit Of Happyness has been scheduled for release on January 17, but only in the country's 350-380 digital screens. Some US studio executives believe they will be allowed to release films before and during the Olympics, to fulfil quota requirements, and also give the impression to overseas visitors that China is an open and outward-looking country.

But they worry that, during that time, the Chinese population will not be watching.

The smart people are circumventing China's import quotas by setting up their films as full co-productions with the territory.

Films such as The Mummy: Tomb Of The Dragon Emperor, which is a co-production between Universal Pictures and China Film and features Asian actors including Jet Li and Michelle Yeoh, is classified as a domestic Chinese release. Universal is understood to be aiming to release the film in China around the same time as its global rollout on August 1, which also coincides with the Olympics.

Asian-themed movies to the fore

Indeed, next year will see a rash of Asian-themed Hollywood movies - including Relativity Media's Forbidden Kingdom, starring Jet Li and Jackie Chan, and Fox's Dragonball, produced by Stephen Chow.

Forbidden Kingdom, which was set up as a co-production with Beijing-based Huayi Brothers, is aiming at a summer release slot.

Fox announced that Dragonball would be released worldwide on August 15, although the film is shooting in Los Angeles and Mexico and is not being set up as a co-production.

Meanwhile, some exhibitors are hoping to make money directly from the Olympics by showing the games on the growing number of digital screens.

However, some argue Chinese audiences, who favour bright and boisterous environments, would rather stay at home and watch the games for free than pay to sit in a relatively sedate cinema.

Also, licences from the International Olympics Committee are likely to be prohibitively expensive.

But it may be tempting for China's growing ranks of cinema owners and investors to pursue content other than films. Although this year will see some big releases, exhibitors are still concerned about film supply - a bigger issue even than piracy which everyone factors into their sales projections.

'The (Chinese) industry is excited about growth but worried about the lack of product,' says Avrio's Liu.

'The multiplexes need to take more risks - they still devote all their screens to one or two blockbusters. I understand they want to make their money back quickly, but the market can't grow without a diverse range of films.'

The Chinese government is unlikely to widen the quota for foreign films if there is a danger of Chinese films falling below a 50% market share.

And in the past few years, the local market share has been dependent on a handful of big-budget martial-arts epics.

Last year, although films such as Protege, Jay Chou's The Secret and Lust, Caution were moderately successful, the epics were in short supply.

At the time of going to press, the State Administration of Radio, Film and Television (Sarft) had not announced year-end figures as it was waiting for the box office of two year-end Chinese releases - The Warlords and The Assembly - which are expected to pull back local market share.

And other measures are in place to protect local movies. Following the massive success of Transformers, Harry Potter had its print count cut to 450, while The Bourne Ultimatum and Die Hard 4.0 were restricted to 150 prints each. Meanwhile, The Warlords went out on more than 1,000 film prints and digital copies.

Cracking down on piracy

Both the local and overseas industries hope the games will encourage Chinese authorities to crack down harder on piracy.

'We are hoping the Olympics offers an opportunity for China to show it wants to be a good member of the WTO, and wants to live by the rule of law, because there will be tens of millions of people watching every day and visiting China,' MPA CEO Dan Glickman recently told journalists in Hong Kong.

Beijing has been strict in protecting the 2008 Olympics logo and five 'Fuwa' mascots, which proves it is possible to curb piracy. But while pirated DVDs may be swept off the streets, many believe this will be a cosmetic move for the duration of the games only.

So while the spotlight will be on China this year, possibly with a positive influence, it is not likely the Beijing 2008 Olympics slogan, 'One World, One Dream', will apply to the film market. Not for the next few years at least.