The runaway success of the Chinese film business has led to an influx of investment capital. Sen-lun Yu explores how the flow of finance is shaping the future of the industry

When China’s box office hit the rmb10bn mark — around $1.5bn — on December 31, 2010, the Chinese industry celebrated the dawn of a new era of prosperity.

In recent years it has become clear, even to investors from outside the Chinese film business, that film-making in the world’s second-largest economy can be very profitable. And these investors — mostly Chinese, including mine owners, real-estate developers, venture capitalists, banks, online-media players and gaming companies — have wasted no time in joining the film gold rush. As director Feng Xiaogang said during a forum at the Shanghai International Film Festival last year, the Chinese film industry is not short of money.

Statistics from SARFT, China’s state media body, show more than 600 film investment and production companies were active in 2010. In previous years, there were only about 200.

“The main film investment bodies are becoming more active, which has encouraged the productivity of film,” said Tong Gang, director of SARFT’s Film Bureau, when he presented the 2010 figures in January.

Listing on the stock market is a significant trend for larger studios. In late 2009, Huayi Brothers Media became the first film studio to join China’s home stock market, on the ChiNext board of the Shenzhen Stock Exchange. In October 2010, Zhejiang Huace Film & TV also listed on the ChiNext board. In December 2010, Bona Film Group listed on Nasdaq, raising about $83.8m.

Meanwhile, the state-owned China Film Group has registered a new company named China Film Co Ltd, seen as a prelude for its IPO at the Shanghai Stock Exchange this year.

Two other public companies have already listed in Hong Kong, SMI Corporation and Orange Sky Golden Harvest. And according to Wang Ran, chief executive of private investment bank China eCapital, other Chinese studios have plans to float, including Enlight Media, Beijing Galloping Horse and TV production house Hai Run Movies & TV Production.

‘While there is no shortage of money, there is an urgent shortage of good projects’

Gao Jin, Beijing Shengshi Huarui Film Investment and Management

Wang says the lion’s share of the new money has come from investors outside the film business. Mostly, he says, investment has come from China’s wealthy mine owners, or is so-called refugee capital from real-estate business looking for investment opportunities in the wake of the government’s continued curb on real-estate speculation.

“This kind of fluid capital has irrational and opportunist elements,” he says. “Many investors ended up giving money to unqualified producers or film-makers and we’ve seen some poorly made films in the past year.”

China produced 526 films in 2010, about 150 of which were released theatrically. According to Gao Jun, general manager of Beijing Shengshi Huarui Film Investment and Management, only 20% of those 150 films actually earned any money — more than 60% of them made a loss. “While there is no shortage of money, there is an urgent shortage of good projects,” says Gao.

Investing in film companies

Investors are not only backing film projects but also film companies. The $45.3m (rmb300m) China Holly Movie Fund was set up in mid-2010 with capital raised from real estate, mining and private and government-owned investment companies. It is managed by China National Real Estate Group president Meng Xiaosu and Gao Jun of Beijing Shengshi Huarui Film Investment and Management. The fund has so far invested in the low-budget thriller Lost In Panic Room. Costing just $450,000 to make, the film grossed $3.3m and a sequel is under way.

Meanwhile, the One Film Fund was set up in mid-2010 by professionals from finance and TV investment backgrounds. It is run as a private-equity company, with executives from China Film Foundation.

Backers of the fund range from state-owned investment companies to manufacturing businesses. The first project it has backed is China Film Group’s production Breaking The Waves, with John Woo producing and Patrick Leung directing.

Local banks are also becoming more proactive about financing the industry. The first bank loans began in 2005 with Shenzhen Development Bank financing Huayi Brothers, and banks have become increasingly active. The rise has been helped by the fact that local city and provincial governments have set up policies to encourage the financing of cultural and creative industries. And given the rapid development of the film industry, many large banks are more willing to provide new financial products.

In 2009, the Industrial and Commercial Bank of China (ICBC) offered an $8.3m (rmb55m) loan to Bona Film Group’s bundle of three films — Bodyguards And Assassins, Little Big Soldier and The Road Less Taken. Last month, Zhang Yimou’s $90m war drama Nanjing Heroes (working title), starring Christian Bale, received a loan from China Minsheng Bank Corp.

‘Many investors gave money to unqualified film-makers and we’ve seen some poorly made films’

Wang Ran, China eCapital

One of the more innovative methods of financing is to strike a deal with online video websites or online media such as, and These will either acquire shares of film studios or set up long-term partnerships with studios such as China Film Group or Huayi Brothers to invest around 20% in each of the companies’ projects.

Genre explosion

With more financing available, film-makers are beginning to make increasingly diverse films outside traditionally popular genres such as martial arts and rom-coms. The past year has seen more thrillers, road movies, disaster films and historic detective titles appear in the market. Film-makers are also exploring action fantasies and 3D: for example, Tsui Hark’s Flying Swords Of Dragon Gate was shot entirely in 3D.

Aside from big-budget fantasy productions, most films tend to be made for the local market. “We pay more attention to how to recoup in the Chinese market — the overseas market for us is a bonus,” said Qin Hong, chief executive of SMI Corp, producer of Chen Kaige’s Sacrifice and Peter Ho-sun Chan’s upcoming Wu Xia.

To secure high-quality projects, SMI, along with many studios in China, has adopted the Hollywood model of recruiting well-known film-makers under first-look or exclusive production deals. SMI, for example, has so far partnered with Lu Chuan, Gu Changwei, Chen Kaige and Chan’s We Productions. Beijing Galloping Horse signed with John Woo and Ning Hao while Jingle Ma signed with Starlight International in a three-film deal.

“We understand that under the facade of a thriving film industry, there are a lot of producers only eyeing short-term profit,” Qin says. “We would rather focus on the long-term development of film-making and develop Chinese genre films. It’s not about quantity but about quality.”