Making Chinese Films for the Chinese

A revolutionary runs through the busy streets of Hong Kong, pulling a rickshaw carrying Sun Yat-sen. He keeps glancing anxiously over his shoulder, on the lookout for assassins who plan to kill the future leader of the 1911 revolution. The 15-second scene, for the upcoming film Bodyguards and Assassins, is being shot not on location but on an elaborate set built on the outskirts of Shanghai. As big as 10 football fields, this full-scale replica of a section of the former British colony took a year to build, cost $5 million—a fifth of the film's budget—and includes the façades of about 200 shops and a near-exact copy of Pottinger (Stone Slab) Street.

It also symbolizes a massive investment in the future of Chinese cinema. Grand historical sets—evoking everything from the Forbidden City to battles waged by various emperors—are a staple of Chinese epics. But in the past, most of those films were shot with international money for an international audience. Bodyguards and Assassins represents a new model of Chinese filmmaking. The romantic, action-packed feature, scheduled to be released in December, has 100 percent Chinese financing—half private and half public—and is being shot primarily for a Chinese audience. That means the filmmakers are being real sticklers for detail, down to the period labels on cigarette packs and bottles of rice alcohol. "In the past, the size of the mainland Chinese market alone would not have supported such a big-budget film," says Peter Ho-Sun Chan, the film's producer. "But in the last couple of years the Chinese market has exploded, and for the first time we can produce films for just that audience. Of course, this doesn't mean we will be less aggressive in our foreign sales, but that is no longer the biggest slice of the pie in terms of recoup. The majority of the investments, if not all, can be recouped with the projected revenue of the Chinese market alone."

Compared with Hollywood or even Bollywood, the Chinese film industry is still in its infancy. Private companies have been allowed to film independently only since 2002, and private-equity players began to invest in the industry just in 2007, when Sequoia Capital China and SIG Asia Investments pumped $5 million each into the Beijing-based Bona International Film Group (then called Polybona). But with a domestic box office that ballooned from $117 million five years ago to $630 million last year, it's becoming easier for Chinese films to attract private domestic capital. Even in the economic downturn, and with movie tickets still priced relatively high—$10 for a regular film and $17.50 for a blockbuster—China's box-office revenues have continued to increase, climbing 42.7 percent to $331 million in the first half of 2009 alone.

They got a boost from international blockbusters like Wolverine, as well as acclaimed local films like Lu Chuan's City of Life and Death, about the 1937 Nanking Massacre. And with the summer release of Transformers: Revenge of the Fallen smashing even Titanic's box-office record of $52.7 million, Beijing-based cinema managers are predicting that total box-office revenues will easily reach $800 million this year. That's still a long way from the $9.8 billion the U.S. box office earned in 2008, but mainland China so far has only 4,100 movie screens, compared with 38,834 in the United States. Han Sanping, chairman of the country's largest film studio, China Film Group, which controls foreign-film distribution in China, recently told a Shanghai Film Festival audience that the country's movie box office could exceed $4.4 billion within 10 years, pointing out that the potential of China's population of 1.3 billion has yet to be fully exploited.

The race is on. New movie theaters are opening every week, increasingly in smaller and smaller cities. Dadi Cinemas Co., a Hong Kong–based firm that started building cinemas on the mainland less than three years ago, will have 300 screens by the end of the year; Dadi's chairman, John Sham, says the company's objective is to built 1,500 screens within the next five years. Dadi's strategy has been to concentrate on second-tier cities, where there are often no movie theaters, and to keep ticket prices at a quarter to a third of those for cinemas in larger cities. "We charge between $2 and $3.50, but average prices in the main cities can range from $7 to $12—ridiculously high compared with the average salary," says Sham.

The growing audience gives Chinese filmmakers a critical mass for China-centric productions. Whether the influx of private money will really help filmmakers push the limits on making political statements is doubtful. "At the end of the day, it's a business about making money, and political films are not commercial," says one director who asked to remain nameless. Chinese audiences are looking for escapism, not heavy thinking. But at least the new commercial paradigm means directors do not have to cater to different tastes in an effort to reach a wider Pan-Asian audience. "We don't have to hire an actor because he's Korean or Japanese and he will give us some sales in that country," says Chan. "In the past, you ended up with a lot of U.N. types cast to appeal to different markets."

Bodyguards and Assassins is being produced by Cinema Popular, a joint venture between Bona International, one of the largest film distributors in China; Chinese producer-director Huang Jianxin; and Chan. The new venture has ambitious plans to produce 15 films over the next three years, including Jung Ku: The Man From 18th Hell, an adventure set in ancient times that Chan will direct, and The Flying Guillotines, an action-packed film about an imperial assassination squad, to be directed by Dante Lam.

Five years ago, Chinese filmmakers had to go to Hong Kong producers to finance their films, since those people controlled the distribution pipeline outside China, where a big-budget film would have to show to recoup its money. Though they're still looking to Hong Kong firms for their expertise, Chinese production houses are increasingly in the driver's seat. The Shanghai Film Group, one of China's largest and most powerful production companies, recently announced a joint venture with the Hong Kong studio Media Asia Films and the Beijing-based Guoli Changsheng Media. Its initial production slate includes the story of the fictitious martial artist Chen Zhen, directed by Andrew Lau, and the period drama In the Qing Dynasty, by art-house film director Jia Zhangke.

But for all the rising box-office revenues, Chinese cinema has yet to mine a key stream of potential riches: spin-offs. In Hollywood, box-office receipts account for just 30 percent of a film's revenues, with the rest coming from television rights, DVD sales, and merchandising. "Residual income outside box-office receipts is very low in China—no more than 20 percent—because television is still a monopoly, there is no video-on-demand platform, and DVD piracy is still a very big issue," says Sham. "There is a lot of room for residual income to grow." China proved with its Olympic mascots that it can fully capitalize on merchandising. It won't be long before filmmakers figure out how to turn their work into millions of sword-fighting action figures.