Introduction
    Chinese cinema has been making waves for past two decades now, winning awards at international film festivals, big and small, with celebrated films like Yellow Earth, Raise the Red Lantern, Farewell My Concubine, Platform and House of Flying Daggers landing in the critical and sometimes even the popular pantheon of world cinema. Not surprisingly, filmmakers like Zhang Yimou, Chen Kaige, Jia Zhangke are the darlings of media critics in the US, Europe, and Asia. At the same time, the Chinese film industry as a whole has been undergoing a series of institutional reforms, aimed at decentralization and marketization. The transition is not an easy one for the formerly state-subsidized studios and their salaried filmmakers. While a handful of films garner critical or popular attention, the majority of the domestic films languish in obscurity, some never making it to the big screen. Yet the potential size of the Chinese audiovisual market has attracted Western firms to venture into co-production and investing in film exhibition in China. The loosening regulations on co-production and foreign investment at the policy level further contribute to Western media firms’ China fever in the audiovisual sector. At the same time, the Chinese state has established protective measures that limit the extent of foreign presence both in terms of imports and investments. The current struggle of Chinese film industry and its fitful relationship with Hollywood led Western media firms had their roots in the early years of Chinese cinema.

A Nascent Film Industry: Chinese Cinema from the Turn of the Century to the Mid 1920s
The motion picture was introduced to China in 1896, two years after China’s defeat in the 1st Sino-Japanese War. China’s defeat encouraged the Western powers to increase their entrenchment in their arm-forced Chinese commercial concessions and treaty ports. The expansion grew more aggressive in 1900, after the defeat of the Boxer Uprising. The humiliating defeats of both the Sino-Japanese War and the Boxer Uprising had a profound impact on how the motion picture was perceived by the Chinese and how the development of China's own national film industry would later be conceived.
The development of early Chinese cinema occurred, to a great extent, under the shadow of imports. Early films in China were imports from Europe, mostly from France, with foreign merchants acting as distributors and exhibitors. The dominance of foreign distributors and imported films in the Chinese market was perceived as yet another proof of Western imperialism in China, provoking much nationalistic reaction. Closely related to the strong nationalist sentiment, early Chinese filmmakers considered cinema a tool for social reform for a stronger China, inheriting the Confucian idea of entertainment for enlightenment or pedagogical purpose. Cinema’s pedagogical function of enlightening the mass to save the nation in crisis was considered as equally important as, and at times more vital than, cinema’s economic function of making profits. Such a conception of cinema would shape the future development of Chinese film industry.
On the economic front, little domestic effort was made in venturing into film production before the fall of Manchu dynasty in 1911. Native exhibitors did not emerge until 1903 and the first domestic production did not appear until 1905. . Lack of domestic capital investment placed Chinese resources under indirect foreign control, since much of the finance stemmed from foreign banks, often branches of major Western financial firms headquartered in the US, Britain, France, Germany, Spain, and Portugal. The first real movie theater, Pingan Theater, was built in Beijing in 1907 by foreign merchants, opening only to foreign patrons.
There were approximately 100 theaters in China in 1927. The number reached 250 by 1930. Yet the rapid theater expansion was driven mostly by the demand for imports.  The first production company in China, Asia Film Company, was founded in Shanghai in 1909 by an American merchant, Benjamin Brodsky. In 1913 a theater loving young man Zhang Shichuan and his friends founded Xingming, a director-unit style production company contracting with Asia Film. The same year the wealthy Li brothers founded Huamei, in Hong Kong. Both Xingming and Huamei were short-lived. The outbreak of World War One soon cut off the companies’ supply of film stocks, shutting them down for good. 
As Hollywood style feature-length film was becoming a global prototype for narrative films, Chinese film pioneers began to experiment with long narrative features in the early 1920s to compete with Hollywood for the domestic market.  Some of the long narratives became boxoffice hits, which bringing hopes that the Chinese domestic pictures might be able to compete with Hollywood-led imports.
Early Chinese domestic films were mostly co-productions, dependent upon foreign capital and technology. Consequently, the native film industry was limited to the treaty ports where such capital and technology were the most accessible. When the war-distracted European powers temporarily relaxed their profit-making activities in China, some wealthy Chinese theater lovers began to invest in film production. The economic recovery after the war freed up more domestic capital for film production, resulting in a surge of short-lived, small-scale independent production companies. The early 1920s thus saw several waves of speculative film financing in China, all of which struggled under the shadow of imports. The film industry's short-term strategy of “small investment, fast production turnout, and marketable products” was detrimental to Chinese cinema's initial development.
To better compete with Hollywood imports, the Chinese filmmakers made an effort in the early to mid 1920s to consolidate capital and human resources.  The industrial consolidation reached its peak in 1927, reducing the number of production companies from well over 100 to only 32. The consolidation resulted in the oligopoly of three production companies, Mingxing (Bright Star, Star), Dazhonghua-Baihe (The Great China-Lily, GL), and Tianyi (First Under Heaven, Heaven). The Chinese national film industry took its initial shape.

Building a Profitable and Patriotic Industry: Chinese Cinema from the Mid 1920s to the Late 1940s
Chinese cinema from the mid 1920s to the early 1930s witnessed, simultaneously, a commercial entertainment wave and a series of institutional restructurings. Building a profitable and nationalistic film industry became the two major themes during the period, resembling the current struggle of Chinese cinema. The consolidation of domestic transportation in the late 1920s boosted economic development and brought in substantial industrial investment to China’s coastal cities. The cultural and linguistic barriers prevented foreign capital from venturing into local production, thus granting Chinese domestic production an opportunity to grow.
Hollywood’s dominance in the Chinese market continued throughout the second half of 1920s, occupying 90 percent of the screen time. Overall, foreign capital had actively monopolized the distribution and exhibition sectors. Film exhibition in the 1920s and 1930s adhered to the two-tiered colonial structure. Up-scale theaters built in big cosmopolitan cities all had exclusive contracts with Hollywood. Heavy fines were imposed when such theaters screened Chinese films. The fine was also applied to some middle-scale theaters. Most of the small production companies were intimidated by the foreign controlled theaters.
Chinese film practitioners were keenly aware of the necessity of establishing their own theater chains. Battles were waged against the Western monopoly over film distribution and exhibition. Star took the lead in cultivating a market for domestic productions. Imitating Hollywood’s vertically integrated studio system, the company founded its own distribution network. Star also built its own theater chains. Its Central Theater in Shanghai became a palace for domestic films. Star further sought to buy out the foreign run distribution-exhibition networks, initiating co-operation with other local companies to establish a united exhibition network, United Film Exchange (UFE), exclusively screening films made by the affiliated companies.  From 1928 to 1929, UFE also published a fan magazine, Film Monthly (Dianying Yuebao), to promote its pictures. The company’s internal power struggle eroded its financial strength, triggering its shut-down in July 1929. After that, UFE’s former theater chains went their own ways, forming various small production companies. The furious competition among the small independent companies created chaos in the domestic film market, inciting the call for an integrated national film industry. A late comer, United China Film Company (Lian Hua, UC) emerged as a formidable production company that would lead the way towards the revival of Chinese national cinema.
Chinese cinema’s first institutional restructuring and the case of United China Film Company
The United China Film Company was formed in 1930, the outcome of a series of vertical and horizontal integration initiated by the patriotic Luo Mingyou, the owner of a chain of theaters located in Northern cities. Luo was one of the first Chinese film practitioners who realized the importance of the vertically and horizontally integrated institutional structure and practice that were responsible for Hollywood’s global success. The coming of sound granted Luo an opportunity to venture into film production.  Due to the language barrier, foreign talkies did not fare as well as their silent predecessors. Meanwhile, Hollywood had stopped exporting silent pictures, leaving many theaters scrounging for screening material.
Envisioning the inevitable demand for domestic pictures, Luo entered film production by courting existing production companies for a possible consolidation. His goal was to bring all the studios and film companies together in one huge vertically integrated enterprise. He courted various production companies, including Great China-Lily,  Star, for a possible merge under the new name United China Film Company. With strong financial support from his family and friends, he acquired shares of these companies by purchasing their equipment and signing contracts with them for exclusive screening of their films in his theater chains. He advocated constructive cooperation instead of destructive competition among studios. He also encouraged studios to support theaters showing Chinese films by supplying theaters with first-run quality films. Finally, he advised theater owners to consolidate their chains and to liquidate foreign-run theaters.
With Star, the Great China-Lily, Shanghai Cinema and Drama Company, and Hong Kong Film Company under its wing, United China was officially founded in March 1930. UC set up its general manager’s office in Hong Kong. A management branch was also set up in Shanghai, overseeing three studios. Luo further consolidated theaters in Hong Kong, Shanghai, Guangzhou, and Northeast China to establish a distribution-exhibition network. He scouted locations in coastal cities for additional theaters. Finally, he started a technicians’ training group in Beijing and a song-and-dance class in Shanghai. UC’s nationalistic aspirations and professional management skills attracted many of the top talents in Shanghai, boosting the company’s image as a place for quality productions. UC’s fast ascendance soon made it an equal of Star and Heaven, forming a new oligopoly of Chinese cinema during the period.
From 1932 to 1934, UC went through a period of crisis brought on by both external and internal pressures. UC managed to overcome its financial crisis by injecting new talents into its production team, including the left-wing filmmakers Tian Han (Three Modern Women, 1932) and Sun Yu (Wild Rose, 1932) who made critically acclaimed and public endorsed social realist films at the time.
The outbreak of the second Sino-Japanese war in 1937 brought film production to a temporary halt. Film production resumed as the war-time situation stabilized, but on a much different footing. Wartime films in the unoccupied areas treated nationalism and Chinese resistance, while films in the occupied areas retreated to politically neutral subjects. In the occupied areas, Shanghai and Changchun stood out as centers of film production. In 1942, the Japanese established China United Film Production Corporation (Zhonglian) to take control of all film production in Shanghai. In Changchun, the Japanese founded Manchurian Motion Pictures (Man’ei) in August 1937 as the production center of wartime propaganda films. In the unoccupied areas, the center of film production was Central Film Studio, which started out in Wuhan and moved to wartime capital of Chongqing.  After the war, the Nationalist government confiscated production equipments of China United Film Production Corporation and Manchurian Motion Pictures. In 1943, the Central Film Services was founded and began controlling film distribution and exhibition channels. The four-year post-war period saw an unprecedented consolidation and centralization of the film industry in the hands of the Nationalist government. Aside from the state-sponsored Central Film Studio, a number of private companies flourished during the civil war period, including Wenhua, Lianhua, and Kunlun. The private companies produced war time classics such as Spring in a Small Town (Fei Mu, 1948), Spring River Flows East (Cai Chusheng, 1947), Myriad of Lights (Shen Fu, 1948) and Crows and Sparrows (Zheng Junli, 1949).

Chinese Cinema in the Era of Centralization
Some of the critical steps toward establishing a Socialist-style centralized film management system were taken before the official founding of the PRC. The foundations of Changchun, Beijing, and Shanghai Film Studios were laid in the late 1940s. The Communist Party established the Northeast Film Studio (renamed Changchun Film Studio in March 1955) by taking over the Manchurian Motion Pictures in1946. Beiping Film Studio (renamed Beijing Film Studio) was established in 1949. The same year saw the establishment of the Central Film Bureau in Beiping. The bureau was placed under the direct control by the Propaganda Department of the Chinese Communist Party Central Committee. Shanghai Film Studio was officially established on November 16, 1949, taking under its wing several formerly Nationalist controlled studios in Shanghai. In 1952, the remaining independent studios in Shanghai merged to form the Shanghai United Film Studio. In February 1953, Shanghai United Film Studio merged with the already established Shanghai Film Studio.
The nationalization of Chinese film industry in 1953 was under the direct guidance of Soviet film experts. The Soviet style command economy model lasted from the mid 1950s to the late 1980s.   Under such an economic system, production investment was made in response to commands from planners rather than in response to market demand. Consequently, “control” by the state became the key in allocating production resources. Manifested in the film industry was the management of a nationalized studio system dictated by the central Government’s political agenda. The state owned and subsidized production, and the studios produced ideologically motivated films according to the state’s production target. The function of such film production was to disseminate Communist ideology and to ensure the Party’s political control. In practice, the distribution of production resources and quotas, film licensing, film distribution and exhibition, and film export were all planned annually according to the Party’s propaganda target. The Ministry of Culture’s Film Bureau was put in charge of such planing. The Bureau was also responsible for regulating film studios and related institutions. Quotas were allocated to studios, the biggest ones including Changchun, Beijing, Shanghai, and August First. Production funding and targets were allocated to each studio according to the studio’s production capacity and specialties.  Production targets referred not only to the number of films but also to the types of film being produced. Each studio maintained its full staff of actors, writers, directors, cinematographers, and technicians. The studios tended to be overstaffed, reflecting the general patterns of the Chinese state controlled enterprises.  Studios were generally well-equipped with 35 mm equipment. Larger studios even built their own exterior “back lot” generic street, the Chinese equivalent of the frontier towns in American westerns.
A system for the licensing of approved films was also promulgated in the mid 1950s. Both domestic and imported films required approval for exhibition by the Film Bureau. The Bureau’s Film Exhibition Management Department oversaw film distribution and exhibition. A national distribution network was established in 1950, in the form of regional film management companies in the Northeast, Beijing and Shanghai, and in the South-central, Southwest, and Northwest military administrative regions.  The National Film Management Company was formed in Beijing in February 1951 to take over the duties of film distribution from Film Bureau’s distribution section. Acting as a central distribution agency that oversaw film distribution at a national level, the company purchased complete film prints from studios at a rate based more on the length than on the production quality and market value of the prints. At the state level, local film bureaus established their own management organizations to control film distribution and exhibition. The central control over local activities was not always strong, and local exhibitors did take the liberty to alter the length of exhibition cycles according to the popularity of individual films. For instance, a few cinemas in Changsha managed to give the politically charged Soviet films short runs while granting entertainment oriented domestic comedies longer runs. 
The nationalized studio system benefited the development of Chinese cinema from the mid 1950s to the early 1960s. It not only consolidated film technology and capital but also nourished film talent, providing a production environment free of financial constraints for the maturation of third generation filmmakers. The central Government’s protective film policy, though more out of political than economic concerns, kept Hollywood and West European imports at bay, keeping China’s large film market exclusively for the Chinese film industry. As such, Chinese cinema witnessed a period of prosperity that lasted until the outbreak of Cultural Revolution. The Cultural Revolution virtually collapsed film production.
The centralized studio system resumed its function after the Cultural Revolution, with continued political control and financial subsidy from the state. The system remained intact until the mid 1980s when China’s economic reform reprising market economy finally took off.
China’s economic reform in the late 1970s focused on the reorientation of the central government’s developmental strategy. The reorientation shifted the core development sector from heavy industry toward light industry and agriculture, the bases for people’s daily consumption.  As consumption became the new driving force for China’s overall economic growth, the film industry responded by shifting its focal point from production to exhibition. Recognizing film exhibition as the key to boost film consumption, the state Council approved a joint petition by the Administration of Culture and the Administration of Finance in August 1979 to allow the exhibition companies a greater profit share for future expansion. As a consequence, theaters were allowed to claim 80% of the box-office profit as an investment fee for renovations and expansions. In the next three years, the exihibition companies invested more than 50% of its profit share on renovating old theaters and building new theaters as well as on updating screening equipment and recruiting more projectionists and other technicians. 
Meanwhile, China Film Corporation (China Film, the successor of China Film Distribution and Exhibition Company) had been purchasing original film prints from studios at a mandatory price of nine hundred thousand yuan per film, regardless of each film’s individual market value. China Film provided an undiscriminating “contract” for the entire studio production at no operating costs that worked to the studios’ benefit by allowing them to sell unpopular films on the strength of the popular or even without the strength of the popular ones. Such a distribution system resembled the block-booking practice of Hollywood majors during the height of the studio era, except that, in the case of Chinese cinema, the studios need not exert any pressure to have their film distributed in a mixed package. The cozy production practice, together with the lack of competition from foreign imports and the limited entertainment options contributed to the popularity of domestic films from the late 1970s to the mid 1980s.
Encouraged by the popularity of cinema and the growing wealth of the newly reformed distribution-exhibition sector, the studios lobbied for a extension of the profit-sharing policy to the production sector. The Administration of Culture issued a memorandum in 1980 requesting China Film to settle accounts with the studios according to the number of prints made for distribution rather than by paying a flat fee for original prints.  However, the new regulation continued to allow China Film to pay nine thousand per print for the first 110 copies, a number based on the average copies of each print made for the past decades. China Film must pay 99 thousand yuan per print only when the number of copies exceeds 110. The new accounting rule essentially gained each studio an extra 100 thousand yuan per year, not a sufficient amount to allow studios much commercial leeway and financial incentive to make marketable films. Still separated from the market, the studios continued to pay little attention to their films’ box-office performance. While such an attitude would hurt the overall financial well-being of the industry in the long run, it did help Chinese New Wave filmmakers’ lofty cinematic exploration, which created a buzz overseas, quickly becoming a critical revelation that put Chinese cinema forcefully onto the world map. 

Chinese Cinema in the Era of Marketization
China's economic reform since the second half of the 1980s played a significant role in determining the parameters and possibilities of Chinese cinema as both an economically viable and a culturally motivated institution. The economic reform with its emphasis on the financial accountability of individual production units shook the very foundation of Chinese cinema. The problems of low-productivity and inefficiency in the state-run enterprises became apparent by the mid 1980s, which brought to light the financial crisis of the state-run film industry. Film reform became imperative. During the early stage of reform, Chinese cinema witnessed distressing declines in both its audience attendance and its flow of capital and creative forces. In 1984, only twenty-six billion tickets were sold, down 10 percent from 1980.  In the first quarter of 1985, the moviegoing audience was 30 percent smaller than during the same period the previous year. The result was a loss of revenue of 9.36 million yuan ($1.17 million). Chinese cinema’s economic crisis propelled the state to implement more reform measures in the hope of resuscitating the industry.
Growing out of a planned economy--Film reform in the second half of the 1980s
Film reform began with distribution reform to grant the local distributors more economic autonomy and hence financial responsibilities. Under the planned economy, the state-controlled China Film Corporation (CFC) acted as the central distributor, responsible not only for distributing films to the theaters but also for paying fees to the studios, footing the bill for promotion and extra film prints. Local distributors functioned only as middle men who passed along film prints to the theaters and turned over the box-office revenue to the CFC. With no financial responsibilities but the right to share profits with the CFC, local distributors often requested more prints from the CFC to enable multiple screenings in order to gain more profit. To disperse the CFC's financial burden, the state revised its distribution policy in 1984, requiring local distributors to pay the costs for the extra prints. In allowing distributors and exhibitors a bigger share of the profits and at the same time granting them more financial responsibilities, distribution-exhibition reform in the first half of the 1980s focused on encouraging the financial autonomy of local distributors and exhibitors.
Incited by the profit-sharing potential, studios demanded further distribution reform that would allow the production sector share profits. Under the old system, studios sold film prints outright to the CFC for a flat fee. As such, studios' profits depended on the volume of prints ordered by the CFC. Such a system was contested by the studios in the mid 1980s. The first two studios to challenge this system were Shanghai and Xian Studios, who, in 1986, negotiated with the CFC to stop selling prints outright and to instead share in box-office receipts.
Overall, film reform during the first half of the 1980s was haphazard, without a coherent, long-term strategy. It reacted, passively and partially, to China's overall economic reform. In focusing solely on the distribution-exhibition sector, issues concerning production financing and production efficiency were left unaddressed. In January 1985, the China Film Bureau held a professional conference to assess the outcome of early reform measures and to hash out a more complex reform package. The goal was to revive the industry through marketization. Decentralization, price reform, and enterprise reform became the key measures. Decentralization would restrict state intervention in the film industry's micro-economic operation. Price reform would relax the planned, single price system to allow ticket prices to adjust according to each individual film’s market value. Enterprise reform would focus on streamlining the production process and granting individual production units sufficient managerial autonomy and financial incentive to increase productivity and to ultimately encourage studios to produce films with market value.
In January 1986, a structural overhaul at the state level put the Film Bureau, previously under the control of the Ministry of Culture, under the leadership of the Ministry of Radio, Film & Television (RFT). The restructuring attempted to consolidate and to efficiently coordinate the three major sectors of China's audiovisual industry. However, the state level institutional restructuring was not carried out at a provincial level. Power struggles and other bureaucratic bickering at the local level prevented the transition of the local Film Bureaus from the control of the local Culture Departments to the local Radio & TV Departments, creating many organizational and managerial glitches in the distribution-exhibition sector. By the end of the year, the organizational confusion, coupled with the continuing shrinkage of the domestic film market, resulted in the loss of revenue for one- third of China's distribution companies. Many distribution companies were forced to branch out, seeking compensation from alternative commercial ventures.
In 1987, both the studios and the local distribution companies demanded further autonomy from the CFC in terms of overall production planning and film distribution. In their mutual attempt to dismantle the CFC's monopoly, the studios and the distribution-exhibition companies courted each other, agreeing to collaborate in film distribution. Proposals were made to allow studios to cultivate their own production-distribution-exhibition network and to grant local distribution companies the autonomy of purchasing film prints of their own selection. The proposals were deemed too radical at the time and were rejected out of hand. The achievement of the industry’s own reform initiatives came down to the limited price and profit-sharing relaxation. The same year the Ministry of RFT issued "Document 975," to dismantle the mandatory price limits at both the high and low ends and to allow studios to share box-office profits with the distributors. In 1988, the symposium "Strategic Planning for the Film Industry" decided to further relax price controls on film exhibition, allowing a limited hike in ticket prices at some up-scale film theaters in big urban centers. However, instead of connecting a film's price with its market value, the price adjustment in 1989 retreated to the centralized mandatory system, contradicting overall reform goal of marketization.
Film reform in the 1980s focused mostly on the distribution-exhibition sector, granting the distributors-exhibitors a better share of the profits and more managerial autonomy. What was left untouched by the reform in the 1980s was the mandatory block booking system that gave economic incentives to neither studios nor distributors and exhibitors. Furthermore, it created no synergy between studios and distributors-exhibitors. Since the number of prints being circulated directly affected revenues for studios, distribution companies, and theaters, conflict existed between the studios who were eager to sell more prints regardless of their films’ market value and the distributors-exhibitors who wanted to be more selective in their purchasing. Though in the short run, the block booking system played to the studios' advantage, it ultimately left studios with neither the motivation not the ability to make marketable films. The one-sided reform focusing on distribution-exhibition in the 1980s reflected the policy makers’ unwillingness to come to terms with the inefficiency and unproductivity of the state-run studio system long out of touch with the market. Apprehensive of as well as resistant to a market economy, the Chinese film industry became one of the most conservative state-run enterprises in China by the late 1980s.
Towards a market economy--Reform in the early 1990s
The newly energized economic reform at the State level in the early 1990s propelled a thorough structural overhaul in the film industry. By furthering distribution reform and finally pushing production reform onto the forefront, film reform in the 1990s reflected the general trend of in-depth state-run enterprise reform, ownership reform, and marketization. The goal of distribution reform in the 1990s was to eliminate the multi-layered distribution process in order to dredge the previously clogged distribution channel, and to encourage competition not only among the distributors-exhibitors but also among the studios. Distribution reform reached a new peak in 1993 when the Ministry of RFT issued "Document Three--Suggestions on the Deepening of Chinese Film Industries Institutional Reform” and a subsequent document ensuring the implementation of such suggestions.  “Document Three” was to carry out the state’s new economic reform policy by steering film production, distribution, and exhibition toward operating under a market economy. Much of the reform progress up till 1997 can be attributed to “Document Three” and its subsequent follow-up document. The supplemental document directly connected print prices and ticket prices with the market, decisively dismantling the China Film's distribution monopoly. It also proposed measures for production reform, allowing studios to negotiate directly with local distributors on profit-sharing and multiple distribution methods. The same year, a film exchange market was established in Beijing as a permanent location for an annual production-distribution conference to simplify the distribution process by bringing together, face to face, the producers and the distributors. The exchange market in essence functioned as a film festival to pretest films' market value.
The shortage of production capital continued to plaque film quantity and quality. With the studios' financial crisis exposed, a consensus emerged that Chinese cinema’s state-run studio system was long overdue for a structural overhaul. Studio reform would apply equally the enterprise reform measures carried out in other state-run industrial sectors. While the Ministry of RFT continued to maintain its control over film importation and the annual production target, individual studios implemented various reform measures, chiefly some forms of institutional restructuring, private investment, horizontal integration, and international co-production. Different studios applied such measures to various extents, according to what they saw as the most urgent internal problems.
As production reform brought to light the studios' inflated overhead and their low productivity and lack of creativity under a financially egalitarian and politically dictatorial environment. A series of policy amendments at the state-level hoped to grant more economic and creative autonomy to the studios. But the studios' problem ran deeper than what a few policy adjustments would be able to rectify. While the mandatory profit-sharing quota could be adjusted through tax reform and marketization at a macro level, the problems with a egalitarian system of remuneration and overstaffing could not be amended through a simple change of policy, since they cut deep into the complex labor relations in particular and human relations in general. The problems of overstaffing, especially of administrative personnel, and the aging of creative talents and production equipment persisted.
Overall, downsizing, internal restructuring, talent outsourcing, and linking bonuses with profits were the common measures the studios adopted. Experiments with horizontal expansion in the form of venturing into other audio-visual related business were also undertaken. Some studios even went so far as to venturing into alternative business such as restaurants and discotheques. The horizontal expansion, or the cultivation of a multiple revenue system, was particularly effective in utilizing extra equipment, technology, talents, and sometimes even studio back lot for extra profits.
The cultivation of alternative revenues was the most successful in the film-related audio-visual sector, including making television commercials.
Hollywood reacquainted
Production reform in the early 1990s did not result in pictures with better box-office performance. Chinese cinema continued to lose audiences on the theatrical front. Consequently, the overall revenues remained slim and the production funding remained meager. In the hope that attracting audiences back to the movie theaters would pave the way for the recovery of Chinese cinema, the Ministry of RFT issued yet another distribution-exhibition centered reform measure in early 1994. The groundbreaking reform measure granted an annual importation of ten international blockbusters, most of them big-budget Hollywood films. By (re)introducing Hollywood to the Chinese market, this measure would profoundly shape the course of Chinese cinema in the second half of the 1990s.
The Ministry of RFT loosely defined the criteria for imports as reflecting up-to-date global cultural achievement and representing excellence of cinematic art and technique. The cultural achievements and artistic and technological excellence were apparently measured by either the target films' budget scale or star power or their box-office returns. Economics rather than ideology played a significant role in selecting film imports. As a result, since 1995, Hollywood’s star-studded big-budget and high-tech blockbusters such as Natural Born Killers (Oliver Stone, 1995), Broken Arrow (John Woo, 1995), Twister (Jan De Bont, 1997), Toy Story (John Lasseter, 1995), True Lies (James Cameron, 1995), Waterworld (Kevin Reynold, 1995), Bridges of Madison County (Clint Eastwood, 1995), Jumanji (Joe Johnston, 1995), etc., have entered the Chinese market. The imports generated huge box-office revenues, totaling an average of 70-80% of all the box-office returns in 1995. One direct impact of the ten big imports was the restoration of Chinese audiences' theater-going habit. “Going to the movies” once again became one of the leading entertainment choices among the Chinese public. The restoration of the theater-going habit benefited Chinese cinema. The returning Chinese audiences unavoidably noticed domestic pictures, discovering afresh some of China's own big-budget and/or high-tech entertainment pictures, what the Chinese called the “domestic big pictures.” Such films include those of international co-productions in which the majority of creative forces are domestically based. The domestic big-pics all became top of domestic blockbusters for 1995.   Red Cherry’s box-office return even topped the big imports.  Chinese cinema subsequentluy witnessed a quick recovery in the mid 1990s. The total box-office return in 1995 witnessed a 15% increase from that of 1994.  With the popularity of ten big imports and the subsequent ten big domestic pictures, 1995 became "the year of cinema."
Chinese critics attributed Chinese cinema's renewed popularity to the film industry's belated "big picture consciousness/awareness,” i.e., the realization of the significance of sufficient production investment in making quality films.  Hollywood’s high-cost production values became the standard measurement for quality films for both Chinese audiences and film practitioners. As counterparts to the ten big imports, the domestic big-pics imitated their foreign rivals, creating the big-budget mentality among Chinese filmmakers. In 1995, with a budget for a single production of over 10 million yuan ($1.25 million), four films, In the Heat of the Sun (Jiang Wen), The King of Lanling (Hu Xuehua), Red Cherry (Yie Daying), and Shanghai Triad (Zhang Yimou), set investment records Chinese film history.  Another significant contribution of the ten big imports was the introduction to the Chinese film industry of the distribution method commonly practiced in the West which divided the profit as well as the loss among the producer, the distributor, and the exhibitor. The profit of the big imports was shared among the producers, the distributors, and the theaters. Under such a distribution system, the producer was forced to directly face the market while the distributor and exhibitor must make every effort to promote the films. The Chinese film industry began to experiment with this new distribution method in the mid 1990s.
The film industry's replication of Hollywood’s blockbuster practice alone could not explain Chinese cinema’s sudden recovery in the mid 1990s. What also contributed to the recovery was a significant policy change at the beginning of 1995. The Ministry of RFT relaxed its production licensing policy in January 1995, extending the right to produce feature films from sixteen state-run studios to thirteen provincial level studios.
Furthermore, any investors outside the film industry who would cover 70% of the production cost were granted the right to co-produce with a studio.
Previously only the sixteen state-run studios were allowed to produce films and the distributors could only distribute studio films, an outside investor had to become attached to a studio in order to obtain the right to film production and distribution. The policy granted studios leverage in collecting a flat “management fee” of around 300K yuan ($37,500) regardless of the film's profitability. If the film was profitable, studios would further bargain with the investors for a cut of the profits at the rate of 40%. Even though such production practice was usually termed “co-production," in essence, the studios were “selling” production rights in the name of "management fee” to wealthy investors. The investors typically borrowed the host studio's talent, equipment, and interior if necessary, which helped to pay overhead and equipment maintenance fee.
Co-production with private investment
The sources of funding in the mid 1990s came from the state budget, overseas investments, and domestic investments from non-film sectors. The 25 state-level studios and production companies produced approximately 150 films a year, most of them state-funded, costing from one to two million yuan ($125,000 to $250,000) to produce. The state also set aside extra funding for the production of major propaganda films. While the extra funding for propaganda films continued through the mid 1990s, the total number of films invested in by the state decreased sharply. In 1993, only 23% of the annual production investment came from the state budget. Studios coped with the problem by attracting investment from various private corporations who were interested in venturing into the film business. Many of the years “big domestic pictures” were produced with the huge financial backing from the private sector.
Further expansion and relaxation of film licensing was granted in early 1998, with the policy of single film licensing that allows private companies to apply for film production and distribution permits on a case-by-case basis.  As a result, the private investment funded the majority of feature films produced in 1998. A new circular issued in early 2002 practically allows any citizen with financial capacity to apply for a permit in making films. The new regulation hopes to revive China's domestic production in the face of a sharp increase in foreign competition after China joins the WTO. The turn towards private funding can be glimpsed by the increasing number of private enterprises participating in all of the three sectors of production, distribution, and exhibition.
The Rise of private film corporations: the Case of Huayi Brothers (with input from Seio Nakajima)
Huayi Brothers Advertisement Limited Corporation was established in 1994 by the brothers Wang Zhongjun and Wang Zhonglei with the meager amount of USD $100,000. As an advertising agency, Huayi Brothers’ first venture into film and television was to sponsor the production and screening of TV comedy The Psychatirc Clinic (Xinli Zhensuo) in 1979. It’s success in television led Huayi Brothers to invest in film-related business in 1998. The first such move was to purchase the domestic distribution right of Chen Kaige’s  The Emperor and the Assassin (1999). Huayi Film-TV Entertainment Limited Corporation collaborated with Beijing Forbidden City Sanlian Film-TV Distribution Corporation in distributing Chen’s film. In 1999, it invested in the production of two films, Jiang Wen’s Devils on the Doorstep (2000) and Huang Jianzhong’s My 1919 (1999). The early investment, though failed to bring in much profit, built a reputation for Huayi as a rising private firm in the film industry.
The real financial breakthrough for Huayi came in when the company invested in Feng Xiaogang’s third New Year film Sorry Baby (1999). Huayi’s CEO Wang Zhonglei served as an executive producer for the film. The film earned 40 million yuan at the boxoffice, the highest grossing domestic film of that year. Sorry Baby earned around 10 million yuan in advertisement income via product placement and other forms of soft sell before the film completed its production. The subsequent films Huayi Brothers produced have followed the same model in an attempt to recoup as much pf the production cost as possible before the film’s completion and release. For a recent example, Cell Phone (Feng Xiaogang, 2003) received 20 million advertisement income before it was distributed to the theaters.
In 2000, Huayi Brothers Advertisement Corporation and Taihe Property Investment Corporation joined hands to form a new corporation, Huayi Brothers Taihe Film-TV Investment Company. The total initial capital of 50 million yuan was divided equally between the Huayi Brothers and Taihe Property. The following year Huayi Brothers Taihe established two subsidiary companies: Huayi Brothers Cultural Management Limited Corporation and Shanxi Xiying Huayi Film Distribution Corporation.
Huayi Brothers Cultural Management Corporation is a talent agency. At present, the company has signed agreements with more than 40 well known stars from both the mainland and Hong Kong. The talent agency collects 15 percent service fee and spends around 3 percent of the total agency fees to advertise and promote the actors. The contracts are project based so actors are free to work for other companies and projects.
Xiying Huayi Film Distribution Limited Corporation is a film distribution corporation established by Huayi Brothers Taihe and the state-owned Xian Film Studio. In 2003, it earned around 100 million box office receipt. The distribution company guaranteed the outlets for films made by Huayi Brothers Taihe.
At the same time, Huayi Brothers continues to invest in producing popular dramatic TV programs such as Dazhaimen. This continuation in TV production shows clearly the company’s efforts in horizontally integrating film and TV production in order to control the expanding media markets in today’s China. The company is an excellent modle of vertically and horizontally intergrated media conglomerates.
Another aspect that makes Huayi Brothers a leading private enterprise in the Chinese film industry is a number of co-productions with foreign film studios, particularly with Columbia Pictures Asia. The first film Huayi Brothers and Columbia co-produced was Feng Xiaogang’s Big Shot’s Funeral (2001). The film topped the box office record of the year for domestic films in 2001 and was distributed in the U.S. in selected theaters. Because of the success of this co-production, Huayi Brothers and Columbia Pictures Asia co-produced a number of films including Warriers of Heavn and Earth (He Pin, 2003), Kekexili (Lu Chuan, 2004), Kung Fu Hustle (Stephen Chow, 2004), and Cell Phone (2004), all of which ranked top at the box office receipts.
In recent years, China’s total box office including both domestic and foreign films is around one billion yuan. Domestic films occupy around 40 percent of the total box office, which amounts to about 400 million yuan. In 2003, the total box office earned by the films produced by Huayi Brothers was around 100 million, which amounts to 1/4 of the box office returns for domestic films.
One unique feature of Huayi Brothers is its “director workshop” (daoyan gongzuoshi) system. The company now has four director workshops including Feng Xiaogang’s, Lu Xuechang’s, Lu Chuan’s, and Teng Huatao’s. The four directors signed exclusive contracts with Huayi Brothers and will only make films with Huayi Brothers during the period of contract. The system has so far worked to the benefits of both parties. The company can provide directors with packaged plans of producing films utilizing its vertically and horizontally integrated sections of production and distribution for both films and TV programs. The directors on the other hand, can minimize the uncertainty of investments by utilizing the capital provided by the company. Many of the box-office successes, both entertainment oriented films such as Feng’s New Year films and more arty films such as Lu Chuan’s Missing Gun (2002) and Kekexili (2004) came out of this unique system of director workshop.
Huayi has been at the forefront in leading the recent trends in film industry in terms of privatization, media conglomeration and globalization.
Hollywood emulated
Years of distribution-exhibition reform finally pushed Chinese distributors and exhibitors towards unconditionally adopting a Hollywood-style vertically integrated marketing and management system. Distributors initiated collaborations with studios, hoping to have a stake in film production. Studios directly reached out to exhibitors for the possibility of creating direct production-exhibition channels. Big theaters actively sought collaborations among themselves to establish theater chains. Vertical integration began with the establishment of distribution-exhibition networks which divided film distribution-exhibition into several geographic areas. Within each area, competition among local distributors-exhibitors in the form of various promotional packages was encouraged, further boosting films’ public visibility.
By the end of 1995, it seemed that the imports not only brought audiences back to the movie theaters but also contributed, by triggering policy changes and restoring theater-going habit, to the recovery of Chinese domestic film production. However, a closer examination revealed that the domestic box-office success mostly came from productions involving private investment. The majority of the state-run studios continued to fall behind in making marketable films. Two-thirds of the domestic films produced in 1995 were cheap knockoffs of Hollywood and Hong Kong style entertainment films. The majority of them were box-office turkeys made either by the financially ailing state-run studios or the profit-conscious private investor inexperienced in film production and distribution.
The proliferation of low-budget and low-production-value entertainment pictures failed to generate profits but instead provoked the government’s tough sanction. As risqué literature, politically explicit and exploitable artworks, and pirated rock music proliferated amidst the commercialization trend, a campaign to criticize "spiritual pollution" was launched by the state in 1996 to limit cultural autonomy and regulate the cultural market. In March of 1996, the Ministry of RFT held a national film workers’ conference in Changsha (Changsha Meeting), addressing the Ministry's concern over the quality of Chinese cinema, particularly the low-budget entertainment films containing gratuitous sex and violence. In the “Changsha Meeting,” cinema’s pedagogical function and social impact were once again foregrounded. The policy makers demanded that the industry produce and promote ten quality domestic pictures a year for the next five years. What counts as “quality” remained vague, prompting much discussion among the industrial practitioners. As usual, the studios practiced self-censorship, slating predominately mainstream propaganda films.
The Hollywood-influenced Chinese audiences were not thrilled by Chinese cinema’s renewed passion for the socialist genre. The propaganda films were able to claim their box-office success only through the government organized and sponsored public viewing. While film revenue continued to fall, the number of films produced also decreased.  As such, 1996 witnessed yet another downturn in Chinese cinema, causing serious doubts on whether the film market could survive without the big imports. The danger of a domestic film market dependent on foreign imports propelled the state to adopt import policies protective of domestic production. The Changsha Meeting” mandated that two-thirds of the films distributed and exhibited be domestic productions. The percentage also applied to the number of times a domestic film must be screened, that is, two-thirds of screening time was reserved for domestic pictures. By allocating film quotas and mandating how many times a domestic film must be screened, film reform seemed to be taking a reverse turn in 1996. The conservative turn steered away many private investors, who, in turn, shifted their investment interest to producing more profitable television dramas.
Haunted by financial insecurity, studios lobbied for the rights to distribute foreign films for lucrative profits. During the previous two years, the China Film Corporation assumed the sole control over film. In 1996, the Ministry of RFT issued a document to link the profit from distributing imports with studios that produced “quality domestic pictures." It would allow, as a reward, the studios that produced popular quality films the right to distribute big imports approved by the CFC. The quota was one quality domestic film in exchange for one big import. In 1996, three big studios, Beijing, Changchun, and Shanghai, that had in the previous year produced ten domestic box-office hits, obtained the distribution rights of imports from the China Film Corporation. Among the 24 Hollywood imports in 1996, the three biggest imports, Toy Story (John Lasseter, 1995), Waterworld (Kevin Reynolds, 1995), and Jumanji (Joe Johnston, 1995) were distributed directly by the three studios which shared the box-office returns with Hollywood and the participant theater chains. The studios thus profited from distributing these three films.
Chinese cinema's tumultuous turns in the mid 1990s indicated that an open market (to the imports) could stimulate domestic competition, indeed help to expose Chinese audiences to domestic pictures. It also indicated that the market for domestic films still had potential, but only films with relatively high production values would have a shot at the box-office. The state’s ideological monopoly and the limited thematic freedom restricted film practitioners' creative imagination and impulse, contributing to Chinese cinema's dull image. Decades long state subsidy fostered a generation of filmmakers who were inexperienced in alternative approaches to film production. As such, even when film reform returned to filmmakers much of the control over their creative processes and products, Chinese filmmakers had difficulty in making the transition from a cinema of propaganda to a cinema of popular appeal and commercial entertainment. In this regard, the crisis of Chinese cinema could not be resolved simply through a reform of the mode of production.

Chinese Cinema from the Late 1990s to the Mid 2000s
Chinese cinema in the late 1990s witnessed further downturn. While the 10 domestic blockbusters accounted for $3.1 million at the box office in 1995, the remaining 135 Chinese films produced in the same year earned only an average of $15,000 each.  The ten big imports (six from Hollywood), shown under a percentage rental arrangement, accounted for just 3.3% of the total of 269 films exhibited in Beijing in 1995 but took in 40% of Beijing’s box office receipts of 92.6 million yuan ($11.4 million).  While average imports did not pose a real challenge to the domestic films, the “box-office sharing” Hollywood films have consistently over-shadowed Chinese domestic pictures. Hollywood blockbusters continued to dominate the Chinese market throughout the late 1990s, due largely to the performance of Titanic (James Cameron, 1997) and Saving Private Ryan (Steven Spielberg, 1998) which together accounted for about one third of total box office in Beijing and Shanghai. Titanic, the box-office record breaker in China, accounted for 21% of Shanghai's total (38 million yuan) and 28% of Beijing's total (36 million yuan).
Interestingly, Chinese theaters' bidding war on Hollywood's big production contributed to the "big import fever." China's first auction for first-run rights of a Hollywood blockbuster was held in Shanghai on October 12, 1998.  The auction, staged by Shanghai Paradise Co. Ltd. and the Shanghai Auction Co., was for the rights to premiere the Polygram film The Game (David Fincher, 1997). The Grand Theatre was the top bidder, offering 360,000 yuan ($43,426).  In total, the seven theaters paid 1.72 million yuan for the right to screen the movie for the first eight days of its run in Shanghai.
To curb the industry’s downturn, the Ministry of Radio, Film & TV and the Ministry of Culture issued a joint circular in the spring of 1997 to mandate the allocation of two-thirds of screen time to the exhibition of domestic films.  The Chinese Film Distribution and Exhibition Association responded by launching a national level theater chain, “China Theater Chain,” consolidating three hundred theaters in big urban areas to guarantee quality domestic films the best and most screen time.  In May 1997, the China Film Bureau issued yet another measure to reinforce the simultaneous opening of quality domestic films nationally at first-run theaters. The Chinese Internal Revenue Service was also involved, relieving the film tax on exhibition income.  Meanwhile, in an attempt to produce quality pictures, the average budget for a domestic feature was increased from 1.3 million yuan in 1991 to 3.5 million in 1997.
Culture Minister Shun Jiazheng, formerly the head of the Ministry of Radio, Film and Television, forcefully argued that without a healthy supply of domestic films, Chinese film industry would be reduced to salesmen for Hollywood films. The distribution and exhibition of domestic films must remain Chinese film industry’s priority. The State Bureau of Radio, Film and Television (SBRFT, the former Ministry of Radio, Film and Television) and the Culture Ministry issued a circular in early 1998 to set aside three periods each year during which only Chinese films can be shown.  The periods, ranging from 15 days to 1-1/2 months were June 10 to July 31, Sept. 25 to Oct. 10, and Dec. 1 to Dec. 20. During these periods, theaters were allowed to screen only eight state-endorsed domestic pictures. China Film was barred from releasing any foreign films during the periods and was required to release the award-wining domestic films at its national theater chain. During the periods, theaters were also prohibited from doing publicity or promotion for foreign films. The circular further affirmed that two-thirds of all films shown in China each year must be domestic.
Not surprisingly, the protective measure did not boost the attendance for domestic pictures. It did drag down the overall revenue by reducing the profit margin of the big imports in 1998.  The box office for the periods during which only domestic films could be shown was the lowest of 1998. Doubts were expressed in the distribution-exhibition sectors as to whether such an anti-market practice was feasible in the long run.
Nonetheless, the Film Bureau and the Film Distribution and Exhibition Association continued to restrict the release of Hollywood films in 1999.  The entire months of May and June, and September and October were blacked out. The reason for the decision was the 10th anniversary of the June 4, 1989 Tiananmen Square crackdown and the 50th anniversary of the PRC's founding on October 1. An official decision was made that no foreign films could be released during the four months. The decision also stated that any Hollywood films released in 1999 would only be allowed to carry out "low-key" promotion, while distributors would be required to aggressively promote domestic films, particularly films made for the commemoration of the PRC's 50th anniversary.
Clearly, the state's protective measures benefited chiefly the state supported propaganda films, what the Chinese film community termed "main melody films." The vast majority of domestic pictures, most of them mediocre entertainment pictures, were left to fend for themselves. Literally pushed against the wall, the film industry initiated a new round of vertical and horizontal consolidation to reorganize, indeed expand the motion picture business.
Industrial integration in the late 1990s followed the model of New Hollywood, ushering the Chinese film industry into the age of conglomerates. The 1980s witnessed media mergers in Hollywood that put the ownership of the studios under several larger media conglomerates. The large media conglomerates provided long-term financial stability for the studios yet at the same time prioritized films within the economic logic of multiplying revenues. Hollywood in the 2000s is increasingly subsumed under the larger media firms and the experience of cinema is no longer the exclusive domain of theaters. Such is the path the Chinese audiovisual industry is taking. 
Industrial consolidation and the case of China Film Group (with input from Seio Nakajima)
With the imminent accession to WTO, at the end of the 1990s, larger state-owned film studios began to form business groups and media conglomerates. With the support of the Ministry of Radio, Film and Television (MRFT) and the Film Bureau, China Film Group Establishment Preparation Small Group was formed and began preparing for the founding of the China Film Group Corporation. In the summer and autumn of 1997, China Film Group Establishment Preparation Small Group conducted research on film corporation groups and non-film corporation groups in the city of Shanghai and Shenzhen, as well as examining the current status of enterprises and businesses under the jurisdiction of the MRFT.  The small group also consulted experts in the State Commission for the Restructuring of the Economic System, Chinese Academy of Social Sciences, and the State Economic and Trade Commission. 
In early 1998, six film companies in Beijing agreed to create a massive new group company, China Film Group.  The Group includes Beijing Film Studio, China Film, China Children’s Film Studio, China Film Co-Production Corp., China Film Equipment Corp. and Beijing Film Processing Studio. The State Council officially approved the plan to set up the China Film Group at the end of 1998. The Group promised to offer a consolidated audiovisual business dealing with film, television, and home video. It also promised to consolidate its production, distribution, and exhibition operations.
In 2000, the Group established five production units including the First Film Production Corporation, the Second Film Production Corporation, and the Third Film Production Corporation, Co-Production Corporation, and TV Program Production Center.  In addition, in early September 2001, the China Film Group Corporation established the Artistic/Creative Personnel Center. The center lists more than 500 artistic/creative personnel including directors, actors, script writers, and others from the Beijing Film Studio, China Children’s Film Studio, China Co-Production Corporation, and China Film Corporation. The China Film Group Corporation currently has divisions in all the three sectors of production, distribution, and exhibition. The corporation includes divisional companies, fourteen companies with major stock shares, six companies with stock ownership, and one State subsidized unit. The Corporation produces an average of 35 films and around 110 TV films each year. In 2004, it invested in 52 films.
In the TV sector, the China Film Group Corporation produced more than 100 parts and 2000 episodes of TV drama from 1996-2000.  Its affiliated company, China Film Channel Program Center produced more than 100 parts of TV films and broadcast 3000 domestic films in addition to 1000 imported films.  In the area of audio-visual media production, another affiliated company, Huayun Film-TV Optical Disk Corporation produced 6000 programs with more than 40 million optical disks. China Film Group’s TV venture has followed the general trend of integration between China’s film and television industry.
Horizontal Integration: Chinese Cinema and Chinese Television
A series of measures aimed at horizontal integration were carried out in the 1990s to upgrade the outdated notion of cinema which associated film exhibition mostly with movie theaters. Lack of horizontal integration prevented studios from aggressively seeking expansion into television and home video markets for multiple distribution channels. While the studios' lack of control over distribution-exhibition was partially responsible for this oversight, their lack of a long-term strategy for making inroads into television and home video markets was also crucial.
Chinese television began its early development in the late 1950s. The Soviet Union supplied most of the equipment and technical assistance. The development of Chinese television was interrupted first in the winter of 1960 when China broke off its relationship with the Soviet Union, which caused the Soviet Union to withdraw its economic and technological aid. Chinese television had its second setback during the Cultural Revolution when television broadcasting was partially suspended from 1966 to 1976. Chinese television resumed its full-scale operation in the late 1970s, and its popularity began to take off only in the mid 1980s.
The early relationship between film and TV was antagonistic, similar to that of Hollywood's major studios and US network television in the 1950s. By ignoring, indeed looking down upon, television in its infancy, the Chinese film industry paid a hefty price in missing the opportunity of having a stake in TV and home video’s huge potential market. Chinese television, on the other hand, quickly adopted a protective approach towards its own market, fending off film's belated inroad into television production and exhibition. The dual track system of state-subsidized and advertiser-sponsored Chinese television put the TV industry in a advantageous position in competing for audiences with the financially self-reliant film industry. Chinese television was able to purchase the right to broadcast a motion picture on TV at a low price. As the commercialization of Chinese cultural industry made inroads into Chinese TV, China Central Television was forced to increase the price they paid for the right to broadcast motion pictures, yet the increase was too small to be significant to the Studios' production investments. Meanwhile, local stations were allowed to broadcast films purchased by other stations without paying royalties to the studios.
The lack of horizontal integration between film and television not only hurt the film industry but also resulted in a waste of existing studio production facilities and human resources, since TV and video industries had to build their own production lots and cultivate their own talent pools.  Indeed, disdain towards producing TV drama still prevailed among the big-name film directors.
Policy makers were keenly aware of how home video and television had invigorated motion picture exhibition in Hollywood by enhancing the status of the theater in the distribution chain. The Ministry of RFT began to make an effort in the early 1990s to pursue such horizontal integration. In October 1993, Chinese Central Television, the government controlled network, took over News Studio (NS), a state-controlled studio specializing in producing newsreels and documentaries. As a result, NS produced news for television for an extended audience. With the financial backing from CCTV, NS was able to produce feature-length documentaries for theatrical distribution. In April 1995, Science Studio (SS), a state-level studio specializing in producing films on new developments in science and technology, merged with CCTV. The merger brought to SS more production investment, expanding its audiences and production capacity. In January 1996, Shanghai Animation Studio (SAS) merged with Shanghai Television (ST). As a result, the demand for animation from the Studio increased drastically. At the same time as the SAS and ST merger, CCTV launched its cinema channel, broadcasting films provided by the studios. During its best year, it brought in six hundred thousand yuan ($75 million) for the film industry. In addition to bringing in extra revenue to the film studios, the cinema channel promoted cinema and exposed smaller films to a much wider audience. The cinema channel also served as an example of mutually beneficial collaboration, rather than competition, between the two industries. Cinema channel soon became the second most popular channel, reeling in substantial revenue for the film industry. Beginning in the summer of 1996, many provincial-level studios began to merge with local television stations to form film and TV production centers. The mergers allowed studios to take as much as a hundred million yuan ($12.5 million) from television commercials. In order to cultivate various investment resources, the Ministry of RFT relaxed its film licensing in January 1997, granting provincial-level TV stations and film distribution and exhibition companies the right to produce feature films. In December 1997, the state permitted the establishment of three VCD production lines, effectively linking film with television, video, and music industries. The same year China Film Corp. and China Music Video Corp. launched a joint venture, Huayun Laser Disc Ltd., to put feature films on laser discs for home viewing.    Reform initiatives on horizontal integration worked to the film industry's benefit, ensuring a guaranteed outlet for the studios' feature films.
Horizontal integration eventually brought in structural overhauls at the top-level. In March 1998, China’s parliament restructured its twelve ministries and put the former Ministry of Radio, Film and Television under a new Ministry of Information Industry which includes electronic industry, posts and telecommunications. The merger among electronic industry, postal services and telecommunication followed the general trend of trans-industrial activities in the West, attempting to create synergy among the three sectors. Overall, film reform in the late 1990s focused on the consolidation and reorganization of the motion picture business. The result was the emergence of a few media conglomerates that have monopolistic control over regional markets.
Co-production
Co-production was extended to international co-productions that used overseas’ investment while employing domestic labor and facilities. International co-production utilized studios' existing production capacity, helping to pay for the otherwise out-of-work talent and equipment. Since films of international co-production were generally better received than the domestic co-productions by the audiences, it also created the potential for a large domestic box-office share (provided that such films would gain the approval from the always fickle Chinese censor).   Internationally co-produced films fared even better than foreign imports, including popular Hong Kong entertainment films. Encouraged by the popularity of the internationally co-produced films, studios welcomed any opportunity to collaborate with foreign investors and producers. Hence 1992-93 witnessed a international co-production craze, many of them invested in by Hong Kong film companies who were eager to enter the huge mainland market. In 1992, the year when Chinese cinema was at its lowest ebb, the international co-productions were exceptionally active. To the overseas’ investors and producers, the co-production really came down to being able to take advantage of China’s cheap labor and equipment. When a film was distributed overseas, the investors only gave the host studio a flat distribution fee. As such, while the practice of international co-production helped to keep the film production machinery running by providing employment opportunity to both the talent and equipment during Chinese cinema’s domestic crisis, and in some cases even contributed to domestic film productions by providing sufficient domestic box-office revenue, it did not help to promote Chinese cinema domestically.  In general, overseas investment, chiefly from Hong Kong and Taiwan, assisted the production of commercialized art films such as Farewell My Concubine (FMC) and Raise the Red Lantern (RRL) and popular entertainment films. In an effort to expand their film's market share, the overseas investors began to venture into producing historical epics to appeal to China's more conservative rural audiences. Meanwhile, the domestic, non-government investment initially sponsored mostly genre films and cheap knockoffs of FMC and RRL geared towards short-term profit. The domestic entrepreneurs soon adjusted their strategy, establishing film production companies aiming at long-term profit. Their investment became more selective, targeting filmmakers either with successful box-office records or with box-office potential.
Attempts have also been made to boost international co-production. China Film Co-Production Corp. has made important concessions to allow two different prints for all co-productions, one for domestic release and one for international release.  The measure is significant because the former “one print” policy meant that co-productions were sanitized by Chinese censors largely because of domestic concerns over content, removing many internationally marketable elements. Overseas’ investor viewed this as a major impediment to recoup from overseas sales. Another change is to allow the processing of film prints to take place at several designated locations in Hong Kong in order to make the co-productions easier for Hong Kong and Taiwan studios, the largest investors in China’s production sector. The China Film Co-Production Corp. (CFCC) has been trying to attract directors, producers, and writers from overseas to come to China and make films. CFCC officials boasted that joint ventures would allow American filmmakers to circumvent the law limiting American films to 10 a year while entitling them to double the usual foreign film box-office of about 16 percent.  Talks have been underway with Disney to co-produce some dramas, action movies and comedies for China. Thomas Leong, the Los Angeles representatives for the Hong Kong based CFCC, hinted that censorship can be navigated if a film company can stage its production in Hong Kong, which has more liberal media standards under provisions set up for China's takeover of the former British colony.
CFCC claims that the Chinese film industry is interested in co-producing any subject, even English language films with Chinese themes, as long as it makes commercial sense. In commenting the Disney animation, Mulan's disappointing box-office receipts in China, Yang Buting, deputy director general of the Film Bureau suggested recently that if the picture had been a Sino-US co-production, it would have done better at the box-office in China.  The Disney version of an ancient Chinese legend did not reflect the image of Mulan long rooted in Chinese people's imagination. Recent hits like Cell Phone (Feng Xiaogang, 2003) (50 million yuan), Internal Affairs 3 (Wai Keung Lau and Siu Fai Mak, 2003) (36 million yuan), and Warriors of Heaven and Earth (He Ping, 2003) (35 million yuan) are all co-productions. 
It is worth noting that a policy issued at the end of 1997 promised to give foreign companies who purchased Chinese films preferential consideration when submitting their films for import into China.  Warner Bros. and Twentieth-Century Fox have enjoyed good relations with SBRFT by purchasing Chinese films. To encourage the internationalization of Chinese films, the SBRFT's Film Bureau has required all feature films to carry an English title in addition to Chinese title.  Meanwhile, in his talks with senior Chinese cultural officials, Jack Valenti, chairman of the MPAA, made the offer of a film festival to promote Chinese-made films abroad. Valenti urges China to open its giant market not only to more American movies but also to American investment in studios, co-productions and theaters.  He also urged Chinese policy makers to allow competition in film distribution and to reduce the heavy taxes on film revenue.
The poor state of movie theaters has always been blamed for the decline in movie attendance.  In response SBRFT has come out in support of private investment in movie theaters. A SBRFT circular stated that corporate and private investment in renovating old or building new cinemas was good for the film industry.  The Zhonghua chain is establishing a secondary chain that will screen domestic films only. Preferential treatment would be given to the theaters that join this chain. Beijing announced the classifications for the city's movie theaters, ranking them from one star to five.  The growing number of multiplex theaters in China are demonstrating the attraction of a comfortable and diverse movie-viewing experience and are posting good results. Guangzhou now has four multiplexes with the recent opening of the six-screen Tianhe Film City.  Following its renovation, Huanan theater now has three multiplexes.
In 1998, policy makers began to experiment with permitting foreign capital investment in film exhibition. Several companies have entered the Chinese market. Lark International has already launched a theater in Wuhan and is building an 8-screen multiplex in the heart of Beijing in early 1999. Studio City Cinema, a subsidiary of Lark International Entertainment, opened a six-plex in Shanghai, the company's third multiplex in China.  A fourth multiplex in downtown Beijing opened in the summer of 1999. The company's first two theaters, a five-plex in Wuhan and a six-plex in Chongqing, have performed well. Its Wuhan theater accounted for 20% of the city's total box office. Hong Kong's Golden Harvest is also one of the first foreign companies to invest in China's fledgling multiplex business. Its Golden Cinema Haixing opened in October 1997. Monthly box office revenue reached 600,000 yuan in December 1998 at the four-plex. Total revenue for all of 1998 was more than 3 million yuan. The figure grew to 5 million yuan in 1999. The cinema was expected to recoup its investment by 2000. A deal involving Japanese, Singapore and Hong Kong investment of 60 million yuan to renovate five theaters in Shanghai is also moving ahead. Singaporean money was also used to create an 8-screen multiplex in Guangzhou’s Tianhe Square.   Universal Studio was allowed to open its entertainment complex in Beijing in  September 1998, highlighting themes from some of the studio’s top films in recent years, including Waterworld (Kevin Reynolds, 1995) and Jurassic Park (Steven Spielberg, 1993). Likewise, Procter & Gamble has branded an activity in Guangdong province to screen feature films in rural areas.  The month-long activity, called "Procter & Gamble Movie Night Market," held 600 free movie screenings in at least four rural counties. P&G carried out promotional tie-ins for its products in tandem with the screenings. McDonalds and Universal Experience Beijing teamed up in 1999 to organize a "Secrets of Film" promotion.  The activity was held in more than 40 McDonalds in Beijing, where film experts were invited to speak to middle and elementary school students on the history and development of film, and the use of computer-generated effects in film.
On November 15, 1999, China and the U.S. signed a bilateral agreement that would allow China’s admission to World Trade Organization (WTO). It proposed two agreements: 1) China would allow the importation of twenty foreign films per year with box-office sharing agreement. 2) China would allow foreign capital to invest in the renovation, establishment, and management of film theaters, but foreign capital cannot exceed 49 percent of total capital.
In 2000, the SBRFT and the Ministry of Culture co-issued “A Few Suggestions on Further Deepening the Reform of Film Industry,” aiming at preparing for China’s entrance to WTO.  The Film Bureau also published “Details of Implementation” to clarify and implement the suggestions. The documents highlighted four central points. The first is to establish media conglomerates similar to that of Hollywood. The second is to experiment with transforming state-owned companies into shareholder companies and to encourage more private companies to invest in the film industry. The third is to establish city and provincial-level theater chains as well as inter-provincial theater chains in order to dredge the distribution channel and to push for economic self sufficiency at the local theaters. The fourth was to adjust the policy related to the importation of foreign films. The 1996 Film Management Regulation stipulated that the more than two thirds of the total screening time each year should be allocated for the screening of Chinese domestic films. To further protect the domestic film industry from the imminent increase in imported blockbusters, “A Few Suggestions” stated that the number of box-office sharing blockbusters that would be distributed to the film theaters would be determined by the degree to which they observed this screen quota system. In addition, the number of “recommended domestic films” screened in the theaters would also be taken into consideration when deciding the number of distribution of box-office sharing films.
In early 2001, SBRFT explicitly sanctioned the move to conglomeration by publishing “Basic Suggestions on Further Promoting the Establishment of Film Groups.” The “Basic Suggestions” clearly stated that the state-owned sector of film industry would form the system of six film groups in China including the big three of Beijing, Shanghai, Changchun, as well as Zhujiang (in Guangdong), Xi’an, and E’mei (in Chengdu).
China gained formal accession to WTO on December 11, 2001. On February 1, 2002, the new “Film Management Regulation” was published. It was the first important film regulation published after China’s entrance to WTO, and it brought changes in three sectors of film production, distribution, and exhibition. In the production sector, the new regulation introduced “single-film production permit,” granting production permission to private investor on a single project basis.
In the distribution-exhibition sector, “A Few Suggestions” had already presented the idea of “theater chains.” The “Details of Implementation” (2000) stated that the establishment of theater chain is the only way to reform the film distribution-exhibition system. This meant that distribution companies and production companies can now directly distribute films to theater chains. The “Details of Implementation” also stated that if conditions are met, each province should have two or more film chains. It also encouraged the establishment of inter-provincial film chains. By May 31, 2002, 30 theater chains were established in 23 provinces and some municipalities, consolidating a total of 872 film theaters with 1581 screens. Among the 30 film theater circuits, 11 are inter-provincial and 19 are intra-provincial. Beijing, Shanghai, Hubei, Hunan, Guangdong, Sichuan, Jiangsu and Zhejiang established two ore more film chains. 
In the exhibition sector, another important breakthrough came on July 1, 2002. In accordance with the development of the theater chain system, a new computerized network system for tickets was introduced to around 700 film theaters throughout China. The network was said to cover around 85-90 percent of total box office.
The trend for reform in the film industry continued in the year 2003, and the SBRFT published another round of important reform policies by the end of the year. In December 2003, the SBRFT published four regulations: “Film Script (Synopsis), Film Censorship Temporary Regulation” (Document Number 18), “China-Foreign Co-production Films Management Regulation” (Document Number 19), “Film Production, Distribution, Exhibition Management Status Temporary Regulation” (Document Number 20), and “Temporary Regulation on Foreign Business Investment on Film Theaters” (Document Number 21).
“Film Script (Synopsis), Film Censorship Temporary Regulation,” states that 1) the film production unit needs only to submit a synopsis instead of whole script when applying for production permission. 2) Film censorship will be performed at provincial instead of Stae level.
“Co-production Management Regulation” allows more foreign capital to enter into film production sectors. The regulation states clearly that the legal rights of foreign individuals and corporations entering the production sector would be protected.
“Film Production, Distribution, and Exhibition Status Temporary Regulation” lowered the bar for entering the film production, exhibition and distribution sectors. The new regulation states that non-state-owned enterprises, after making two films, can apply for the long-term film production permit, and have the exactly same status as the traditional state-owned film studios.
“Temporary Regulation on Foreign Business Investment on Film Theaters” allows foreign capital to own more than 51 percent and up to 75 percent, in the seven experimental cities of Beijing, Shanghai, Guangzhou, Chengdu, Xian, Wuhan, and Nanjing. Warner Brothers and South Korea’s Haoliyou Group have entered the Chinese exhibition market. Warner and Dalian Wanda are in the process of making 30 film theaters. Cooperation of Haoliyou and Beijing Xinyinglian is also in the process.
The  above four regulations continue the trends of marketization started in the latter half of 1990s and further opens up the Chinese film industry to foreign investments.

Towards a Chinese Language Audiovisual Market
The downward slide of the Chinese film industry seems to have slowed recently. In 2004, for the first time in decades, China produced more than 200 movies and total industry revenue increased 66% to almost $435 million. Feng Xiaogang’s A World Without Thieves, Zhang Yimou's House of Flying Daggers and Stephen Chow's Kung Fu Hustle all earned handsome profits. Most significantly, domestic Chinese film receipts exceeded those from foreign films for the first time since 1994. This, despite a doubling of the number of foreign movies allowed into China each year. The box office victory of 2004-05 New Year season’s home-made hits over foreign imports were said by some as a sign that the beleagued Chinese film industry is ready for a rebound. Others argue that the institutionalized State policy granting Zhang Yimou’s film monopoly during its first run contributed to the film’s handsome boxoffice receipts; and the state stipulated black out dates protective of the domestic market against imports allows further leeway for the domestic films. Chinese cinema’s output remains modest in relation to a population of 1.3 billion and the rampant piracy continues to plague the industry's growth. Furthermore, the Chinese media firms have yet to catch up with the US style vertically integrated media system that is capable of generating profits from a wide spectrum of mass media enterprises, including theme parks, recorded music, publishing, and film and television production, distribution, and exhibition. One hope for a sustained rebound might rest upon the cultivation of an integrated Chinese audiovisual market at a global scale.
A cultural-linguistic market groups together communities by commonalities of language and culture. It is defined not necessarily by its geographical contours but more in a virtual sense by shared language and culture. Such commonalities are established by either the historical relationship of colonization or the formation of ethnic enclaves at a global scale due to the diasporic population flow. The assumption behind the framework is that language and culture have substances as “market forces.” A cultural-linguistic market thus becomes an international niche market, what Cunningham and Sinclair termed “global narrowcasting.” (Cunningham & Sinclair 2001: 3).  For instance, in the geolinguistic regions of Spanish and Portuguese, certain media corporations have exploited the massive size of their single language domestic markets and are making headways in entering the markets in other nations that speak the same languages.
A Chinese cultural-linguistic community includes a huge population of Chinese descendents concentrated in East Asia and scattered all over the world. A Chinese cultural-linguistic market is often associated with the term “Greater China” or a pan-Chinese region, which refers to the geolinguistic region encompassing Hong Kong, PR China, and Taiwan. Lately the notion of “Greater China” has moved beyond the geographic confines of the “Middle Kingdom” to include the worldwide diasporic communities of Chinese.
By the early 1990s, film and television in Hong Kong, Mainland, and Taiwan had all come under a powerful pan-Chinese media practice driven by commercial imperative. On the film sector, in its first attempt at co-financing a Chinese film, Columbia Pictures co-produced Feng Xiaogang’s Big Shot’s Funeral with Huayi Brothers, the Taihe Film Investment Co. and Beijing Film Studio.  Columbia later co-produced He Ping’s martial arts epic Warriors of Heaven and Earth in 2003 as its 2nd attempt with making Chinese domestic blockbusters.
On the TV sector, by early 1990s, despite the differences in political and economic systems, the opportunity was opened up for programming and systems of distribution that treated Greater China as a unified television market. The establishment of commercial cable and satellite networks, both local and multinational, and the proliferation of the technologies of reproduction of video cassettes and video compact discs have facilitated the maturation of the market. While PRC continues to be the largest Chinese language market,  50 or so stations in other parts of the Chinese speaking regions formed four Chinese language submarkets: the Taiwan-Hong Kong-Macao region in East Asia; The Singapore-Malaysia-Philippines region in South Asia; The Coastal areas of US and Canada in North America, and UK-France-The Netherlands centered West Europe.
In the United States, Chinese language media appeared on the American scene as early as Chinatown but failed to achieve the status of an influential ethnic institution until recently. Chinese language media began to take off in the late 1970s with the increased demand from the local merchants. Chinese television programming features headline news from China, Hong Kong, and Taiwan and breaking news in the United States and in the world, along with a wide variety of special reports and entertainment programs. There are at least twelve Chinese local television stations and the number is growing in cities with sizable Chinese immigrant populations. These local stations air programs supplied by national and regional TV networks in China, Hong Kong, and Taiwan, and feed their programming to local cable systems with broadcast time varying from thirty minutes to eight hours daily.
In general, Chinese programming focuses heavily on entertainment, showing homeland produced classic or popular movies, soap operas, concerts, sitcoms, and young children’s animated shows. In recent years, Chinese television networks have increased the proportion of locally produced programming, including news reporting; forums on a range of special topics-health, family, education, finance, real estate, and entrepreneurship-in which local experts are invited to participate; and locally recorded/taped/edited concerts and performances by popular singers and dancers from China, Hong Kong and Taiwan.
The US-based and other global corporations were initially slow to respond to the increasing amount of Chinese language community television services. Yet the Chinese language station blossomed in the 1990s. The influx of the educated Chinese speaking immigrants was the number one contributing factor. The Asian immigrants added 107% from 1980 to 1990, which makes the Asian population 10% of the US population. There was roughly 1 Chinese among every 5 New Asian immigrants. Many immigrants from Southeast Asia such as Vietnam, Indonesia, Cambodia, and Singapore were Chinese, sharing same language and culture.
The rapidly growing Chinese language market has attracted many global media firms. Transnational media corporations are actively seeking collaboration with the Chinese production companies in the hope of taping into this potentially huge market. A pioneer in transborder satellite television in Asia, Star TV claimed 30.5 million households in China alone in 1994, a penetration rate of 13 percent of all TV households (Thomas 2000: 101). Upon its purchase by Rupert Murdoch’s News Corporation in the mid-1990s, Star has developed sub-regional language channels with more locally produced programming. To rival Star TV, the Hong Kong based China Entertainment Television provided a Mandarin-language family entertainment channel catering to the Chinese mainland. CETV was the most popular transborder broadcaster in China in the mid 1990s, claiming 28 million households (Thomas 2000: 100). Another Hong Kong associated company, the Chinese Television Network (CTN) positioned itself as the Chinese equivalent of CNN by providing all-Mandarin news and business reports as well as sports, lifestyle and documentary programming.
US based companies have ventured into producing Chinese language television programs overseas. As the Hollywood studios morphed into global entertainment conglomerates, with cable and satellite operations and music and publishing interests the world over, they started to discover something no one ever expected: a limit to the appeal of American pop culture, particularly television dramas just as the international market became crucial for market and profit expansion. Blockbuster Hollywood movies are still a huge draw worldwide, but most audiences prefer local TV shows. The recent overseas flop of the popular US show, Desperate Housewives is the most recent testimony to the limited appeal of US television dramas (Zhou 2005). For two years running, the big news at Mipcom, the global television sales fest at Cannes, has been American series being pushed out of prime time by the local stuff. Network hits like ER are still big, but the fledgling satellite and cable companies that bought American shows wholesale a few years ago, are now billion-dollar enterprises with the resources to fill their evenings with local programming. "
 “Think Globally, Script Locally” is the title of an article published by Time online that features media conglomerates such as Sony and Star in their attempt to break into the global Chinese language market. The article accentuates the shifting business model that replaces US popular culture with local popular culture catering to the tastes of the local people (Rose 1999). Columbia Tri-Star’s television operations in Asia financed a locally produced Mandarin show Chinese Restaurant in 1999, a drama series about a young Chinese woman in Los Angeles and the multi-culture crowd at her struggling Beijing Garden Restaurant. William Pfeiffer, who headed Columbia Tri-Star’s TV division in Asia, realized that it was time to stop relying on American exports and start tailoring the studio's offerings to local tastes.
Sony became sole owner of Super TV in 1998, a Mandarin-language channel that reaches 77% of the 5.1 million homes in Taiwan. Sony also co-produces some 35 hours of Mandarin-language programming a week, much of it for Super TV--from City of Love, a primetime Taiwan soap, to a revived Charlie's Angels casting Chinese pop stars who fend off the bad guys from Shanghai to Kuala Lumpur. But the real news is that Super TV gives Sony the potential to go after the mainland's 305 million television households via satellite, instead of just selling shows like Chinese Restaurant to existing terrestrial stations.
We are witnessing the emergence of a two-tiered global system. English is the language of the international blockbuster, but lower-budget pictures can be made in almost any language for the home market, and a few--like Roberto Benigni's Life Is Beautiful, which won three Oscars and grossed $222 million worldwide--will even become international hits. Hollywood, with its vast corporate resources, attempts to call the shots in both tiers. As William Pfeiffer says, "We take the best of their very rich culture and marry it with the professionalism and the polish of Hollywood….I like things to be different."(Rose 2005)
China is also a market News Corp. has been in since 1993. News Corp. has poured money into Star TV but has yet to see a profit. High on its list of missteps was an early attempt to blanket Asia with English-language channels. "They have a big footprint," says a former Sony executive, "but their first thought was, we don't have to localize." Star's only real success story to date is its Mandarin-language Phoenix channel, a partnership with two Hong Kong companies. Phoenix offers a frothy mix of locally produced sports, news, and talk shows. A niche player with enviable demographics, Phoenix claims an audience of 170 million educated, upscale viewers, most of them in Beijing and the prosperous southern city of Guangzhou.
CSB, MTV, CNN, the Time-Warner/Sony venture, Murdoch’s Fox Latin America and Star TV in China have provided satellite and cable services in Spanish/Portuguese and Chinese languages. It is not surprising that more television services exported to alternative cultural-linguistic regions will be found from the US. The US services have been able to cross the language barrier without much movement back in the other direction. The trend is likely to consolidate if the trade in services rather than programs soon becomes the major form of audiovisual exchange. Given that the US-based and other global corporations such as Hughes are making attempts to take over the technological vanguard in such regions and also are facing up to the content issue by extending themselves into the provision of services in the regional languages, if post-broadcast services do come to eclipse programs as the core of the television trade, then much of the comparative advantage once enjoyed by the major Latin American and Chinese companies would be undermined.