The impact of protectionism on cultural industries: the effect of China’s film policies on imported films

ABSTRACT

Hollywood studios have actively sought to export more films to China in order to benefit from its huge film market. Facing this expansion, the Chinese government has introduced quotas in order to restrict the market access of foreign films while protecting its domestic film industry and preserving Chinese values. Nonetheless, this protectionism has brought about an unexpected effect; a limited number of Hollywood films in China have been able to attract large audiences and even exert a strong influence upon society. This paper examines how this paradox has been possible. First, it compares the level of China’s overall protectionism with other countries. Second, China’s two main policy instruments in the domestic market are scrutinized: import quota (buy-out and revenue-sharing models) and screen quota. In revealing their true effects, this paper demonstrates that these instruments of protection have produced unexpected negative business practices that foster rather favorable conditions for US films in China which is contrary to what the Chinese government is seeking to achieve.

List of acronyms

BOM: Buy-out Model

CFGC: China Film Group Corporation

CNC: Centre nationale de la cinématographie et de l’image animée

HFD: Huaxia Film Distribution

KOFIC: Korean Film Council

MoU: Memorandum of Understanding between the People’s Republic of China and the United States of America Regarding Films for Theatrical Release

MPA: Motion Picture Association of America (MPA)

MPPAJ: Motion Picture Producers Association of Japan

OECD: Organisation for Economic Co-operation and Development

RSM: Revenue-sharing Model

SQS: Screen Quota System

STRI: Services Trade Restrictiveness Index

UNESCO: United Nations Educational, Scientific and Cultural Organization

WTO: World Trade Organization

Disclosure statement

No potential conflict of interest was reported by the author(s).

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

¹ This paper did not incorporate data from 2020 and beyond due to the disruption caused by the COVID-19 global pandemic.

² “Article 14: Legal persons and other organizations may, with the approval of the film department of the State Council, cooperate with overseas organizations in shooting films; but they shall not cooperate with overseas organizations that engage in activities detrimental to China’s dignity, honor, and interests, jeopardizing China’s social stability, or hurting national sentiments in China, among others, nor hire individuals committing the aforesaid acts to participate in film shooting. […] Overseas organizations shall not independently engage in film shooting activities within China; and overseas individuals shall not engage in film shooting activities within China.”

³ The number and percentages used here are based on the official number of films released in the market. According to Wang Xiaohui, executive deputy director of the Central Propaganda Department and director of the National Film Bureau, a large number of the films produced in China are never screened at movie theaters (see, Davis [2019]).

⁴ This agreement was the outcome of an effort to resolve a standoff that dates back to 2009 as China allowed only 20 foreign films a year to be shown in its theaters despite the fact that the WTO ruled this policy to be in violation of international trade rules. Since the MoU was reached, China has allowed additional 14 films a year. In addition, the portion of shared revenues for foreign producers rose from 11–15 to 25%.

⁵ Guanxi is defined as the existence of direct particularistic ties between two or more individuals which provides unofficial legal support for private businesses.

⁶ Import quota limits the number of foreign films imported per year whereas screen quota imposes a mandatory number of days for screening domestic and/or foreign films per year. They are often believed to be effective to protect/promote local film industry.

⁷ Before 1994, the average price for foreign movies was reported to be less than US$20,000 (see Huayi Brothers Research Center [2017]); this practice is different from the general definition of import quota as the number of imported films can be determined by the amount of license fee for foreign films.

⁸ In some cases, RSM is also known as profit-sharing model. However, in this paper, the term revenue-sharing is used as referred to in the MoU.

⁹ Coproduced films with Hong Kong and Taiwan (or Chinese Taipei) are considered as domestic films in Mainland China. The implementation of the MoU led to a series of conflicts between the CFGC and the MPA during the period 2012–2015. Addressing them required the negotiation of the “Agreement on Cooperation in Importation and Distribution of Revenue-Sharing Films” signed in November 2015 by the CFGC and the MPA. Three main issues were dealt with. First, the Agreement confirmed that the US film producers should receive 25% of the net film revenue without any additional withholding for taxes or marketing expenses. Second, it specified that US film producers should be paid in a reasonably timely fashion. Third, it gave the possibility for US film producers to audit Chinese distributors, sub-distributors, and exhibitors in order to eliminate any misreporting of ticket sales (see, Dresden [2015] and Lang & Frater [2018]; Although this MoU officially expired in 2017, its conditions remain active pending a new agreement.

¹⁰ When copies of films are sent to movie theaters, they must be connected to a server and authorized by a key provided. The key is similar to an activation code; thus, films cannot be shown in movie theaters without it. The validity period of the key is one month. If the producer and distributor wish to continue showing it in movie theaters after its expiration, they must then apply to the Digital Film Development (中影数字电影发展有限公司) of CFGC for an extension (see, Li [2016]). It is very common and easy for Chinese domestic films to be extended regardless of their performance in the market. Some Chinese films are even shown in movie theaters for three to four months whereas it is very rare for foreign films to be granted an extension in general (see, Zhang [2016]).

¹¹ For the same years, the number of films that Korea produced were 302 in 2016 and 376 in 2017 while the number of imported films were 1,218 and 1,245 respectively. The number of foreign films reached between 70–75% of the total number of films released in Korea and they account for less than 50% of the whole Korean box office revenue; see, ”KOFIC” (2018) and Parc (2017, 2021).

¹² In fact, the five per cent seat tax exists for all tickets regardless of the film’s origin and contract type, whether BOM or RSM. However, considering the absolute value of the five per cent seat tax deriving from box office revenues, RSM films are more important than others.

Additional information

Funding

This work was supported by the Laboratory Program for Korean Studies through the Ministry of Education of the Republic of Korea and the Korean Studies Promotion Service of the Academy of Korean Studies (The Academy of Korean Studies AKS-2015-LAB-2250003). This study was also financially supported in part by the Institute of Communication Research, Seoul National University.

Notes on contributors

Jimmyn Parc

Jimmyn Parc is an associate professor at the University of Malaya, Malaysia. His research projects are related to the competitiveness of organizations, industries, and countries. His current research focuses on the cultural industries that are faced with a changing business and trade environment as well as new challenges from digitization. Together with Patrick Messerlin, he is also the author of The Untold Story of the Korean Film Industry: A Global Business and Economic Perspective, which was published by Palgrave Macmillan in 2021.

Patrick Messerlin

Patrick Messerlin is Professor Emeritus of economics at Sciences Po Paris, and Chairman, Steering Committee of the European Centre for International Political Economy (ECIPE), Brussels. His current research deals with economic and trade relations between Europe and East Asia, with a particular focus on cultural industries. Together with Jimmyn Parc, he is also the author of The Untold Story of the Korean Film Industry: A Global Business and Economic Perspective, which was published by Palgrave Macmillan in 2021.

Kyuchan Kim

Kyuchan Kim is a research fellow in Korea Culture & Tourism Institute (KCTI). Prior to joining KCTI, he served as a research associate at the Institute of Communication Research at Seoul National University. Recently he has published papers and reports regarding the effect of the Korean Wave, policy evaluation, and legal issues in cultural industry. He is interested in cultural and media industry policies, Chinese culture and media, and global culture exchange.