In this newsletter, we look at a landmark legislation to regulate the fast-growing film industry in China. Already, Hollywood and many foreign players have been keen to increase their foothold in the Chinese market. In the much anticipated sequel to “Kung Fu Panda” cartoon, for example, the film would be co-produced in DreamWorks’ studio in Shanghai.
After a lapse of four years since the draft law was first published in late 2011, the draft of the Law of the People’s Republic of China for Promoting the Film Industry (“Latest Draft”) had been adopted by the Executive Meeting of the State Council on 1 September 2015, and notified on 9 November 2015 via the website of the National People’s Congress of China for public comments. The Latest Draft would then be submitted for review by the Standing Committee of the National People’s Congress in due course.
Comparing the contents of the Draft with that of an earlier draft (“Prior Draft”) promulgated in December 2011, the Latest Draft seems indicative of the legislative intent to reform and open up the Chinese film market.
The following points in the Draft are noteworthy for foreigners interested in China’s film industry:
- Certain regulatory restrictions continue despite liberalisation
According to the Guiding Catalogue on Foreign Investment Industries (2015), foreign investors are prohibited from investing in film production companies, film distribution companies and cinema companies. In addition, if a foreign investor intends to engage in film production business in China, it must be conducted via contractual cooperation with Chinese domestic partners.
This restriction/prohibition is reiterated in the Latest Draft. According to the Latest Draft, foreign companies are not allowed to independently engage in film shooting business; however, foreign companies will be allowed to participate in film production in China in cooperation with Chinese domestic partners on the condition that the domestic firm has track record of producing films which have been approved for public release.
Apart from foreign companies and other forms of organization, foreign individuals are not allowed to participate in film production business in China.
The Latest Draft is silent on foreign companies being involved in distribution of films in, or importation of films into China, which means that the regulatory status quo would continue – foreign companies would not be allowed to distribute films in China, nor freely import foreign films into China, but instead the importation of foreign films into China is subject to an annual quota.
Finally, a requirement in the Prior Draft that neither the domestic nor the foreign partner had been sanctioned for violation of laws or administrative regulations in China has been removed in the Latest Draft.
- Easier market access
The Prior Draft had not mentioned any requirement that the applicant for production licence must had experience in film shooting. As long as film scripts or script outlines are submitted to and approved by the State Administration of Press, Publication, Radio, Film and Television (“SAPPRFT”) or its local counterpart, a one-off license will be issued by SAPPRFT for every single film to be shot. And after completing two films which have been approved for public release, the company could apply for a long-term license from SAPPRFT, based on which the company only needs to do a filing (versus obtaining approval) of a film script or script outline with SAPPRFT before it produces any film in the future.
The regulatory process has been further simplified in the Latest Draft. According to the Latest Draft, there is no longer any requirement for such “one-off” license for film shooting. Instead, only long-term licenses will be issued by SAPPRFT to those companies which have adequate capital and human resources in connection with the film shooting business to be carried on. Furthermore, for films involving “normal subjects (一般题材)”, only the script outline needs to be filed at SAPPRFT (or at the provincial level of SAPPRFT); while for films involving “special subjects (特殊题材)”, the full script needs to be submitted for review by SAPPRFT (or at the provincial level). Unfortunately, the terms “normal subjects” and “special subjects” are not defined in the Latest Draft, but hopefully this will be clarified when the new film law is finally enacted.
The Latest Draft also comes up with several preferential policies aiming to support and boost the film industry in China, including (i) setting up of state-led subsidies/funds specializing in supporting/investing in film industry, (ii) preferential tax treatment, (iii) favorable land use measures, and (iv) innovative financing and insurance mechanisms.
While the liberalisation is not as far-reaching as one would wish, these measures nonetheless signify a major step forward and are encouraging. As Chinese economic planners seek to ramp up domestic consumption to offset the slowdown in traditional manufacturing, the shift towards film industry and other service sectors, such as healthcare, represent new opportunities for investors.