China – Film and Tech Industries

With over 1.3 billion people, one would think that China’s massive consumer base could easily support a wide range of domestic industries. However, it becomes clear very quickly that simply having the largest population in the world doesn’t guarantee that significant demand will exist within the marketplace. The best evidence for this is found in an analysis of China’s film industry, where the demand for Chinese movies—both domestic and international—is insignificant compared to China’s demand for American-made blockbusters.

It goes without saying that Hollywood is the world leader in the international film business. Movies produced in America consistently outperform Chinese films in gross annual revenue and they receive widespread international distribution. More importantly, the film industry was invented in Hollywood, and in these times of rapid economic change and globalization, movies remain one of America’s leading exports. From a political perspective, movies are also an invaluable tool for the promotion of soft power—is there a better way to make Western culture more attractive to foreign audiences than by showcasing it in an epic motion picture? Movies are far more important to the American economy than they seem to the casual observer, and Hollywood’s domination of the international film business cannot be understated.

By contrast, China’s movie studios produce far fewer movies annually. Only a handful of these films are considered international successes, and most Chinese releases do not receive widespread international distribution. In America and in other parts of the world, Asian cinema is generally considered somewhat avant-garde, and it appeals mostly to a niche market of movie buffs and industry insiders. Filmmakers and distributors realize that China’s domestic film industry—although critically acclaimed for the beautiful movies it produces—is an underdeveloped resource in a domestic market dominated by blockbuster American films. For China’s film industry to reach its full potential, it has to produce movies that appeal to the domestic consumer base, while simultaneously reaching a more diverse international audience.

China’s tech industry is facing a similar challenge, and it is worth mentioning here in order to gain a better understanding of China’s economic shortcomings (mostly because it has so few…). Jack Ma, the Chairman of China’s largest e-commerce company The Alibaba Group knows that his enterprise has reached a crossroads. Backed by heavyweight international investors such as Yahoo of America and Japan’s Softbank, Alibaba has millions of subscribers that utilize the site to trade and barter different products and services. The site’s primary source of revenue is advertising and most of its services are free. Although Alibaba’s business model has proven to be successful in driving traffic to the site and recruiting new users, it has done little to generate significant profits. Unlike other companies, the Alibaba philosophy is that consistent growth will eventually reap profits. This philosophy is intuitive albeit simple, but even Ma himself is questioning whether or not it is possible in China’s current marketplace. Most of the business transactions that occur on are from companies in Asia, specifically in China and India. In order to stimulate growth, companies like Ma’s need to appeal to consumers in the West. But what does this have to do with movies? Essentially, the problem is the same in both industries: growth in the technology and film industries will slow down significantly unless companies can establish themselves outside of the domestic marketplace. Quite simply, the film and technology industries in China are in desperate need of the same thing—a larger audience.

china's cinema

To overcome this challenge, both industries have developed plans to leverage American business models and adapt them to the demands of the Chinese market. The legendary Chinese filmmaker Zhang Yimou recently signed on to direct a film starring the acclaimed American actor Christian Bale. Zhang, formerly considered a subversive by the Chinese government for such films as Red Sorghum, To Live, Raise the Red Lantern, and Ju Dou, is now hailed as a national treasure. Most recently, he received significant notoriety for producing and directing the opening ceremonies for the 2008 Olympics in Beijing. Bale has agreed to star in Zhang’s latest film, Nanjing Heroes about Japan’s atrocities in China during World War II. The main point here is that this is a Chinese movie starring one of the biggest stars in Hollywood—according to The Hollywood Reporter, the film is being produced and distributed by EDKO films, a company based in Hong Kong. The dialogue will be about 40% in English, while the rest will be in Mandarin Chinese (source: The result should be exactly what China has been looking for, namely a broader international appeal for Chinese movies. Placing a renowned American star like Christian Bale in a major Chinese motion picture should give China the opportunity to snatch a larger share of the international distribution market. For the first time in the history of the film business, Hollywood could see increased competition in the industry that it created.

Jack Ma and The Alibaba Group are pursuing a similar strategy. Ma realizes that his company has to expand its operations in order to drive profits and compete in the international arena. His plan is to expand the “Ali-loan” system to offer consumer and small business loans to individuals and companies in China. Consumer credit is a sensitive issue in China, and it is customary to haggle with street merchants and shopkeepers in order to get a fair price for goods and services. The government fears extending credit to small business and individual consumers because of the potential for civil unrest in times of economic instability and credit crunches. Even under normal economic circumstances, the government doesn’t loosen its characteristically tight grip on consumer credit. Jack Ma is attempting to use the government’s skepticism towards consumer credit to his advantage. This could prove to be successful, and it is only possible because of the hybrid Capitalist-Communist economic system that is developing in China. This will give China the ability to gain a foothold in the film and technology industries the way it has in every other economic venue in the past two years. Visionaries such as Zhang Yimou and Jack Ma will help to perpetuate China’s rapid economic growth, and they will help to make China’s film and technology industries dominant players on the international stage.

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