SARFT statistics said in 2009, China produced 456 feature films, up 50 from the previous year, in addition to 27 animated films, 19 documentaries, 52 popular science films, and 110 digital movies screened on TV.

The country launched 142 new cineplexes and 626 screens last year, putting the total number of cineplexes and screens under 34 distributors nationwide at 1,670 and 4,723, respectively by the end of 2009. About 80 percent of the 626 new screens are digital.

More screens

But 4,723 screens are far from enough to meet the demands of China's 1.3-billion population. The United States alone, with only one third of China's population, boasts 40,000 screens.

As movie production studios grow stronger, as in the case of Huayi Brothers, the movie industry will become a contributor to greater economic growth, but the limited number of cinemas could inhibit further expansion of the industry, said Gao Jun, a manager of Beijing-based distributor, New Movie-Alliance.

According to Gao, cineplex construction in second-tier markets will be a highlight in the coming years because cinemas are absent or few in number in the country's large number of small and medium-sized cities.

Because of the inadequacy of available screens, distribution and cinema investments yield more stable revenues for domestic studios than the final movie product itself. Aside from producing films, large studios, such as CFGC, Shanghai Film Group Corp. (SFGC) and Beijing Polybona Film Distribution Co. Ltd. all have distribution systems and cinema investment in their business portfolios.

The wholly owned cinema investment division of CFGC currently has invested in more than 20 cineplexes. By 2011, that number is expected to reach 50. Polybona launched its first cineplex in Beijing's You-town Shopping Center and will build 20 more in three to five years.

In order to deliver better performance in terms of its business stability, risk-proof capacity and cash flow, Huayi Brothers, which used to adhere strictly to the business of movie production, recently announced its plan to build six cineplexes in two years and 15 in five years.

BOX OFFICE HARVEST: Audiences are buying tickets at the Henan Oscar International Cinema-Zhengzhou on December 22, 2009. China's movie industry has reaped the greatest harvest in 2009, thanks to the vitality injected into the market through a series of reforms (ZHU XIANG)

Unlike other distributors that operate chain cinemas in a franchise, Dalian-based real estate developer Wanda Group Co. Ltd. has built 50 cineplexes under its name. The Wanda cineplexes nationwide generated 15 percent of the country's total box office revenues, making Wanda the largest distributor last year.

The burgeoning movie market has attracted overseas investments as well. Last year, Entertainment Properties Trust (EPT), a U.S. real estate investment firm, coupled with the SFGC to develop multiplex theaters throughout China. Hong Kong's dominant studio, Golden Harvest Entertainment (Holdings) Ltd., started to build theater properties in south China's Guangdong Province in 2005.

The guideline also promotes development of large cross-region movie distribution brands, and special-purpose and digital cinemas. The special-purpose cinemas would show specific films, such as art house films in contrast to blockbusters, or cater to certain audiences, such as seniors or children.

"We have to cultivate audiences for these special-purpose cinemas before we start construction," said He Yingbin, a manager of Chongqing-based Poly Wanhe Cinema Co. Ltd.

Domestic studios, according to He, are generally weak in developing derivative products and rely heavily on box office revenues. Due to box office guarantees and limited screenings, cinema managers deliberately shun art films while favoring moneymaking popular genres.

The market leaves room for consolidating the current 34 distributors with cinemas nationwide—cinemas under the top six distributors contributed 65 percent of the national box office revenues last year.

Easier financing

The guideline supports state-owned or state-controlled studios to pursue listing plans through restructuring, while encouraging banks to offer stronger financial support to studios.

"CFGC will take advantage of this opportunity to get rid of the restrictions of the old system and become a competent player," Wen Li, a spokesman for CFGC said.

In recent years, bank credit and professional funds have replaced property developers and mine owners to be the mainstream investors in China's movie industry.

Huayi Brothers was the first to receive credit from commercial banks in China. Although copyright mortgage is a common practice for studios to attain bank credit overseas, domestic banks disagree with copyright owners about the copyright's value and risks. Wang of Huayi Brothers was required to shoulder unlimited personal liability with his personal properties when the studio applied for a bank loan worth 50 million yuan ($7.32 million) from China Merchants Bank for production of the 2006 blockbuster, The Assembly.

Domestic banks nowadays prefer studios with mature brands to individuals and separate projects because of the high risks associated with movie production. Last December, China Minsheng Banking Corp. Ltd. contracted unsecured loans to 23 known domestic TV directors, 5 million yuan ($732,064) for each, and entrusted a professional investment company with the management and supervision of the loans.

Apart from banks, venture capital funds, TV stations and new media companies all poured investment into movie studios. While TV stations focus more on resource sharing with movie studios, new media companies bring experience in dealing with professional funds and venture funds focus more on returns from their investments.

For example, with two rounds of venture capital investments worth $24.64 million, Polybona is ready for an initial public offering on the New York Stock Exchange later this year.

But the market has yet to be standardized and the investment eco-system improved.

Wang Ran, CEO of China E-Capital Corp. Ltd., which helped Polybona in its second round of fundraising, said the lack of agencies specialized in movie production supervision in China's movie industry prevents investments from more professional funds.

"Investors can only rely on their judgment of producers' integrity and credit without movie completion bond companies to monitor and manage the risks," Wang said.

But Wang of Huayi Brothers said the current domestic movie market is not big enough to have a completely secured financing system.

"Financial talents are expensive. I believe a lot of them would like to provide such a guarantee and supervisory services when China's movie market generates 50 billion yuan ($7.32 billion) at the box office annually," he said.