The Chinese Government also is trying to relieve the situation by nurturing the retailing channels for legitimate DVDs. New rules were released in November to make entering the audio and video chain business in China easier, with the minimum registration fee reduced from 5 million yuan to 1 million yuan. In a Xinhua report, a spokesman from the Ministry of Culture said the market for audio-video chain stores is "shrinking" because their high operating costs render them at a disadvantage in competing with street vendors hawking pirated discs.

A study undertaken by the Chinese Academy of Social Sciences on behalf of the MPA, released this July, paints an even starker reality. In the first survey examining the impact of piracy from the perspective of industry insiders, 61 percent of the 100 respondents believe movie piracy will continue to increase in the short term. The same report concludes, "Pirated movies have fundamentally undermined the production capacities of China's movie industry, with the private sector hit most severely."

Another study commissioned by the MPA and conducted by independent research firm LEK Consulting found that piracy cost the movie industry in China $2.7 billion of potential revenue in 2005, of which just $244 million was lost for MPA member companies and most of the rest lost by the Chinese industry itself.

"The Chinese industry is affected far more than MPA member companies," said Ellis from the MPA. "At the moment it is virtually impossible for Chinese filmmakers to make money domestically from the productions; they must hope to sell overseas distribution rights and as a result make money in markets where piracy is less widespread."

Zoke's Deng said the whole video publication industry has been in a sluggish mood since last year due to the introduction of the devastating piracy technology of compact discs. Every compact disc, available at 7 yuan, can easily store 80 hours of content, which equals 40 movies or 30 episodes of the latest TV soaps.

Deng also said Zoke's anti-privacy tasks are anything but easy. He said now it has to deal with the wider availability of fake DVDs, spread by outdoor vendors squatting on stacks of the latest releases in popular areas like pedestrian bridges and outdoor vegetable markets. On the other hand, Deng said whereas most local governments vigorously support and engage in Zoke's anti-piracy efforts, some try to shelter piracy as local tax revenues are collected from companies involved in illegal production.

"This year we have intensified efforts to hire lawyers and launch judicial action against piracy for economic compensation, and it works well," said Zoke's Huang. "The situation is at least turning around in key markets-big cities like Beijing and Shanghai."