CHILDREN'S LOVE: A child in Shanghai poses with characters from the popular Chinese cartoon series Pleasant Goat and Big Big Wolf (LIU ZHENG)

From Disney's Mulan in 1998 to DreamWorks' Kungfu Panda, cartoon characters originating from Chinese legends have become a trump card for the success of animation movies from Hollywood.

DreamWorks CEO Jeffrey Katzenberg said their third quarter earnings were largely driven by the international box office success of Kungfu Panda 2, the number one grossing animated movie of the year and the fourth highest-grossing film worldwide. Kungfu Panda 2 in China alone raked in more than 600 million yuan ($94.49 million).

Katzenberg described the panda movie as DreamWork's love letter for China and said he will make more China-themed animations to pay tribute to China.

Moreover, DreamWorks is going to establish a permanent presence in China.

Beijing-based business magazine Caijing recently reported that DreamWorks plans to set up a joint venture studio in Shanghai as early as January 2012, with China Media Capital, Shanghai Media Group and other strategic investors.

A spokeswoman for DreamWorks said, "As it is an important market for us and one in which the DreamWorks Animation brand and products have tremendous value, we continue to explore opportunities in China."

According to the State Administration of Radio, Film and Television, China's box office in 2010 topped 10 billion yuan ($1.57 billion), growing by 64 percent compared to 2009. And China ranked 10th among the world's film markets, according to the 2011 Blue Book of China's Culture issued by the Chinese Academy of Social Sciences.

Han Sanping, President of the China Film Group, said China's box office is expected to reach 13.5 billion yuan ($2.13 billion) this year and 30-35 billion yuan ($4.72-5.51 billion) in the next five years.

While tapping the Chinese market will prove difficult, DreamWorks is optimistic. Having a small presence is better than having no presence in the world's fastest growing film market.

Chinese determinants

When it comes to the Chinese animation market, Disney's dominance has left little room for competitors.

Since Disney's flagship characters Mickey Mouse and Donald Duck made their debut on China's state-run CCTV in 1986, the international entertainment giant has set up three branches on China's mainland.

On April 8, Shanghai Disneyland broke ground and is slated to open by 2016. Disney already has a theme park in Hong Kong, making China the first country outside the United States to boast two of the world-renowned resorts.

Today Disney's business in China covers movies, publications, franchised products, ice rinks, language schools and resorts.

While Disney is trying to introduce its U.S. cartoon characters and products to China, DreamWorks is obviously taking another path.

DreamWorks has been a master of telling stories about China by integrating Chinese elements and international views.

Katzenberg said that he has been reading Chinese fairy tales and draws inspiration from them.

DreamWorks has been and will bring the cartoon characters originated from Chinese culture to the world, said Caijing.

In the new studio, which will be set up in Shanghai with Chinese investors, the Chinese side will have a controlling stake, according to Caijing.

The joint venture will focus on technology research and development and also cooperate with Chinese film companies to co-produce animated feature films that cater to the Chinese market.

The joint venture will invest a total of $2 billion over the next five years, which will be shared equally by DreamWorks and its Chinese partners.

DreamWorks may use the success of its Kungfu Panda film series as subject matter for the studio and it plans to release its first blockbuster animated feature in 2015, according to Caijing.