Even though the derivative business is lucrative, there is a severe shortage of domestic cartoon shows. Within three years, TV stations at sub-provincial levels and above are required to launch children's channels to guarantee 5,000 minutes of cartoon show time nationwide everyday and 1.8 million minutes a year.

"About 300 million people out of China's huge population of 1.3 billion are less than 14 years old, constituting the largest and most faithful consumers of cartoon and animation products in the world," claimed Wu.

E-cartoon services, provided by Internet companies and mobile services providers, are using Internet and mobile phones as platforms to display cartoon and animation products. Compared with traditional comic books or cartoon shows, e-cartoons are more interactive and personal, thus attracting more young people. It's quite fashionable among the young people today to download cartoons or animation from the Internet as screensavers for their mobile phones, usually paying about 2 yuan for each download.

At present, China has 120 million Internet users and nearly 400 million mobile phone subscribers, offering great impetus to the growth of the e-cartoon and e-animation business.

According to the research center of Huayan Digital, at the beginning of 2007 about 1.8 percent of the total 840,000 Chinese websites, or 15,000, were cartoon and animation websites. This is an increase of 36 percent, or 4,000 more in number, from the previous year. It is estimated that the e-cartoon market would reach 25 million yuan this year, a year-on-year increase of 150 percent.

The mobile cartoon and animation business has entered the category of value-added services such as multimedia messenger services (MMS), ringtones and wallpaper downloads. Statistics from the Ministry of Information Industry (MII) show that MMS services in China reaped as much as 300 million yuan from 45 million users in 2005, equaling short messenger services (SMS) profits. The market volume reached 1.8 billion yuan, and messages sent that year totaled 1 billion pieces.

On November 3, 2006, the Mobile Animation Industry Alliance--the first of its kind in China--was established in Beijing to promote the mobile animation business.

"The popularity of e-cartoons has renovated not only the way we run the business, but also the creation and representation of cartoon products," said Jin Guoping, Chairman of the China Animation Association.

Foreign cartoons dominate

Despite the huge market potential for domestic cartoons that exists in China, Japanese, U.S. and Korean products have long dominated the market.

Huang Shengmin, leader of a cartoon program market research team with the Communication University of China, said domestic cartoon products constitute only 10 to 30 percent of the television market, less than 20 percent of the audio and video market, and even less in the printed products market. Hot sales are coming mainly from imported comic books or reproductions. Logos and images of foreign cartoon characters are ubiquitous on stationery, toys, children's clothes, as well as in entertainment facilities such as cartoon bars and e-game rooms.

Chinese teenagers are captivated by foreign cartoons and have become a loyal audience for and a consumer of these products.

A survey by Huang's team shows that among the cartoon and animation works favored by Chinese youth, Japanese products account for 60 percent, those with European or U.S. origins total 29 percent, and the final 11 percent are domestic-made, including those produced in Hong Kong and Taiwan.

The latest statistics fromGogo, a cartoon magazine, show that 19 out of the 20 "my favorite cartoon characters" picked by Chinese teenagers are of Japanese origin. The Monkey King is the only Chinese character to make the list.

Jin Guoping said that 80 percent of the revenue from cartoon, animation and related industries goes into the pockets of Japanese, U.S. and Korean companies, according to statistics from the CICAF Organizing Committee. The Mickey Mouse brand makes as much as 600 million yuan every year in China. Since it began in the 1980s, the Transformer brand has reaped $4.6 billion in the Chinese toy market.

Foreign companies have seized the lion's share of China's cartoon derivatives market due to a variety of strategies, including bargaining, offering low prices and sometimes free offers. However, when television stations cite this convention and attempt to bargain with domestic cartoon producers--who rely mainly on cartoon sales for revenue--the advantage foreign cartoons have can be seen as quite unfair. The unreasonably low purchasing prices have greatly hindered the creation of Chinese original cartoons.

A direct result, according to Yan Dingxian, Vice Chairman of the China Animation Association, has been the input-output imbalance in the production of original cartoons in China. Production costs about 5,000-10,000 yuan for each minute, while income from sales of the broadcast rights can cover only a third of this cost at most.

The weakest link

Cartoon derivatives production is now the weakest point in the Chinese cartoon industry chain, said Wu Jianrong.

According to Wu, about 70 percent of the profit from the cartoon and animation business is attributed to video-audio production, book publishing and derivatives. Chinese original cartoons enjoy at least 15 billion yuan worth of market potential for related derivative products, a majority of which is left untapped.

The profit figures and the fact that many cartoon producers are losing money have made private investors cautious about any commitment to this industry. Currently there are two sources of investment for cartoon production--30 million yuan from CCTV and 50 million yuan from private investors every year--Huang said.

Other disadvantages include incomplete market mechanisms, nonstandard market operations and a shortage of professional marketing and management personnel, which has all failed to attract investment. Without investment, excellent creations never find their way to production.