Hollywood’s crusade in China prior to China’s WTO accession

by Ting Wang

China’s contemporary fans of Hollywood movies and entertainment well remember being first invited to the fantasy world of exciting action and sleek glamour of Hollywood through The Fugitive in late 1994. The first U.S. blockbuster entering the Chinese market on a revenue-sharing basis set off a series of major encounters between China and Hollywood. Yet, little known to the fans was the fact that China had become a major target market for Hollywood even in the early 1900s, when China was still a semi-colony of the West.

Brief historical background
leading up to Hollywood’s re-entry
into China in the mid-1990s

"…it is virtually impossible to assess a national [film] industry in any given period without dealing with its attempt to counter American competition…."
— Kristin Thompson (1985, 168)

"The film is a silent salesman of great effectiveness, and by that method much trade is being diverted to America. Moreover, through American motion pictures, the ideals, culture, customs, and tradition of the United States are gradually undermining those of other countries. The film industry of these other countries must be built up as a barrier against this subtle Americanization process."
— C.J. North (Quoted in Thompson 1985, 122)[1]
[open notes in new window]

Film was first introduced to China on August 11, 1896, shortly after the Lumière Brothers invented the Cinématographe, when Chinese audiences saw the first film program brought by one of the Lumière cameramen-showmen at the Hsu Gardens in Shanghai. The program included episodes of magic and acrobatic performances alternating with vaudeville acts such as juggling and fireworks (Advertisements in Shen Bao).

In July 1897, James Ricalton, a U.S. film showman from Maplewood, New Jersey, arrived in Shanghai to screen a program of Edison films shot in the U.S. (Leyda 1972, 2). The exhibition was referred to by a local newspaper as an “American electric light shadow play," and was described as “marvelous and illusionary, all beyond expectations (“Guan meiguo”). Many believe that “Dianying (electric shadow)," the Chinese term for “film," may have derived from this moment. Those early episodes, featuring blondes dancing, Westerners wrestling, woman bathing, and bicycle racing, already demonstrated Hollywood’s principle of market appeal: “to entertain with novelty and sensuality” (Tan 2003, 11). It was not until 1903 that the first Chinese local exhibitor, Lin Zhushan, began to show short films he brought back from the U.S. and Europe in a tea house in Beijing. The first real movie theater in China, Pingan Cinema, was built in Beijing in 1907 by foreign merchants. But it only served foreign patrons under the strong colonial mentality of the time (Zhu 1998, 58).

The initial establishment of the Chinese film industry almost directly coincided with the classic Hollywood silent film era, from 1906 to 1927. The first Chinese film, Dingjun Mountain, was made between 1905 and 1908 by Ren Qingtai, owner of Feng Tai Photography Shop in Beijing. Shot with a French camera and film stocks brought from a German photography supply store in Beijing, the 30-minute-long film recorded episodes from a Beijing Opera classic, The Three Kingdoms. The hero in the film, General Huang Zhong, was played by Tan Xinpei, an eminent Beijing Opera performer patronized by the Empress Dowager (Leyda 1972, 10). The film was a classic implementation of a doctrine prevalent in the late Qing dynasty, namely, “[to treat] Chinese learning as the foundation and Western learning as utilities” (Tan 2003, 11).

In 1909, a U.S. merchant, Benjamin Polaski, founded the first production company in China, The Asian Film Company, first based in Hong Kong and then relocated to Shanghai in 1912 (Leyda 1972, 10-11). That venture inspired Chinese filmmakers to set up China’s own production companies in 1913, including Xingming and Huamei. The former was contracted by The Asian Film Company, which by then had been sold by Polaski to two U.S. managers of an insurance company. It relied heavily on local talents, engaging writers and performers mostly from Shanghai’s drama circle. The latter was formed by the wealthy Li brothers from Hong Kong. Zhuangzhi Tests His Wife, a narrative short of social satire, was produced by Huamei in 1913, with Polaski’s support in the form of capital and equipment supply. It soon became a popular hit in China and was the first Chinese film export introduced to the U.S. by Polaski (Leyda 1972, 16-7; Zhu 1998, 58). In fact, early Chinese domestic production depended heavily on foreign capital and technology. Hence, the nation’s film industry was largely confined to the treaty ports where such resources were most accessible (Zhu 1998, 59).

Early film imports in China were mostly from France, as well as from Great Britain and Germany, while U.S. films did not have any competitive advantage in the country. It was not until after the outbreak of World War I that the U.S. replaced Europe as the major supplier of raw film stock for China’s movie production, and that Hollywood became the dominant player in the Chinese film market (Zhu 1998; Tan 2003). Once the early U.S. films brought to China by U.S. merchants proved profitable, their number in the Chinese market began to rise. Starting from the early 1920s, major Hollywood studios[2] began to release their films commercially in Shanghai, the birthplace of Chinese cinema, which played to the country’s largest movie audience and which gained the largest market share in history. Distribution was conducted mainly through sales agencies in Hong Kong or the mainland with the support of their representative offices in China.[3] Hollywood studios became the beneficiary of fierce competition among different sales agencies. Revenue-sharing was the most commonly used model of distribution, typically in combination with block-booking to sell less popular or less well-made films in the same package with likely money-makers to maximize profits. Though flat sales and exclusive booking contracts with certain studios were also resorted to, they occurred only in rare cases (Wang, Chaoguang 1998/9, 376-7).[4]

By the late 1920s, Hollywood achieved de-facto monopoly over China’s film distribution and exhibition sectors. Rapid expansion in the number of cinemas in China, from approximately 100 in 1927 up to 250 in 1930, was mostly driven by Hollywood imports. Chinese cinema operators were eager to embrace Hollywood films propelled by commercial motives. Of the 250 cinemas in 1930, only 50 to 60 screened Chinese films. All well-equipped, up-scale cinemas had exclusive contracts with Hollywood studios.[5] If these cinemas showed Chinese films, heavy fines would be imposed on them. Cinemas under revenue-sharing arrangements with Hollywood were forced to pay 30 to 50% of their box office revenues to U.S. distributors. The popularity of U.S. imports in big cities forced Chinese domestic films to submit to high exhibition fees and low ticket prices. The lack of exhibition opportunities and space for domestic films led to low capital availability for Chinese filmmakers, which in turn further eroded the production values and quality of domestic productions (Zhu 1998, 61).[6] Hence, from early 1920s up to the outbreak of the Pacific War in 1941, U.S. films dominated the Chinese film market, with films by D.W. Griffith and Charles Chaplin becoming quite familiar to Chinese audiences (Chen Mo 2002, 296).

U.S. films had an undeniable market appeal, derived from Hollywood’s production technology, its emphasis on spectacle and its star system, which already constituted the major comparative advantages of U.S. films in Hollywood’s classic studio era. Hollywood also benefited from U.S. economic prowess after WWI. In Hollywood's distribution abroad, much of U.S. dominance could also be attributed to the support of the U.S. government. In March 1927, a special report entitled “The Chinese Motion Picture Market”appeared in the U.S. Commerce Department’s publication, Trade Information Series. This report was compiled by C. J. North, the Motion Picture Section[7] Chief within the Bureau of Foreign and Domestic Commerce, and was based on contributions by Department trade officials and U.S. consular officers stationed in China. America’s longterm ambition in the Chinese market at the time was made very clear in the report’s foreword by Julius Klein, Director of the Bureau of Foreign and Domestic Commerce:

"The showing of American motion pictures in China has been steadily on the increase. Statistics show that whereas in 1913 only about 190,000 feet of American films were sent to China, this amount has increased to about 3,000,000 feet in 1926. Even so, the amount of revenue derived by the industry from China is small in comparison with the area and population of the country, and there is every reason to expect that with the clearing up of disturbed conditions and a consequent greater measure of prosperity the Chinese motion-picture market will offer very great opportunities indeed."

"This bulletin is issued with the thought that publication of as much concrete information on motion pictures in China as is possible at the present time may be of service as a basis for the active extension of business with China whenever the time is ripe. The motion-picture section of the specialties division of the bureau has been created to supply information on the foreign-film situation and particularly the possibility of developing American trade in motion pictures, and this service it freely offers to all interested persons" (North 1927, II).

This first U.S. study of the Chinese film market, done by the U.S. government, provided meticulous data on Chinese film production, distribution methods, exhibition venues, as well as film censorship, tariff, internal taxes, advertising, equipment, and publications in China. It also specified Chinese audiences’ tastes in films and variant responses towards different film genres and themes from the United States.[8] Besides China's political instability and low standard of living, the report noted another major obstacle to wider penetration of U.S. films beyond treaty ports and major interior cities in China, that is, Chinese audiences’ “marked preference for films produced from Chinese scenarios and with Chinese actors," if such movies can be produced at all (North 1927, 2). The report predicted that with the removal of all the existing obstacles, the market for U.S. films in China would increase considerably, even though the ratio of U.S. imports to Chinese domestic productions would show a drop. With regard to U.S. films’ market standing in China, the report pointed out that U.S. movies constituted an average of about 75% of the motion pictures shown in China, and in major port cities such as Hong Kong and Shanghai, the figure could be as high as 90% (North 1927, 2).

Undoubtedly, the report gave considerable help to U.S. business operations and strategy development in the Chinese film market by providing comprehensive and detailed information about the market. More significantly, the report emphasized the prime importance of exhibiting in China certain U.S. industrial films that “had originally been taken by manufacturing concerns” of “a wide range of American industries." These films were loaned specifically to be distributed in China at the “inception of modern industrialism” for a particular objective.  As the report specified,

“Through the motion-picture film there can be impressed upon the Chinese methods, ideas, and materials of an essentially American character”(North 31).

In other words, the report's goal was to promote both U.S. industrial trade and American ideology.

Hollywood studios were forced to move out of China during Japan’s occupation of the country. After Japan was defeated during the Pacific War and conceded its territorial control over Shanghai and other Chinese cities, the Big Eight re-opened their Chinese businesses. This time they operated in a tight trust-like bond, as they did in other overseas markets, despite the U.S. government’s anti-trust rules against such practices domestically. The representative offices of all major U.S. studios in China formed an organization known as the Film Board to enhance their Chinese business interests in a unified manner. These interests included sharing industry information, helping each other to enforce exhibition contracts with local cinemas, coordinating and optimizing exhibition space and scheduling among themselves, arbitrating business disputes of various kinds, and so on (Wang, Chaoguang 1998/99, 380). This coordination further consolidated Hollywood’s monopolistic control over the Chinese film market.

The predominant position of Hollywood films in China prior to the founding of New China (the People’s Republic of China, PRC) is further demonstrated by the following statistics (Wang, Chaoguang 1998/99, 380).

  • In 1933, there were 431 feature imports, with 355 of them being U.S. feature films, which thus accounted for 82% of the total.
  • In 1934, 345 U.S. feature films were imported, accounting for 85% of the total.
  • In 1936, 328 U.S. feature films were imported, accounting for 89% of the total.

After the end of World War II (WWII) in 1945, a bilateral business covenant was signed between the Chinese Nationalist government, then the ruling party of China, and the U.S. government. U.S. films continued to pour into the Chinese market. Within less than four years, from the victory over the Japanese in August 1945, to the liberation of Shanghai in May 1949, the U.S. films that entered Shanghai market totaled 1,896 (including 1,083 features and shorts). In 1946, 352 U.S. feature films were released in Shanghai’s first run movie theaters alone. These films accounted for 92% of the total number of 383 films released that year (including 15 films from Great Britain and 3 from Russia); whereas the 13 Chinese films shown that year accounted for only 3.4% of the total (Zhou, Tiedong 2002, 113).

Following the founding of the PRC on October 1, 1949, and particularly after the outbreak of the Korean War in July 1950, the Chinese market was closed to Hollywood films largely due to ideological and diplomatic barriers, as well as New China’s embrace of a national self-reliance ethos. Nevertheless, Hollywood’s interest in the Chinese market never faded away but remained expediently dormant. Up until the end of the 1970s, U.S. firms made some tentative inquiries about the possibility of re-launching their businesses in China, but they were turned down invariably by the state-run China Film Corporation (referred to as “China Film” hereafter) for the above-mentioned reasons. During those several decades, the only U.S. film that Chinese audiences were able to see was Salt of the Earth (Herbert J. Biberman, 1954)[9], a film about Mexican-American miners striking against the Empire Zinc Mine in New Mexico. The film was bought by China Film through a tortuous procedure via a sale agency in a third country (Zhou, Tiedong 2002, 117).

Following the release of the Joint Communiqué on the Establishment of Diplomatic Relations between the United States of America and the People’s Republic of China in December 1978, Sino-U.S. bilateral diplomatic relations were officially established on January 1, 1979. During that same year, Jack Valenti, then President of the MPAA, paid a visit to China and held tentative dialogues with the Ministry of Culture and Film Bureau of China about distributing U.S films in the country. The time when the diplomatic stalemate between the two countries was officially broken coincided with China’s epoch-making open-door and economic reform policy initiated by Deng Xiaoping, one of the most visionary leaders in Chinese history. The new policy, with the objective of building “socialism with Chinese characteristics," consisted of many bold yet pragmatic moves — including opening trade with the outside world and adopting principles of market economy that had been in wide use in capitalist countries. It enabled China to embark on a road towards modernization, and has brought the nation unprecedented development and transformation ever since.

In light of this new spirit of opening-up and market liberalization, China Film began to build initial contacts with the U.S. film sector. In 1980, the company sent a delegation to the U.S. to learn first hand about the U.S. film industry through visits and tours. The delegation met with Valenti and expressed its willingness to import U.S. films to China. Valenti insisted on making an “overall arrangement” for films of the Hollywood majors[10] to re-enter the Chinese market. In this case, that arrangement meant importing films through a uniform revenue-sharing formula, essentially rejecting the possibility of flat sales that China preferred at that time (Zhou, Tiedong 2002, 117).

Valenti and the Hollywood majors may have been stunned by cinema’s unprecedented popularity and the huge movie-going population in China at the time — in 1979, China’s total movie attendance was 29.3 billion, which meant that on average each Chinese citizen went to the movies 28 times a year. Yet however eager Hollywood producers were to seize the market, they would only re-enter the China market under terms that were both in their favor and that they could control. What the Hollywood strategists failed to understand were the reasons why Chinese cinema was not yet ready for a revenue-sharing import/distribution model that they insisted on.

As a matter of fact, in 1979, cinema in China was still officially positioned as a state-funded cultural institution and an important form of art for government propaganda as well as social enlightenment, aimed essentially at national cohesion and ideological unification. Cinema was also a primary format of social recreation enjoyed by the general public[11] in China. But it was subsidized as a major employee benefit from state enterprises through group ticket purchasing, rather than anything close to how a commercial industry operated for profit as was the case in the United States. In addition, the ideological messages borne in U.S. films that could make strong statements for U.S. culture, values and ways of life were still a big concern for high-level Chinese government officials at the time.

China’s Film Bureau, the primary government entity that regulates the Chinese film industry, was under the administrative umbrella of the Ministry of Culture until 1986, when it was placed under the leadership of the Ministry of Radio, Film & Television (MRFT, renamed in 1998 as SARFT — State Administration of Radio, Film & Television). It was at this point that film began to be gradually integrated into the nation’s audiovisual industry.[12] Hence, at that time there was insignificant box office income in the Chinese market, due to the unique cultural positioning of China’s film industry, essentially rendering revenue-sharing implausible. Moreover, having just adopted the open-door policy, China still had a closed currency policy. This meant that currency conversion was impossible and thus negated the prospect of revenues from the market for U.S. studios.[13]

As a result, the small number of U.S. films that China Film brought to the Chinese audiences over the 1980s were mostly low-budget U.S. independent productions from small distributors, such as First Blood (Ted Kotcheff, 1982)[14] and Harry’s War (Kieth Merrill, 1981)[15] — films that were fairly dated (up to ten years old) and certainly not among the first-rate U.S. productions. This trend continued into the early 1990s, when China Film bought an average of ten films annually from U.S. independents outright — about one third of China's total imported titles — at an incredibly low price of around $30,000 each.[16]

Meanwhile, starting from the mid-1980s, the institutional ills of the film sector, and diversified entertainment options, especially the rise of television, brought about a steady erosion of movie attendance in China. This trend came to a point of crisis by the early 1990s.

  • In 1992, movie attendance in the country hit a historical low of 10.5 billion as opposed to 29.3 billion in 1979 (Ni, Zhen 1994, 50).
  • Movie attendance in Shanghai in the same year dropped 41.7% from that in 1991.
  • Movie attendance in Beijing in April 1993 declined 78% from the same period in 1992.
  • In the first half of 1992 alone, the net loss for the Chinese film market reached 70 million yuan RMB (Renminbi) (US$8.45 million).

A large number of film distribution and exhibition entities were forced to go into other business lines (Fang, Cheng 1997, 10).

Prompted by this dismal trend and by a central government rule that pushed for in-depth reform of state-run industrial enterprises in 1992, MRFT ordered a large-scale structural overhaul of the Chinese film industry in 1993. This overhaul included taking away both China Film’s long-standing national monopoly over the distribution of domestic films at home and its monopoly over film export, while retaining its state import monopoly. Meanwhile, a bold open-door policy for film at senior government levels was under deliberation, one that would shake up the entire film community and soon transform the landscape of the Chinese film market. During China’s annual national film distribution and exhibition convention in January 1994, Tian Congming, then Vice Minister of MRFT and China’s top film official, announced MRFT’s ground-breaking decision to delegate China Film to importing ten “excellent” foreign films that

“basically reflect the finest global cultural achievements and represent the latest artistic and technological accomplishments in contemporary world cinema” (Tian 1994, 1).

Wu Mengchen, then President of China Film, revealed the economic rationale behind the policy. He suggested that the market share of the ten imports, which should be worked on with earnest enterprise, would not only be considered as an issue of China Film’s financial well-being, but also as an issue of survival for the 500,000 people who were employed in the industry nationwide (“Wu Mengchen”).[17]

Focusing now more on the film import business and aided by an increasingly open policy environment, China Film actively approached Hong Kong’s heavyweight entertainment player, Golden Harvest Entertainment, which had set up a Shanghai office and had tried to cultivate the mainland market for two years. China Film sought to explore the possibility of distributing Golden Harvest films in the mainland on a revenue-sharing basis. The two partners came to a tentative agreement (Zhou, Tiedong 2002, 118; Groves 1994b, 4).

This unprecedented initiative on the part of China Film caused quite a stir among the Hollywood majors, who had long been craving a share of the Chinese market. Warner Bros. moved swiftly, sending representatives to Beijing to talk with China Film. After rounds of negotiations, in September 1994, the two sides reached an agreement of “mutual benefits” to import and distribute the Warner Bros. blockbuster The Fugitive (Andrew Davis, 1993) in China on revenue-sharing basis at the end of 1994 (Zhou, Tiedong 2002, 118). This historic deal between Warner Bros. and China Film was an epoch-making step not only in China’s film reform, and in Sino-U.S. film relations, but also in Hollywood’s global expansion. It opened up the Chinese market once again to Hollywood after the latter’s absence for 45 years, bringing the major Hollywood studios closer to realizing their long-awaited ambition of cracking the vast, largely untapped and potentially lucrative Chinese market, one of the few remaining distribution and exhibition gold mines in the world. Soon, other Hollywood major studios followed suit and reached similar agreements with China Film (Zhou, Tiedong 2002, 118).

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