China's Cultural Trade Strategy: Perspectives from Film and Television Industries [1 ed.] 9781032544250, 9781032544281, 9781003424796

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China’s Cultural Trade Strategy

This book aims to provide theoretical and empirical interpretations of certain phenomena in the development of China’s cultural industry. Using the film and television industries as the major cases, the author proposes suggestions on China’s ongoing development of foreign cultural trade. The author argues that China is well positioned to take full advantage of the ­opportunities of globalization, to develop its cultural industry in a leapfrog manner. China’s rapid economic growth drives the country’s development from a small cultural market to a large one. Since it is a middle-income country, its cultural industry still has a relatively large potential to grow. The study on China’s foreign cultural trade strategy can contribute to the growing needs of people for a better life and enhance China’s “cultural confidence”. With an explanation of existing practices, this book also aims to make recommendations on China’s strategy for developing foreign cultural trade in the era of globalization. This book will be a good read for students, researchers and scholars of Chinese studies, East Asian studies and culture economics, and those interested in China’s film and television industries. Luo Libin (Ph.D. of Economics) is Professor of Economics at Beijing International Studies University, China. Professor Luo is also a visiting researcher at the Institute for Service Economy and Digital Governance, Tsinghua University, senior researcher of Beijing Research Institute of Culture Trade, BISU, and researcher at China Academy of “One Belt and One Road” Strategy, BISU. Luo’s research interests include cultural and international trade, service trade and international investment.

China’s Cultural Trade Strategy Perspectives from Film and Television Industries

Luo Libin

Funded by Beijing International Studies University 2022 Annual Academic Work Publishing Funding First published 2024 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2024 Luo Libin Translated by Luo Libin and Li Zhixuan The right of Luo Libin to be identified as author of this work has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. English Version by Permission of Social Sciences Academic Press (China). British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Luo, Libin, 1977– author, translator. | Li, Zhixuan, translator. Title: China’s cultural trade strategy : perspectives from film and television industries / Luo Libin ; translated by Luo Libin and Li Zhixuan. Other titles: Quan qiu hua bei jing xia Zhongguo fa zhan dui wai wen hua mao yi de zhan lue. English Description: Abingdon, Oxon ; New York, NY : Routledge, 2024. | Includes bibliographical references and index. | Identifiers: LCCN 2023008704 (print) | LCCN 2023008705 (ebook) | ISBN 9781032544250 (hardback) | ISBN 9781032544281 (paperback) | ISBN 9781003424796 (ebook) Subjects: LCSH: Cultural industries—China. | Motion picture industry— China. | Television broadcasting—China. | Mass media—Economic aspects—China. Classification: LCC HD9999.C9473 C455413 2024 (print) | LCC HD9999.C9473 (ebook) | DDC 338.4/770951—dc23/eng/20230309 LC record available at https://lccn.loc.gov/2023008704 LC ebook record available at https://lccn.loc.gov/2023008705 ISBN: 978-1-032-54425-0 (hbk) ISBN: 978-1-032-54428-1 (pbk) ISBN: 978-1-003-42479-6 (ebk) DOI: 10.4324/9781003424796 Typeset in Times New Roman by codeMantra

Contents

List of Figures List of Tables Preface Acknowledgments

vii ix xi xv

  1 An Introduction: Why Do I Write This Book?

1

  2 Theoretical Studies Related to Cultural Trade

18

  3 Opening Up of Film Market and the Development of Film Industry in China’s Mainland

29

  4 Imports of Cultural Products and Chinese Culture Going Global: The Case of Film Import

48

  5 Rise of China’s Economy and International Influence of Standard Chinese Language

74

  6 International Trade in TV Formats, Home Market Effects and Chinese TV Program Exports

90

  7 The Rise and Fall of the China’s Hong Kong Film Industry and Its Implications for China’s Mainland

114

  8 A Forecast on Film Box Office in China’s Mainland—on Strategies of China’s Mainland Film Industry

129

vi Contents

  9 Opportunities, Challenges and Strategies for the Development of Foreign Cultural Trade in China

146

Bibliography159 Index165

Figures

1.1 National income per capita in 1965 and 2016 4.1 Relationship between the global share of GDP and the global share of box office (2015) 5.1 Minimum effective scale of a language survival 6.1 Distribution of sources of variety shows on MediaCorp Channel U, 2006–2015 6.2 Distribution of prime-time variety shows sources on MediaCorp Channel U, 2006–2015 8.1 Share of GDP and box office in selected countries and regions in 2017 8.2 Average attendance in the sample cities (2010–2016) 8.3 Actual and Predicted China’s mainland Film Box Office from January 2012 to December 2020 (predicted values after October 2017)

6 57 79 106 106 132 134 139

Tables

3.1 N  umber, Box Office and Proportion of Box Office of Imported Films in China from 1994 to 2017 3.2 Top Box Office Films of the Year in China’s Mainland Film Market (1995–2017) 3.3 The Most Acclaimed and Highest-Grossing Chinese Films and the Highest-Grossing Standard Chinese (Putonghua) Films in the United States 3.4 Top 10 Global Box Office in 2017 and Its Ranking in North American Film Market 4.1 Number of Chinese U.S. Films Shown in China with Chinese Cultural Elements 4.2 North American Box Office and Growth Rate, 2005–2017 4.3 Share of Overseas Box Office of American Films in 2017 4.4 Top 20 Highest-Grossing Foreign Films That Include Standard Chinese (Putonghua) 4.5 Some Information About Hollywood Films with Chinese Cultural Elements 4.6 Information About Some Popular Chinese Movies 5.1 Countries Where China Has Become the Largest Source of Tourists 6.1 Prices of One-Hour Imported U.S. TV Series on Different National TV Stations (2004) 6.2 Top 10 Countries and Regions in World TV Advertising Market (2013–2014) 6.3 Program Production Costs of Energy Pictures from 2011 to 2013 6.4 Cultural Distance of Countries and regions from the United States (from far to near) 6.5 Structure of Broadcasting Hours and Sources of Variety Show Programs on MediaCorp Channel U from April 1 to 14, 2006–2015 6.6 Hours of Prime-Time Variety Programs by Source on MediaCorp Channel U from April 1 to 14, 2006–2015 6.7 China’s Mainland Variety Shows Broadcast on MediaCorp Channel U from April 1–14, 2012–2015

32 35 41 43 50 58 59 59 60 66 83 97 98 99 100 105 107 108

x Tables 6.8 C  hinese variety shows that achieved excellent ratings on Singapore’s Channel U, 2012–2014 8.1 Description of Sample Data 8.2 Results of Regression Analysis (Dependent Variable: Logarithm of Movie Box Office) 8.3 Regression Results After the Interaction Variable of Number of Theaters and Year 8.4 Regression Results Using Data from 2015 to 2016 8.5 Estimation Results of the AR(5) Model 8.6 China and North America’s Box Office and GDP Share of the World (2004–2017) 8.7 Box Office Index of the Top 20 Countries and Regions in the World in Terms of Total Domestic Box Office, 2013–2017 8.8 China and North America Film Box Office Forecast 9.1 China’s Film Box Office Share of Global Film Box Office from 2006 to 2016 9.2 Box Office of the Film Wolf Totem (Lang Tu Teng) in Countries around the World

109 133 135 136 137 138 140 141 142 153 156

Preface

Economic globalization is affecting more and more countries and more and more industrial fields, including cultural industries, in an unstoppable trend. At the same time, China’s economy has entered a stage of high-quality development, the construction of socialism with Chinese characteristics has entered a new era, and the principal challenge facing Chinese society has evolved into that between unbalanced and inadequate development and the people’s growing needs for a better life. In this context, it is important to study the development strategy of China’s foreign cultural trade, which on the one hand can help meet the growing needs of the people for a better life, and on the other hand can help enhance China’s “cultural confidence”, which is also closely related to the “cultivation of new advantages in foreign trade” mentioned in the 13th Five-Year Plan of the national economy. The study of cultural trade issues also has important theoretical implications. Compared with other products, the production and trade of cultural products have distinctive features. The production of cultural goods has significant economies of scale, and consumption of them has network externalizations. On the one hand, it makes the target market of cultural products expand globally, and on the other hand, it is particularly prone to the phenomenon of “winner takes all”. Countries with large domestic markets have the opportunity to create a “home market effect” under certain conditions, and the size of the local market becomes an advantage in promoting the global spread of local culture and the export of national cultural products. In contrast, the culture of small countries is easily ignored, and the cultural industry of small countries has no advantage in this case. In this context, the issue of cultural trade in China becomes a unique and ­interesting subject of study. China’s rapid economic growth is driving the country’s rapid development from a small cultural market to a large cultural market. But at the same time, China is still a middle-income country, and if China’s income level can continue to rise, then China’s cultural industry still has a relatively large potential. Due to the special national conditions of “middle income per capita” and “second largest in total”, China is likely to be able to enjoy both “comparative advantage” and “home market effect” in the development of its cultural industry. China can assume some comparative advantages in the process of global production of cultural products, while China’s huge domestic market size can support larger-scale investment. Cultural products targeting a global audience will also add

xii Preface “Chinese cultural elements” to reduce the “cultural discount” in order to win the Chinese market, which promotes Chinese cultural elements to the world. Considering that China is the world’s most populous country, it is the only country in the world that has such a feature. Based on the above theoretical and practical backgrounds, this book hopes to provide theoretical and empirical interpretations of some phenomena in the development of China’s cultural industry, using the film and television industry as the major cases, and to make some suggestions on the path of China’s development of foreign cultural trade. The book hopes to explain some practices that have already taken place; it also hopes to bring some inspirations and reflections on some suggestions that are still not done enough in practice. Overall, the book argues that China is the country best positioned to take full advantage of the opportunities of globalization, to develop its cultural industry in a leapfrog manner. The structure of this book is as follows: The first chapter introduces the background and significance of the topic selection of this book. The second chapter introduces the research progress of cultural trade and points out the theoretical basis of this book. The results of most studies show that free trade will reduce cultural diversities in the world. The cultural forms produced by big countries will occupy a dominant position, while the cultural forms generated by small countries will gradually decline or even disappear completely under certain conditions. The existence and variety of cultural forms in small countries depend on the relative economic size of big countries, the cultural differences ­between big countries and small countries, the communication cost between the two countries and the degree of network externalities of product consumption. The larger the relative economic size of a big country, the smaller the cultural differences between the two countries, the lower the communication cost between the two countries, and the stronger the network externalities of product consumption, the fewer cultural product styles in small countries, which will disappear to zero at a certain critical point. Of course, not all the production in big countries is derived from their own cultural forms, and not all the production in small countries is derived from the cultural forms of small countries. The theoretical study of cultural trade has many practical guiding significance for the development of China’s cultural industry and cultural trade. Starting from the third chapter of this book, we take film and television industries as the major cases to make a more detailed analysis and research on several parts of China’s foreign cultural trade development strategy proposed at the end of this book. The third chapter analyzes the impact of the opening of Chinese film market on the development of China’s film industry. By analyzing the development process of Chinese film industry, we find that opening to the outside world has played multiple important roles in the development of China’s film industry, which is embodied in seven aspects: market expansion effect, competition effect, capital source effect, demonstration effect, technology spillover effect, system reform promotion effect and cooperation effect. We believe that under reasonable institutional arrangements, further opening up film market will not lead to the “collapse” of domestic

Preface  xiii films, and the Chinese film market should start from protecting “Chinese cultural elements” and promoting “Chinese cultural elements going out” for the next step of opening up, as well as gradually liberalizing the distribution rights of imported films and increasing the proportion of imported films. The fourth chapter takes the film industry as a case to analyze the influence of Chinese cultural trade import on Chinese culture going out. We believe that at the current stage, the Chinese cultural trade import can play an important role in Chinese culture going out. The viewpoint of this chapter is inconsistent with the “conventional” viewpoint. The author does not deny that Chinese culture going out ultimately depends on the export of Chinese cultural products, but at the same time, the author also believes that at this stage, China can attract Hollywood movies to add Chinese cultural elements by opening up its market to realize the efficient dissemination of Chinese cultural elements in the world. In the fifth chapter, in order to better explain the potential advantages of Chinese cultural products in the Chinese market, we demonstrate the favorable conditions created by China’s economic rise for the international dissemination of Standard Chinese (Putonghua) from the perspective of international dissemination of languages. This chapter aims to show that China’s economic rise has played a decisive role in enhancing the international influence of Standard Chinese (Putonghua), and the promotion of the international influence of Chinese provides a very important foundation for the export of China’s cultural products and the promotion of the global influence of Chinese cultural products. The sixth chapter takes a new phenomenon-international trade of TV formats as an example, analyzes the trend of specialization and refinement of division of labor in the process of globalization of cultural industry and points out its significance to China’s cultural industry and cultural trade. What we want to explain is that China has unique national conditions, which makes it the country with the best conditions to make full use of the opportunity of specialization and refinement of division of labor in the process of globalization, and promote the leap-forward development of cultural industry and trade. China’s TV program industry can use the world’s most advantageous resources for its own use in the trend of globalization, and rapidly enhance the international influence of Chinese TV programs. In the seventh chapter, we take the film industry in Hong Kong, a Chinese film production center with important influence in the world in 1990s, as an example. On the one hand, it empirically verifies the core viewpoints of cultural trade theory; on the other hand, it hopes to explain the rise and fall of Hong Kong film industry by using the theoretical framework of cultural trade, so as to provide enlightenment for the development of China’s mainland film industry. We believe that the glory of Hong Kong films in the 1990s was due to the fact that its advantages in supply conditions and trade cost conditions offset its disadvantages in demand. When its advantages in supply conditions and trade cost weakened, its disadvantages in demand began to appear and eventually led to the decline of the industry. The case of Hong Kong film industry proves the importance of local market size and trade cost to a region’s film culture trade. China’s mainland’s advantages in local market size provide flexible adjustment space for the cultivation of its supply conditions and the government’s industrial and trade policies.

xiv Preface The eighth chapter is the influencing factors and predictions of the box office size of Chinese film market and indicates the development strategies of China’s movie industry in the new era. This chapter hopes to explain that China will become a real “big power” in the field of cultural trade in the near future. Using econometric methods, we predict that the box office size of Chinese film market will surpass that of the United States to become the world’s largest by 2023, and then China will become a real film “big power”, laying a very important foundation for Chinese films to exert home market effect to promote exports. The ninth chapter is the conclusion part of this book, which, based on the theoretical foundation of the book and combined with the arguments in various parts of the previous chapters of the book, makes recommendations on China’s strategy for developing foreign cultural trade in the era of globalization. We believe that China’s domestic cultural market is huge, which has laid the most critical “local market foundation” for China’s development of foreign cultural trade exports. The development of China’s Internet industry plays an important role in expanding the market size of cultural industries. The “market increment” it provides has affected or even changed the market structure of some cultural industries in China to a certain extent, which is very conducive to the promotion of the competitiveness of related cultural industries. The deepening of global division of labor and specialization of cultural industry provides an important opportunity for China to make better use of global resources and rapidly develop China’s cultural industry. The promotion of Chinese language and Chinese cultural influence provides a very good opportunity for the export of Chinese cultural products. The low marginal cost of cultural industry production helps to cultivate cultural trade exports. Chinese cultural enterprises going out provides opportunities for Chinese cultural industries to establish overseas distribution and release channels. China’s domestic cultural industry has turned to a high-quality development stage, which makes domestic enterprises realize that export is a rational choice. Under these opportunities and favorable conditions, China should rely on the domestic market, absorb global resources to produce cultural products for the Chinese market and promote the export of cultural products with “home market effect”. Various forms of cooperation should be carried out with various countries to produce cultural products that conform to the cultures of the two countries. It is necessary to give full play to the new opportunities in the process of globalization of cultural industries, better introduce, digest, absorb and re-innovate, gather global resources to produce cultural products and enhance export capacity. It is of great significance to make full use of the opportunities brought by the Internet and emphasize the integration of advanced technology and traditional culture. When conducting foreign cultural trade, enterprises should follow the market rules, arrange export priorities with reference to cultural distance, carry out discriminatory pricing according to the characteristics of cultural products, and cultivate local people’s preference for Chinese cultural products. In line with the rapid development of the international spread of Standard Chinese (Putonghua), the spread of language and culture will drive the export of cultural products. Finally, the government can promote China’s cultural trade export by signing agreements and holding related activities.

Acknowledgments

First and foremost, I would like to express my gratitude to my doctoral supervisor Professor Jiang Xiaojuan. It is her spirit and dedication in her research for many years that has been influencing and encouraging me to love the work and research I am engaged in. It is also her work for many years that have continuously brought me research inspiration. Thanks also go to Vice President Li Xiaomu of Beijing International Studies University, he pointed out to me many years ago that cultural trade is such an exciting research field, which has brought me a lot of joy during my research in recent years. I would like to thank all my colleagues in the School of Economics at Beijing International Studies University for their communication and inspiration. I also want to thank my wife Ms. Kang Lu and my daughter Luo Kangqi for their support and help in my work. In the process of writing this book, there were many documents, information and data that needed to be searched and processed. In addition to my own effort, my postgraduate students made important contributions in this process, without them, this book could not be completed. They are Ge Yali, Liu Sili, Yu Fangji, Zhou Han, Lu Lan, Yu Peifang and Wang Muxin. Please correct any inappropriate points in this book, and I hereby thank you in advance. Luo Libin December 7, 2022

1

An Introduction Why Do I Write This Book?

1.1  Background and Significance of This Book The purpose of this book is to study what strategies China can adopt to develop foreign cultural trade more efficiently under the background of globalization, considering China’s unique national conditions and the economic attributes of cultural products. This study is based on the following backgrounds. 1.1.1 International Background: Globalization Deepens to the Field of Cultural Industry

Since the 1980s, globalization has become one of the most important forces to promote sustained growth of global economy. Productive factors have been moving across national boundaries to seek the optimal way of allocation, which is the internal driving force for the emergence of globalization. Both theories and practices can prove that the internal motive force of globalization is strong enough to be deepened into more and more fields of economy and society. Cultural industry has also been involved in this tide of globalization. The fundamental motivation of cultural industry globalization lies in some key economic attributes of cultural products. The production of cultural products has substantial scale economy effect, and consumptions of them has obvious effect of network externalities; the combination of the two important economic attributes determines that cultural products break through national boundaries for production and consumption, which will bring benefits to producers and consumers respectively. Once the barriers to globalization of cultural industries in terms of policies, national culture and technology drop, globalization of cultural industries inevitably becomes an irreversible trend. The production of cultural products enjoys very significant economies of scale effect, so expanding target market size becomes major area of competition among producers, which results in the fact that cultural market will break through n­ ational boundaries and become a global one. Taking the film and television industry that this book focuses on as an example, at present, almost all movies invested by ­Hollywood in the United States are aimed at the global market and are shown simultaneously in dozens of countries and regions around the world. In the field DOI: 10.4324/9781003424796-1

2  An Introduction: Why Do I Write This Book? of TV programs, there is also a phenomenon that a large number of American TV ­programs are exported to other countries and regions in the world. This phenomenon of one-way flow has always attracted the attention of both academia and industry, and some countries have to require exception clauses in WTO rules to prevent American cultural invasion. Because European TV program producers do not have an advantage in competition with the powerful finished TV programs in the United States, they developed “TV formats” to separate it from the finished TV programs and become a separate tradable product for export to the United States as well as other countries and regions. The emergence of international trade in TV formats can fully illustrate the great power of globalization. When the globalization of finished TV programs is limited by factors such as “cultural security” and “cultural exception” and cannot make any progress, those “neutral” elements with “weak cultural color” within the finished program are pulled out to form “TV formats”, bypassing the obstacles of “cultural security” and “cultural exception” and realizing globalization. The force behind this is the demand of suppliers to pursue the global market to enjoy the benefits of scale economy of cultural products. At present, the most popular TV format in the world has been authorized to and l­ ocalized in more than 100 countries around the world.1 Some traditional cultural products with slow productivity improvement have also begun to pursue the global market with the help of new technologies. For example, since 2009, the British ­National Theatre has developed NTLive products, and broadcasts its drama works to the whole country and even the whole world through live TV broadcast. As of May 2017, the British National Theatre has produced more than 50 NTLive plays and recorded and screened NTLive works in 1,500 places in 45 countries around the world, with a cumulative audience of more than 3 million people. NTLive ­entered China for the first time in 2015, and it was hard to get a ticket of Frankenstein due to its popularity. At present, NTLive is shown in 39 theaters in more than 20 cities in China.2 In addition, some famous stage performance works have also been copyrighted abroad to produce localized versions of various countries. At the demand side, international experience shows that after national ­income reaches a certain level, service consumption structures of various countries ­converge. It is this convergence of “service consumption tastes” that enables multinational cultural enterprises to adopt standardized technologies to provide the same services to global customers. Consumers’ taste of culture also has commonalities.3 However, the consumption of cultural products is considered to have a prominent feature of “network externality”, which is because the consumption of cultural products is considered to have a certain “social function”.4 Research shows that the decline of communication costs in the era of globalization makes it easier for the influence of this network externalities to cross national boundaries and ­promote the global convergence of cultural service consumption.5 As of April 2018, in the total box office of Hollywood’s top 15 film series, overseas proportions all ­exceeded 50 percent. Among the top 20 films in China’s box office rankings in 2017, 11 were imported films, of which 10 are American films, and one is an Indian film. In the field of TV programs, although almost all countries have implemented a local program

An Introduction: Why Do I Write This Book?  3 share system, globalization still permeates in various forms. First, the development of online video industry has brought a new platform for overseas program broadcasting. According to incomplete statistics, as of April 3, 2018, the number of American dramas that can be seen on the two major Chinese online video ­platforms—­Tencent video and Youku video—are 527 and 1,050, respectively, ­Korean dramas are 167 and 922, English dramas are 195 and 190, Thai dramas are 21 and 215, and ­Japanese dramas are 167 and 575. Among the top 100 TV series hits on another Chinese online video platform—Sohu video, there are 5 American TV series, 3 Korean TV series and 1 Thai TV series. In this environment, China’s online dramas are facing global competition from the very beginning, which is also an important reason for the emergence of domestic dramas such as “Day & Night” (Bai Ye Zhui Xiong), which is planned to be screened in 190 countries and regions after being exported to Netflix.com. In addition, the development of international trade in TV formats also makes the programs with global formats and localized content welcomed in the world. An econometric study conducted in this book shows that from 2012 to 2016, the introduction of TV formats has significantly increased the online click-through rate of Chinese variety shows, while another study shows that the introduction of formats has greatly enriched the types of Chinese variety shows. The same situation has happened in the field of digital music. Although local pop music has advantages in the competition due to important influences of local language and local market size, international music also has a large market in various countries in the world. Taking QQ Music, a famous digital music sales platform in China, as an example, as of April 3, 2018, among the top 20 best sellers of QQ music digital music, there are works by purely local stars such as Chris Lee, Taiwanese singers such as Jay Chou, Chinese singers such as Lu Han, LAY who first became famous in Korean pop music, but also Korean music works such as BIGBANG and G-Dragon, as well as American singers such as Taylor Swift. This situation also appears in the list of popular singers. In summary, the driving force of globalization continues and it has far-reaching influences. Economic attributes of cultural industry in terms of production and consumption determine that it will not only be affected by globalization but also be affected in a deeper, lasting and irreversible way. Almost all countries will inevitably participate in the wave of globalization, and different countries have different advantages during that process.6 1.1.2  Backgrounds Related to China 1.1.2.1  Chinese Cultural Industry Is Faced with a Time of Opportunity

First of all, development of cultural industry is conducive to better facing the principal challenge facing Chinese society in the new era. General Secretary Xi Jinping pointed out in the reports of the 19th National Congress of the Communist Party of China that the construction of socialism with Chinese characteristics has entered a new era, and the principal challenge facing Chinese society has evolved into that

4  An Introduction: Why Do I Write This Book? between unbalanced and inadequate development and the people’s growing needs for a better life. However, at the same time, he also emphasized that China is still in the primary stage of socialism, and “liberating and developing social productive forces” is the essential task of socialism. We believe that there are still important opportunities and space for economic development in the process of solving the principal challenge, but compared with the past, China’s economy will change from a high-speed growth stage to a highquality development stage, and the focus of people’s demand focus will experience a relocation from availability to quality, diversity and spiritual pleasure. In this process, the output increment to be provided by the supply side is mostly related to the service industry, and the cultural industry will be a very important part. For example, the improvement of product quality and the satisfaction of diversified needs require research and development, design, and brand-related services, while the satisfaction of spiritual pleasure needs requires tourism, entertainment, culture, sports and other services. It can be predicted that the proportion of cultural service industry in China’s economy will continue to rise in the future. Second, the cultivation of new economic advantages of China’s “local market size” in the new era provides favorable conditions for the development of cultural industries. In the new era, the advantages of China’s economic development began to change. In 2017, China’s per capita GDP reached 59,000 RMB, exceeding 8,800 US dollars. China’s advantage of low-cost labor gradually weakened, but at the same time, China’s GDP exceeded 80 trillion RMB, equivalent to more than 13 trillion US dollars, ranking firmly in the position of the world’s second-largest economy. The expansion of economic aggregate size has brought a “local market advantage” of huge domestic market size. This change of advantage means that China’s economic structure will be more and more inclined to develop fields with more obvious economies of scale, including R&D, design, branding, entertainment, sports and other industries with higher “creative content” or “intellectual property content”.7 China’s huge domestic market is especially conducive to the cultural industry to give full play to its economies of scale in China, thus promoting its growth. Third, the new changes on the supply side provide new opportunities for the ­development of cultural industries. In this book, we emphasize the supply-side revolution brought by Internet technology to the development of cultural industry. The Internet, especially the mobile Internet, has greatly expanded the way cultural and recreational activities are provided. On the one hand, it has greatly improved the labor productivity of cultural industries and reduced the production and distribution costs of cultural products; on the other hand, it has greatly expanded the cultural market space. When the cultural industry changes from the traditional “peer-topeer” and “face-to-face” inefficient service industry8 to one in cyberspace, its production efficiency experiences a revolutionary leap. Changing from stage live art to TV, film and media is a leap in improving the productivity of cultural and entertainment industry, which expands cultural and entertainment activities from the earliest point-to-point to point-to-many points, and greatly improves the economies of scale. However, the development of Internet and mobile Internet technology has

An Introduction: Why Do I Write This Book?  5 fundamentally changed some basic characteristics of TV and movie media in time and space. Audiences can watch performances anytime and anywhere, and the size of the audience they can reach is greatly expanded.9 In a word, Internet technology is revolutionary for the improvement of the production and provision efficiency of cultural industries.10 In the field of mobile Internet content, especially in the field of culture and entertainment, China is doing a good job even in the world,11 which provides a unique technological environment for the development of cultural industry in China. Fourth, the development of cultural trade in the new era is of great significance for changing the growth model of foreign trade. On March 3, 2014, the State Council issued the Opinions on Accelerating the Development of Foreign Cultural Trade, affirming the significance of developing foreign cultural trade, which points out that accelerating the development of foreign cultural trade is of great significance for expanding China’s cultural development space, improving the quality of foreign trade development, continuing to expand reform and opening up, changing the economic development model, stabilizing growth, promoting employment and benefiting people’s lives, enhancing the country’s soft power and completing the building of a moderately prosperous society in all respect. We believe that the above judgment is put forward under the circumstances that China’s foreign trade is facing a new situation, facing the arduous task of transformation and upgrading, and is in urgent need to cultivating “new advantages”. The development of foreign cultural trade is closely related to “cultivating new advantages of foreign trade with technology, standards, brand, quality and service as the core”.12 Cultural industry is regarded as an intelligence-intensive industry with the characteristics of environmental protection, low energy consumption and high-added value. ­Developing foreign cultural trade means that China will change the previous model of indirectly exporting low-cost labor through trade, and instead use foreign trade as the carrier to indirectly export relatively high-end production factors, laying the foundation for higher remuneration of production factors, which is an important channel to change the growth model of foreign trade. In addition, the development of foreign cultural trade is to improve the spread of Chinese culture through commercial means, which may play a subtle and important role in the image publicity, brand building and standard establishment of other industrial products in China.13 To sum up, no matter from the supply side or the demand side, the cultural industry is facing vital opportunities for the development in China. At the same time, the state has also issued a series of policies to promote the development of cultural industries. For example, in the 13th Five-Year Plan, “cultural industries become pillar industries of the national economy”14 and “the international influence of ­Chinese culture continues to expand”15 are clearly regarded as important goals. 1.1.2.2 China’s Unique National Conditions Under the Background of Globalization: Possibility of Gathering Global Resources

Under the background of globalization, China has unique advantages in enhancing its cultural soft power by developing trade in cultural services, because China

6  An Introduction: Why Do I Write This Book? has the unique special national conditions of middle levle in per capita GDP and second largest in total GDP.16 In 2010, China’s GDP surpassed Japan and became the second-largest economy in the world. Even at the middle-income stage, China has already become one of the largest economies in the world. In terms of purchasing power parity, since 2014, China’s GDP has surpassed that of the United States and jumped to the top in the world. Even in terms of exchange rate, China is currently the second-largest economy. However, at the same time, according to the standards of the World Bank, China is still a middle-and upper-income country. In 2017, China’s per capita GDP was 8,836 USD, which is 82 percent of the world average.17 China is the only economy in the world that has the characteristics of both middle level in per capita GDP and second largest in total GDP, which is determined by the unique national conditions of being world’s most populous country (see Figure 1.1). The middle level in terms of per capita GDP shows that China still has potential for upgrading its industrial structure, and there is still room to make use of the advantages of backwardness and absorb the advanced experience and technology of the first-mover countries to accelerate its development, which is a condition that developed economies do not have. As one of the industries with relatively high-­income elasticity, cultural industry has been relatively mature in developed countries. Therefore, the relevant experiences, advanced models and technologies, advanced human capital and system design of developed countries can provide valuable experiences for the development of China’s cultural industry. In the development of cultural industry, China has the late-mover advantages.

Figure 1.1  National income per capita in 1965 and 2016.

An Introduction: Why Do I Write This Book?  7 “The second largest in total GDP” means that China has great market attraction, which is a condition that other small countries (economies) in the middle-income stage do not have. Especially in recent years, China’s domestic demand has steadily expanded, and the contribution rate of consumption to economic growth has reached 58.8 percent; the urbanization rate of the resident population reached 58.52 percent, an increase of nearly six percentage points over five years ago. China already has the largest middle-income group in the world, forming a huge domestic market. If one of China’s greatest advantages at the beginning of the reform and opening up is the low-cost labor force that is difficult to move internationally, China’s greatest advantage in the new era is its huge domestic market size. It helps China to produce “home market effect” on industries with obvious economies of scale and attract high-quality resources from all over the world. Cultural services such as film and television, education, intellectual property rights and advertising all have the characteristics of obvious economies of scale. The huge Chinese market is very helpful for China to attract the world’s best resources in the field of cultural industry, to take China as the production center, focus on Chinese as the target market, produce cultural products with Chinese cultural elements and radiate to the whole world. According to the survey results released by Hong Kong and Shang Hai Banking Corporation (HSBC Group) at the end of 2015, China’s mainland became the most attractive place to emigrate in the Asia-Pacific region in 2015. Sixty-eight percent of the foreign talents working in China’s mainland surveyed said that working in China could earn higher disposable income than their original place of residence, followed by Hong Kong, Singapore, India, Australia and New Zealand. The favorite jobs of foreign talents in China are education (accounting for 1/4), followed by marketing (12 percent) and manufacturing (11 percent). Global migrants earn the highest salary in the Asia-Pacific region, with an average annual income of 126,500 US dollars. Because it has the two key characteristics—middle level in per capita GDP and second largest in total GDP— and faces the external environment of globalization, China can be said to be a country with the advantage of placing emphasis on China, absorbing everything and anything in the world. Therefore, China should make full use of the opportunity of globalization, “not forgetting the origin, absorbing foreign countries’ resources and facing the future”18 and promote the leapfrog development of cultural industry and cultural service trade. 1.1.3  Theoretical Background 1.1.3.1 Particularity of Cultural Industry Brings a New Point for the Study of Traditional Problems

The relationship between opening up, industrial development and international trade is an important topic in industrial economics and international trade research, which has produced a large number of theoretical and empirical studies. However, the cultural industry itself has certain special industrial attributes, which makes the research on the opening of cultural industry have special significance.

8  An Introduction: Why Do I Write This Book? First of all, the cultural industry has attributes of both culture and industry. Cultural products have both economic value and cultural value dimensions.19 The coexistence of “economies of scale in production” and “network externalities of consumption” in the core cultural industry makes it have the characteristics of “winner takes all”, which means that small countries may face cultural security problems after the opening of cultural industries. The “demand orientation” of “cultural element input” in the production of cultural industry results in a complicated relationship between its cultural input and the place where culture products are produced. The cultural products produced by a country do not necessarily focus on its own cultural values but are likely to meet the demand. The above characteristics of the cultural industry make the research on the opening up of the cultural industry face some special, interesting and significant problems. For example, is the opening up of the cultural industry conducive to the development and competitiveness enhancement of local cultural industries? And then what influence does it have on the international dissemination of national culture and cultural security in home countries? The first problem is the “conventional” proposition of industrial economics and international trade research, but the characteristics of cultural industry make this problem have new research significance. The second problem is the “new” problems faced by the cultural industry opening up to the outside world. The research on this problem can enrich the theories in the field of industrial opening research and can provide theoretical research increment for both economic research and communication research. For some of the problems raised above, some theoretical studies have given some explanations. The studies focus on the characteristics of economies of scale and network externalities of cultural products, and make theoretical models of cultural trade liberalization and draw some conclusions. Most of these literatures ­believe that the impact of cultural product trade liberalization on welfare is ­destructive or that protection of cultural product trade under certain circumstances is ­welfare-enhancing. For example, the study of Francois and van Ypersele shows that tariffs on cultural products are welfare-enhancing under the following circumstances: there are significant economies of scale in product production, and the preferences of trading countries are strongly heterogeneous.20 Janeba used ­Ricardian model, assuming that returns to scale is constant, and the consumption of cultural products has positive network externalities.21 His research shows that compared with a closed economy, free trade will reduce a country’s welfare because trade changes the price of online products, people can turn to imported online products, thus worsening the consumer welfare of domestic cultural products, because the price and user base of domestic cultural products have deteriorated. Rauch and Trindade combine the network externalities of consumption with the economies of scale of production.22 Their paper show that in a model of differentiated cultural products produced by two countries, if the cultural discount is not too large, but the market size difference between the two countries is large enough, then the cultural products of small countries may disappear. Therefore, cultural globalization will strengthen the home market effect in the standard Helpman-Krugman trade model. The intensification of cultural globalization or the decline of cultural discount

An Introduction: Why Do I Write This Book?  9 will reduce the number of styles of cultural products and lead to stronger network ­externalities. At the same time, the quality of future cultural products will decline, because it depends on the number of cultural product forms currently existing in the two countries in the model. Bala and Van Long study how the relative scarcity or abundance of cultural products and the resulting price level make people form preferences between generations.23 Their research shows that under the condition of closed economy, a big country and a small country have different and relatively stable preferences. If free trade is carried out, the preferences of small countries will “disappear”. Small countries will gradually lose their cultural identity. In other words, trade can lead to the loss of cultural diversity. Olivier et al. propose a dynamic approach to explain the evolution of preferences under social mechanisms in which cultural identity is seen as something with group externality.24 People’s encounters and acquaintances are random, and they can bring utility when they know people with the same cultural background. Their research assumes that the return to scale of production is constant, so its transmission channel does not have the following characteristics: the dominant economy or culture after the unification of the market can provide its cultural products at a lower cost, thus making the results biased toward “corner solution”. Olivier et al. show that factor endowment would affect people’s preference for cultural products in the long run—people will have a preference for products that produce abundance.25 They show that trade integration will lead to more cultural differences among different countries. On the contrary, social integration will lead to more interaction between people in different countries, which will lead to cultural integration, because the cultural distribution of different countries becomes more similar. There are also some important literatures that discuss the relationship between cultural industry protection and cultural protection and emphasize the differences between them. Mas-Colell divides the protection policies in the field of cultural products trade into two categories: one is to protect the production of domestic cultural products; while the other is to protect the national culture of domestic production.26 The author thinks that there is a great difference between the two: the first focus is on protecting domestic production and employment in the field of cultural industries, which is difficult to distinguish from other non-cultural industries such as shoe making and automobile assembly; the second focus is on the protection of content related to national culture, such as a country’s language, historical stories, clothing and cultural traditions. He believes that the cultural trade protection policies of many countries actually support the first type of protection on the grounds of the second type of protection. Following this line of thinking, Rauch and ­Trindade discuss the relationship between these two types of protection in more detail and consider that the protection of domestic production of cultural products through trade policies may not always protect the country’s culture.27 For example, under the background of falling international communication and communication costs, since the consumption of cultural products has “network externalities” and “economies of scale” in production, the trade protection policy may lead to the following situation: although the production process of cultural products is at home, its content and form are abroad, and this protection is not conducive

10  An Introduction: Why Do I Write This Book? to the improvement of the quality and welfare of cultural products worldwide, ­because it reduces the diversity of cultural products worldwide. On the contrary, if the policy of protecting “domestic cultural production and employment” can be abolished and replaced by the policy of “protecting domestic culture”, it will help to improve the welfare of the whole world. Richardson and Wilkie, taking the pop music industry as an example, propose that a country’s domestic demand prefers internationalized content, while domestic broadcasting has a policy restriction of “domestic program broadcast share”, which will lead to the combination of “domestic artists and internationalized content” and the policy of “local content quota” will lead to the increasing “internationalization” of domestic music.28 The existing literature has the following characteristics. First, there are more theoretical studies and fewer empirical studies on “cultural industry” as a whole. The possible reason is that the statistical classification of cultural industry as an industry is not perfect, and the unity of economic attributes of some industries currently classified as cultural industry needs to be improved, which is not easy to fit the hypothesis of the theoretical model. Second, there are few studies related to China. Despite of many studies on cultural industry and cultural trade in China in recent years, basic research based on the basic attributes of cultural industries and trade is still relatively lacking. In May 2016, Mr. Luo Shugang, Minister of Culture of China, also pointed out at the inaugural meeting of the Committee of Experts on Cultural Industry of the Ministry of Culture that “basic theoretical research on cultural industry is relatively weak at present”.29 However, for China, the guiding significance of the above-mentioned research for practice is also obvious: the 13th Five-Year Plan of the national economy ­explicitly includes “cultural industry as a pillar industry of the national economy” and “continuous expansion of the influence of Chinese culture”30 in the chapter of the main objectives of economic and social development during the 13th FiveYear Plan period. In the process of achieving this goal, the opening of cultural industry to the outside world is an important aspect that needs attention. For a long time, due to its cultural characteristics, the opening to the outside world of the cultural industry is constrained. At present, China is the second-largest economy in the world with its economic development entered a “new normal” stage. The demand and supply conditions of cultural industry development are facing important opportunities. Considering characteristics of cultural industries, the external opportunities of globalization and the “new normal” of China’s economic development, it is of obvious practical guiding significance to study the impact of cultural industry opening up to the outside world on China’s economy, the development of cultural industry and the going out of Chinese culture under the “new situation”. For ­example, what ­opportunities and challenges does the globalization of cultural industries provide for the development of China’s cultural industries? What advantages does China have in taking advantage of the opportunities of globalization? How to take advantage of China’s advantages, seize the opportunity of globalization to develop China’s cultural industries, promote the trade of Chinese cultural products (including import and export) and promote the “going out” of Chinese culture? How should industry and policy-making departments respond?

An Introduction: Why Do I Write This Book?  11 1.1.3.2  Case Studies on China Is of Great Significance

The reason why case studies on China are of great significance is that the status of China’s economy and China’s cultural industry in the world is changing rapidly. The rise of China’s economy is one of the most important events in the world economy in the twenty-first century. From 2005 to 2016, the proportion of China’s GDP in the world GDP increased from 4.86 percent to 14.91 percent, and the highest proportion reached 15.04 percent in 2015, with an average annual increase of about 1 percent. In contrast, the economic proportion of developed countries has declined, and the proportion of US GDP has dropped from 27.72 percent to 24.44 percent in the same period. The GDP share of the 28 EU countries decreased from 30.33 percent to 21.31 percent; Japan’s GDP share dropped from 10 percent to 6.44 percent. In the same period, the average annual growth rate of China’s per capita GDP was 14.98 percent, that of the United States was 2.41 percent, that of Japan was 0.35 percent, that of developed economies in the European Union was 0.97 percent and that of the world was 3.15 percent.31 From the perspective of cultural industry, China has rapidly grown from a country with a small cultural industry to one with a big cultural industry in a relatively short period of time, and its influence on the global cultural industry has been and is still increasing rapidly. For example, the total box office of Chinese film market accounted for only 0.7 percent of the global box office in 2004, but it has increased to 19 percent by 2017. Although the influence of Chinese films in the global market still needs to be improved, there is no doubt that the influence of the Chinese market on the global film industry will be improved.32 In the process of this rapid change, the government’s policies on cultural industries and trade are also changing rapidly. Chinese culture has its unique tradition and historical heritage. In other words, there is a cultural distance between Chinese culture and that in America and European countries. China’s economy, China’s cultural industry and trade policy can be said to be an excellent case of studying cultural economy on a global scale. The research conclusions about ­China’s cultural industry and trade should have the important theoretical significance for the development of the whole cultural economy. Moreover, there are many disputes about China’s cultural industry and trade, such as opening up to the outside world, making full use of the opportunities of globalization and utilizing two markets and two resources, which is considered to be an important reason for the sustained, rapid and healthy development of China’s economy since the reform and opening up.33 But can this strategy be applied to the development of cultural industry? There are also debates on how globalization affects cultural diversity. Some views hold that globalization has swept the mainstream standardization style across the world and destroyed local cultural identity and cognition; however, another point of view is that it is precisely the impact of globalization that makes many ethnic groups more aware of their cultural identity.34 These questions are also asked in China. For example, in recent years, the mainstream public opinion theory has changed a lot in the basic attitude toward the opening up of the cultural market; a representative view is that expanding the opening of the cultural market to the outside world may impact China’s cultural

12  An Introduction: Why Do I Write This Book? management pattern and endanger cultural security.35 Therefore, studying the opening of China’s cultural industry and the development of cultural trade under the background of globalization can provide some references for answering and responding to the above questions. To sum up, it is of great theoretical and practical significance to study the strategic issues of China’s cultural trade development under the background of cultural industry globalization. 1.2  Structure of the Book The structure of this book is as follows: The first chapter introduces the background and significance of the topic selection of this book; The second chapter introduces the research progress of cultural trade and points out the theoretical basis of this book. The production of cultural products has significant economies of scale effect. Due to the differences between cultures in the world, cultural distance becomes the cost of cultural trade. Therefore, cultural trade is widely considered to conform to the hypothesis of home market effect in Helpman and Krugman.36 On this basis, some scholars of cultural trade theory add the “network externality” characteristics of cultural product consumption to the model for research. The results of most studies show that free trade will reduce cultural forms in the world. The cultural form produced by big countries will occupy a dominant position, while the cultural forms produced by small countries will gradually decline or even disappear completely under certain conditions. The existence and variety of cultural forms in small countries depend on the relative economic scale of big countries, the cultural differences between big countries and small countries, the communication cost between the two countries and the degree of network externalities of product consumption. The larger the relative economic scale of a big country, the smaller the cultural differences between the two countries, the lower the communication cost between the two countries, the stronger the network externalities of product consumption, and the fewer cultural product styles of small countries, which may even disappear at a certain critical point. Of course, not all the production in big countries is derived from their own cultural origins, and not all the production in small countries is derived from the cultural origins of small countries. We believe that the theoretical study of cultural trade has many practical guiding significance for the development of cultural industry and cultural trade in China. First, the size of China’s cultural industry is growing, and its gap with developed countries such as the United States is narrowing. In other words, China is during a process of transition from a small country in cultural industry to a big one. Second, China has its own cultural tradition, which is different from the so-called “western culture” and has a considerable cultural distance. Third, the cultural industry is playing an increasingly important role in China’s economy. “The cultural industry has become a pillar industry” and “the international influence of Chinese culture continues to expand”37 have become important goals of the 13th Five-Year Plan.

An Introduction: Why Do I Write This Book?  13 Under the above background, how should China’s cultural industry develop in the era of globalization? How to grasp the relationship between the development of cultural industry and the international dissemination of Chinese culture? How to grasp the relationship between the opening up and protection of cultural industry? The literature of cultural trade theory and empirical research has inspired answers to the above questions. Starting from the third chapter of this book, combining with the theoretical ­basis mentioned in chapter two and the national conditions of China, we take film and television industries as the major cases to make a more detailed analysis and research on China’s foreign cultural trade development strategies proposed at the end of this book. The third chapter analyzes the impact of the opening up of film market on the development of China’s film industry. This chapter finds that opening up to the outside world has played an important role in the development of China’s film industry, so opening up should become an important principle for the development of the cultural industry. By analyzing the development process of Chinese film industry, we find that opening to the outside world has played multiple important roles in the development of China’s film industry, which is embodied in seven aspects: market development effect, competition effect, capital source effect, demonstration effect, technology spillover effect, system reform promotion effect and cooperation effect. We believe that under reasonable institutional arrangements, further opening up the film market will not lead to the “collapse” of domestic films, and the Chinese film market should start from protecting “Chinese cultural elements” and promoting “Chinese cultural elements going out” for the next step of opening up, as well as gradually liberalizing the distribution rights of imported films and increasing the proportion of imported films. The fourth chapter takes the film industry as a case to analyze the influence of Chinese cultural trade import on Chinese culture going out. We believe that at the current stage, the Chinese cultural trade import can play an important role in Chinese culture going out. The production of cultural products has significant economies of scale effect and has the tendency of “maximizing the number of target audiences”, so the “cultural elements” contained in it have demand orientation. Therefore, under the background of globalization, countries with huge market size can promote global resources to produce products containing their own cultural elements and sell them to the whole world through opening up, thus realizing the international dissemination of their own culture. We believe that China is one of the few countries with the above-mentioned big market advantages. Although it is the ultimate goal to promote culture to go out through export, at the current stage of development, it is the most realistic way to realize Chinese culture to go out through “import” of cultural trade, and it is also a stage to achieve the ultimate goal. The government should adjust its policy thinking, from focusing on the protection of cultural industries to focusing on the protection of Chinese cultural elements, and promote the “sinicization of global cultural products” by expanding opening up. The point of view in this chapter is inconsistent with the “conventional” point of view. The author does not deny that Chinese culture going out ultimately depends

14  An Introduction: Why Do I Write This Book? on the export of Chinese cultural products, and at the same time, the ­author ­believes that at this stage, China can attract Hollywood movies to add Chinese cultural elements by opening up its market to realize the efficient dissemination of Chinese cultural elements in the world. Even one day, when China becomes one of the important centers of the world film industry, the cultural elements contained in Chinese film exports will be diversified. In the fifth chapter, in order to better explain the potential advantages of Chinese cultural products in the Chinese market, we demonstrate the favorable conditions created by China’s economic rise for the international dissemination of Standard Chinese (Putonghua) from the perspective of international dissemination of languages. This chapter aims to show that China’s economic rise has played a decisive role in enhancing the international influence of Standard Chinese (Putonghua), and the promotion of the international influence of Standard Chinese (Putonghua) ­provides a very important foundation for the export of China’s cultural products and the promotion of the global influence of Chinese cultural products. The sixth chapter takes a new phenomenon—international trade of TV ­formats—as an example, analyzes the trend of specialization and refinement of division of labor in the process of globalization of cultural industry, and points out its ­significance to China’s cultural industry and cultural trade. What we want to explain is that China can make full use of the opportunity of specialization and refinement of division of labor in the process of globalization and promote the leap-forward development of cultural industry and trade. We believe that the ­international trade of TV formats is an important embodiment of the specialization and refinement of the global division of labor in the cultural industry. It provides an extremely important opportunity for the development of TV program industry in “late-coming countries” to introduce, absorb, re-innovate and realize leapfrog development and also has an important impact on the pattern of global TV program industry. More importantly, China’s special national conditions make it possible to use the world’s advantageous resources for its own use in the trend of globalization and rapidly enhance the international influence of Chinese TV programs. In Chapter 7, we choose the film industry in China’s Hong Kong, a Chinese film production center with important influence in the world in 1990s, as an example. On the one hand, it empirically verifies the core viewpoints of cultural trade theory, on the other hand, it explains the rise and fall of Hong Kong film industry by using the theoretical framework of cultural trade, so as to provide enlightenment for the development of China’s mainland film industry. We believe that the prosperity of China’s Hong Kong films in those years was due to the fact that its advantages in supply conditions and trade cost conditions offset its disadvantages in demand. When its advantages in supply conditions and trade cost weakened, its disadvantages in demand began to appear and eventually led to the decline of the industry. The case of China’s Hong Kong film industry proves the importance of local market size and trade cost to a region’s film culture trade. The advantage of local ­market size in China’s mainland provides flexible adjustment space for the cultivation of its supply conditions and the government’s industrial and trade policies.

An Introduction: Why Do I Write This Book?  15 The eighth chapter examines the influencing factors and predictions of the box office size of film market in China’s mainland and indicates the development strategies of China’s movie industry in the new era. This chapter predicts that China will become a real “big power” in the field of cultural trade in the near future. Using econometric methods, we predict that the box office in China’s film market become the world largest by the year 2023, and then China will become a real film “big power”, laying a very important foundation for Chinese films to exert home market effect to promote exports. Chapter 9 is the conclusion part of this book, which based on the theoretical foundation and combined with the arguments in some parts of the previous chapters, makes recommendations on China’s strategy for developing foreign cultural trade in the era of globalization. We believe that China’s domestic cultural market is huge, which has laid the most critical local market foundation for China’s ­development of foreign cultural trade exports. The development of China’s Internet industry plays an important role in expanding the market scale of cultural industries. The market increment the internet provides has affected or even changed the market structure of some cultural industries in China to a certain extent, which is very conducive to the promotion of the competitiveness of related cultural industries. The deepening of global division of labor and specialization of cultural industry provides an important opportunity for China to make better use of global superior and rapidly develop China’s cultural industry. The promotion of Chinese language and Chinese cultural influence provides a very good opportunity for the export of Chinese cultural products. The low marginal cost of cultural industry production helps to cultivate cultural trade exports through discriminatory pricing. Chinese cultural enterprises going out provide opportunities for Chinese cultural industries to establish overseas distribution and release channels. China’s domestic cultural industry has turned to a high-quality development stage, which makes domestic enterprises realize that export is a rational choice. Under these opportunities and favorable conditions, China should rely on the domestic market, absorb global resources to produce cultural products for Chinese market, and promote the export of cultural products with home market effect. Various forms of cooperation should be carried out with various countries to produce cultural products that conform to the cultures of the cooperating countries. It is necessary to give full play to the new opportunities in the process of globalization of cultural industries and do a better job in introducing, digesting, absorbing and re-innovating, so as to gather global superior resources to produce cultural products and enhance export capacity. It is of great significance to make full use of the opportunities brought by the Internet and emphasize the integration of science and technology and traditional culture. When conducting foreign cultural trade, enterprises should follow the market rules, arrange export priorities with reference to cultural distance, carry out discriminatory pricing according to the characteristics of cultural products and cultivate local people’s preference for Chinese cultural products. In line with the rapid development of the international spread of Chinese, the spread of language and culture will drive the export of cultural products. Finally, the government can promote China’s cultural trade export by signing agreements and holding related activities.

16  An Introduction: Why Do I Write This Book? Notes 1 For a more detailed description of the development of international trade in television programming models, see Chapter 4 of this book. 2 The source of the data is the official website of the British National Theatre. 3 Jiang, Xiaojuan. (2008). Trends and Theoretical Issues of Globalization of Services. Economic Research Journal, 2, 15. 4 The characteristics of “network externalities” in the consumption of cultural products are explained and introduced in more detail in Chapter 2of this book. 5 Rauch, J. E. and Trindade, V. (2009). Neckties in the Tropics: A Model of International Trade and Cultural Diversity. Canadian Journal of Economics, 42, 809–843. 6 This part of the background introduction to globalization draws more on the framework of Jiang, Xiaojuan, “Economic Analysis of the Sports Industry,” CITIC Press, May 2018, Chapter 9, and Jiang, Xiaojuan and Luo, Libin “Service Globalization in the Network Era: Acceleration, New Engines, and Competitiveness of Big Powers,” forthcoming in Chinese Social Sciences, 2019, No. 1. 7 “Creative content” and “intellectual property” are two key words in the academic definition of cultural industries, see David, Throsby, translated by Wang, Zhibiao and Zhang, Zhengrong. (2015). Economics and Culture (1st edition). Beijing: China Renmin ­University Press, p. 122. 8 For example, the traditional performing arts are a typical example of an inefficient ­industry, unable to save human input or shorten human input time. One of the world’s earliest and most influential economists on the economics of culture, William Baumol, titled one of his masterpieces “Performing Arts: An Economic Dilemma”. See Zhou, Zhengbing. (2016). A Review of William Baumol’s Ideas on the Economics of Culture. Journal of Beijing Union University(Humanities and Social Sciences), 14(2), 56–61. 9 According to the 2018 China Internet Development Statistics Report released by the China Internet Information Center, as of June 30, 2018, the number of Chinese Internet users has exceeded 800 million, of which 788 million are cell phone users. The per capita time spent online is 27.7 hours a week, of which 74.1 percent of Internet users are watching short videos. 10 For a detailed discussion of the revolutionary impact of the Internet on the development of cultural industries, see Jiang, Xiaojuan. (2018). Service Economy in the Internet Era: China Steps into a New Stage of Development. China Social Sciences Press. and Jiang, Xiaojuan. (2018). Service Industry in Cyberspace: Efficiency, Constraints and Prospects for Development–Taking Sports and Cultural Industries as Examples. Economic ­Research, 04, 4–17. 11 See McKinsey Global Institute, “China in the Digital Age: Building a Globally Competitive New Economy,” Internet Data Center Website, http://www.199it.com/­ archives/660330.html, accessed June 1, 2018; Jiang, Xiaojuan. (2018). Service Economy in the Internet Era: China Steps into a New Stage of Development. China Social Sciences Press. 12 See Section 3, Chapter 10 of The 13th Five-Year Plan for Economic and Social ­Development of the People’s Republic of China (2016–2020), http://www.gov.cn/­ xinwen/2016-03/17/content_5054992.htm 13 For example, studies have shown that the worldwide distribution of U.S. films plays an important role in the branding and communication of other U.S. industries. See Kery, ­Segrave. (1997). American Films Abroad: Hollywood’s Domination of the World’s Movie Screens from the 1890s to the Present, North Carolina. Mcfarland & Co Inc. Pub. 14 See Chapter 3 of The 13th Five-Year Plan for Economic and Social Development of the People’s Republic of China (2016–2020), http://www.gov.cn/xinwen/2016-03/17/ content_5054992.htm

An Introduction: Why Do I Write This Book?  17 15 See Chapter 3 of The 13th Five-Year Plan for Economic and Social Development of the People’s Republic of China (2016–2020), http://www.gov.cn/xinwen/2016-03/17/ content_5054992.htm 16 For a more detailed discussion of this point, see Luo, Libin. (2018). How Can China Transform the Middle-Income Trap into a Development Opportunity, Chinese Social Sciences Net, April 7, 2018, https://mp.weixin.qq.com/s/XyQT0BpBzfa4zVf3NjYdog, accessed on June 13, 2023. 17 Source: World Bank WDI database. 18 This sentence is translated from Chinese “不忘本来，吸收外来，面向未来”, which is cited from the remark made by Xi Jinping on the Symposium on Philosophy and Social Sciences on May 17, 2016. 19 David, Throsby. (2015). Economics and Culture. Beijing: China Renmin University Press. 20 Patrick, Francois and Tanguy, van Ypersele. (2002). On the Protection of Cultural Goods. Journal of International Economics, 56(2), 359–369. 21 Eckhard, Janeba. (2007). International Trade and Consumption Network Externalities. European Economic Review, 51(4), 781–803. 22 James E., Rauch, et al. (2009), Neckties in the Tropics: A Model of International Trade and Cultural Diversity. Canadian Journal of Economics, 42(3), 809–843. 23 Bala, Venkatesh and Ngo, Van Long. (2005). International Trade and Cultural Diversity with Preference Selection. European Journal of Political Economy, 21, 143–162. 24 Olivier, J., Thoenig, M., and Verdier, T. (2008). Globalization and the Dynamics of Cultural Identity. Journal of International Economics, 76(2), 356–370. 25 Olivier, J., Thoenig, M., and Verdier, T. (2008). Globalization and the Dynamics of Cultural Identity. Journal of International Economics, 76(2), 356–370. 26 Mas-Colell, A. (1999). Should Cultural Goods Be Treated Differently? Journal of ­Cultural Economics, 23(1), 87–93. 27 James E., Rauch and Vitor, Trindade. (2009). Neckties in the Tropics: A Model of International Trade and Cultural Diversity. Canadian Journal of Economics, 42(3), 809–843. 28 Martin, Richardson and Simon, Wilkie. (2015). Faddists, Enthusiasts and Canadian ­Divas: Broadcasting Quotas and the Supply Response. Review of International Economics, 23(2), 404–424. 29 Su, Dandan (2016, 15 May). The Cultural Industry Expert Committee of The Ministry of Culture was Established in Beijing. Democracy and Legal System Times, p. 12. 30 See Chapter 3 of The 13th Five-Year Plan for Economic and Social Development of the People’s Republic of China (2016–2020), http://www.gov.cn/xinwen/2016-03/17/ content_5054992.htm 31 Luo, Libin and Guo, Rui. (2018). Trade in Services in the Context of the New Era: Trends and Strategies. Overseas Investment and Export Credit, 1, 14–18. 32 This will be discussed in more detail later in the book. 33 Jiang, Xiaojuan. (2008). China’s Thirty Years of Opening-Up: Retrospect and Prospect. Social Sciences in China, 06, 66–85. 34 David, Throsby. (2015). Economics and Culture (1st edition), translated by Wang, ­Zhibiao and Zhang, Zhengrong. China Renmin University Press, p. 122. 35 Qi, Shuyu and Lu, Xiaolu. (2018). On Relaxing Cultural Market Access. Journal of Shandong University (Philosophy and Social Sciences Edition), 03, 1–8. 36 Elhanan, Helpman and Paul, Krugman. (1985). Market Structure and International Trade. Cambridge, MA: MIT Press. 37 See Chapter 3 of The 13th Five-Year Plan for Economic and Social Development of the People’s Republic of China (2016–2020), http://www.gov.cn/xinwen/2016-03/17/ content_5054992.htm

2

Theoretical Studies Related to Cultural Trade

In this chapter, we will review the theoretical advances in cultural trade. To this end, we will first define cultural goods and services and analyze their production and consumption characteristics, which are the basis for theoretical studies on trade in cultural goods and services and their impact on social welfare, as well as the premise hypothesis of several theoretical models on cultural trade. As we will see, the salient characteristics of cultural goods and services are the economies of scale in their production and the network externalities in their consumption. They determine a “winners-take-all” phenomenon in the cultural industry under market mechanisms, which is contradictory to the “difference” and “diversity” emphasized by the word “culture”, and poses a certain threat to it. In the context of globalization, when the above-mentioned laws are extended to the international sphere, the liberalization of international trade in the field of cultural industries leads to a global threat to diversity, which in turn has an impact on the national identity, traditional culture and social values of some countries—especially small ones—and a series of issues related to the supra-economic sphere, thus giving rise to great controversies and being reflected in the emergence of “cultural exceptions” to international trade rules. 2.1  Definition and Characteristics of Cultural Goods and Services 2.1.1  Definition of Cultural Goods and Services and the Object of This Study 2.1.1.1  Review on the Definition of Cultural Goods and Services

Defining cultural goods and services is not an easy task. Current definitions of cultural industries, cultural goods and services are not uniform in countries and international organizations around the world, which affects their industrial classifications differently and poses challenges for academic research and international comparisons. According to United Nations Conference on Trade and Development (UNCTAD), cultural goods and services have the following characteristics: firstly, their production requires human creative input; secondly, they become carriers of symbolic messages for consumers, which do not only satisfy pragmatic goals but also DOI: 10.4324/9781003424796-2

Theoretical Studies Related to Cultural Trade  19 serve some larger communicative goals; thirdly, they contain, at least potentially, intellectual property rights belonging to their producers. Another distinctive characteristic of cultural goods and services is that they contain or generate a cultural value beyond commercial value that cannot be measured in monetary terms, and this becomes a distinctive characteristic that distinguishes them from other creative goods and services.1 This definition is in line with that given by David Throsby, a leading cultural economist from Australia. He emphasizes three key points: firstly, cultural goods and services are centered on “creativity”. Therefore, cultural products and services that are closer to the original creativity, such as music, dance, drama, literature, visual arts and handicrafts, are the most core cultural products; secondly, cultural goods and services should be related to intellectual property rights, which strengthens the product attributes of cultural products. Only with intellectual property rights can market transactions be carried out. Thirdly, cultural products should have cultural value, which means that in addition to economic value, cultural value is also an important dimension to examine the value of cultural products. United Nations Educational, Scientific, and Cultural Organization (UNESCO) defines a cultural product as a consumer product that transmits ideas, symbols and lifestyles. It provides information and entertainment, which in turn creates group identity and influences cultural behavior. Cultural goods based on the results of individual and collective creativity are constantly reproduced and new values are attached to them as they are industrialized and sold worldwide. Books, magazines, multimedia products, software, audio tapes, films, videos, audiovisual programs, handicrafts and fashion designs make up a wide variety of cultural goods.2 Therefore, cultural industries are defined as “a series of activities that produce, reproduce, store, and distribute cultural goods and services according to industrial standards” and that “small-scale, fragmented production of cultural goods that does not follow a cycle of production, distribution, and sale is not a cultural industry”. The British government defines cultural industries as “those activities that generate potential wealth and employment from the creativity, skills and wisdom of individuals and through the exploitation and production of intellectual property”; the Finnish Cultural Industries Council defines cultural industries on four levels to serve the needs of different policy objectives: the first is productive activities based on cultural values or significance; the second is artistic creation, traditional and contemporary artworks, art exhibitions and cultural dissemination activities; the third is business activities related to commercial operations, the size of audiences and viewers and the ability to expand the dissemination of cultural and artistic works; and the fourth is industries that refer to cultural enterprises, viewing the creation of culture and art as businesses. Others define the cultural industry as “composed of manufacturers that mass produce products and services with sufficient artistic content to be considered to be significant in terms of creativity and culture”. The key feature is the combination of industrial mass manufacturing and creative content.3 Among the models for the definition of cultural products, there is a “concentric circle model”, which holds that different items vary in terms of the ratio of cultural content to commercial value. The higher the ratio, the more nature of

20  Theoretical Studies Related to Cultural Trade cultural products or cultural industries they possess. Therefore, the cultural and commodity properties of products form a continuous system rather than one or the other. For example, David Throsby, a leading cultural economist, argues that cultural industries are centered on “creative ideas” that are constantly combined with other input elements to encompass an ever-expanding range of products and thus radiate outward. Therefore, the core of the cultural industries is the creative arts in the traditional sense, such as music, dance, theater, literature, visual arts, crafts and newer art forms such as video arts, performing arts, computer and multimedia arts, etc. When the concentric circle model is further extended, “cultural goods” can be ­obtained, including book and magazine publishing industry, radio and television industry, newspaper industry and film industry. The characteristic of these extended industries is that they produce cultural and non-cultural goods and services simultaneously. Finally, the boundaries of cultural industries can be further expanded to accommodate industries that are not cultural in nature but whose products contain some degree of cultural content, including advertising, tourism and construction services—advertising requires creative input at some operational levels; some segments of the tourism industry are based on culture; and the building services industry strives for design quality far beyond practical requirements. Such a “concentric circles model” of cultural industries has “creative ideas” at its core, and as creative ideas spread, the concentric circles expand outward to encompass a wider range of production areas.4 It can be seen that the definitions of cultural goods, services and cultural industries vary, which in turn affects the scope of industry statistics in different countries, but relatively speaking, the definition proposed by David Throsby and the “concentric circles model” industry classification formed on this basis is the one with more consensus and is more frequently cited. 2.1.1.2  Relatively Narrow Scope of This Book’s Research

Considering the degree of commonality in economic attributes and the resulting research difficulties, the objectives of this study and the progress of the realistic background, the cultural products and services studied in this book are relatively narrow compared to the above definition and the scope of the industry and refer to cultural products with the following core characteristics: firstly, they have a clear creative content, with “creative ideas”, which is consistent with David Throsby’s definition; secondly, they are produced and distributed on an industrial scale, which is consistent with UNESCO’s definition, that is, small-scale, fragmented cultural products that do not follow a cycle of production, distribution and sales are not cultural industries; thirdly, they embody certain intellectual property rights and this is consistent with UNCTAD’s definition. Therefore, this study defines cultural products as products and services that embody certain intellectual property rights and cultural values, starting from creativity, and are produced, reproduced, stored and distributed on an industrial scale. Therefore, this book does not discuss products and services such as artworks, cultural heritage and museums for the time being, neither because these products and services are not cultural products in a broad sense, nor because they are not

Theoretical Studies Related to Cultural Trade  21 important enough; in fact, artworks, cultural heritage and museums have been important elements in the field of cultural product research at home and abroad, and it is also a difficult point to apply economics to analyze. The reason why they are not studied in this book is because the economic properties of these types of products are very special and need to be studied separately. Moreover, the focus of this study is on how to make use of the opportunities of globalization to develop foreign cultural trade efficiently, and therefore focuses on those cultural products and services with economies of scale in production and network externalities in consumption. The products and services of art, cultural heritage and museums are not suitable for the analytical framework of this study because they do not possess these characteristics. Therefore, it does not mean that they are not important, but they are beyond the scope of this study. In addition, the author believes that in ­order to realize the development potential of cultural industries and raise their status in the national economy in the future, it is inevitable that the economy of scale effect and production efficiency will be brought into play by increasing capital investment and upgrading technology, which is a trendy direction; the current technological progress, especially the popular application of the Internet, is indeed enabling more and more cultural products and services to have the characteristics of economy of scale effect and network externalities. For example, the application of the Internet and digital technology is making museums more and more diversified in terms of dissemination channels.5 Finally, from the perspective of the industrial development environment, the relationship between “popular cultural products” and “niche cultural products” is not always mutually exclusive, and sometimes the development of the former brings space for the development of the latter. In reality, countries and regions with well-developed mass cultural industries often cultivate demand and market space for niche art products, and the capacity of a small market segment in a large market can even be larger than the mainstream space in a small market. For example, as we will see in our case study of the Hong Kong film industry, although the Hong Kong film industry was labeled as “commercialized” during the glory days of the 1990s, a number of excellent art film directors have emerged in Hong Kong. Therefore, it makes sense to choose this part of cultural products and services, which has economies of scale and network externalities as its core characteristics, as the object of study. One point worth emphasizing is that the rest of this book takes film and television industries as main cases, not because they include all cultural industries, but because they are the most consistent with several important economic characteristics and attributes highlighted in the theoretical foundation of this book, and therefore best reflect and support the main ideas of this study. 2.1.2  Characteristics of Cultural Goods and Services 2.1.2.1  The Contradiction Between Cultural Diversity and the Requirement of Industrial Standardization

Although different countries, organizations or scholars have provided different definitions of cultural industries, they all define cultural industries as a combination

22  Theoretical Studies Related to Cultural Trade of “culture” and “industry”. There is a certain “contradiction” between “culture” and “industry”. “Culture” inherently requires “diversity” and “difference”, while the most important characteristics of “industry” are “standardization”, “reproducibility” and “mass production”. However, from an economic point of view, there is a natural contradiction between the two. Given the total size of market demand, the more “differentiated” cultural products there are, the smaller the scale of production for each category; conversely, increasing the scale of production for individual products decreases the number of varieties that the market can accommodate.6 It is for this reason that the term “cultural industries” first appeared as a critic in the early works of the Frankfurt School in the 1930s and 1940s, which denounced the commodification of art, arguing that culture and economy were mutually exclusive, driven by totally incompatible logics, and when people try to integrate the two, cultural integrity is always destroyed.7 It can be argued that the development of cultural industries has been accompanied by contradictions and controversies between the two. All other things being equal, the “difference” and “diversity” required by the cultural nature of cultural products make them costly, which is why culture has long been associated with the intellectual structure, ideology and behavior of the so-called “upper class”,8 such as the aristocracy and intellectuals, and seems to be inherently “niche”; while the industrial nature of cultural products requires their mass production to reduce costs so that a larger group of people can have purchasing power for cultural products, which is called “mass culture”. 2.1.2.2  The Phenomenon of “Winner-Takes-All”

The contradictions between the “cultural” and “industrial” aspects of the cultural industries described above are further exacerbated by the characteristics of cultural product production. 2.1.2.2.1  SIGNIFICANT ECONOMIES OF SCALE IN PRODUCTION

The economies of scale in the production of cultural goods are significant, giving cultural goods a strong tendency to “maximize audience size”.9 The high ratio of fixed costs to variable costs is a prominent feature of cultural product production, which leads to a rapid increase in profitability once the product becomes a best seller, and once the break-even point is reached, additional unit sales can lead to a surge in profits. In order to achieve “audience maximization”, many cultural products use a “secondary sales” model, in which a product faces two markets: the advertising market and the audience market, with the former being the main source of income for the cultural product, and even making the price that the “audience” (i.e., consumers) need to pay is very low. Withers and Alford argue that this very low or even zero consumer price leaves audiences with no mechanism to express their preferences.10 In the case of free-to-air television programming, for example, it differs from traditional markets where people express their preferences through their willingness to pay a price, but this mechanism does not exist in the free-to-air television domain. This feature reinforces the tendency for program replication

Theoretical Studies Related to Cultural Trade  23 and “lowest common denominator” programs, as advertisers sponsoring programs are generally incentivized by audience maximization, resulting in a lack of cultural diversity. For example, in the US television market, in order to win a larger audience of people of all cultural backgrounds, the “Least Offensive Principle” is used by American television programmers to avoid infringing on any national or ethnic cultural sentiment in the same program, and to seek the common cultural aspirations of the people in each cultural context.11 Since the economies of scale in the production of cultural products are particularly significant, the marginal cost of many cultural products is almost zero, so in reality, there is no difference in the pricing of many cultural products, which makes the difference of cultural products not reflected in pricing, which is an important reason for the “winner takes all” of good cultural products.12 2.1.2.2.2  NETWORK EXTERNALITY OF DEMAND

The “network externality” characteristic of cultural product consumption13 has been referred to as “economies of scale in consumption”14: the larger the base of consumers using the product at the moment, the more attractive the given product is. When people find that the product they consume is consumed by more people, their utility from the process of consuming the cultural product increases.15 This is because the consumption of cultural products has a certain “social networking function”16 and because the search cost is high, and in order to reduce the search cost, consumers’ demand for a cultural product may be extremely concentrated.17 At this point, the demand for a certain cultural product becomes a function of the number of existing consumers of that product. 2.1.2.2.3  “WINNER-TAKES-ALL” AND THE LACK OF DIVERSITY

With the combination of economies of scale in production and network externalities in consumption, the cultural industry is prone to “winner-takes-all” and thus cultural diversity is threatened. Rosen analyzes the reasons for the phenomenon of “winner-takes-all” with the example of “superstars”: first is the imperfect substitutability.18 When a service is narrowly defined (e.g., Beethoven’s concerts), its consumption is imperfectly substitutable with that of other cultural goods: i.e., consumers prefer a smaller quantity of a high-quality service to a larger quantity of a medium-level service, e.g., good A is twice the quality of good B, but consumers still do not believe that two units of good B can replace one unit of good A. There is no substitute between quality and quantity. People are more willing to pay higher prices for higher-quality products, which makes a small number of high-quality service providers significantly more profitable. Thus, the income function with quality as the independent variable is convex (convexity, implying increasing marginal returns to quality). “Several consecutive average performances together cannot be compared to one outstanding performance”, just as being seen ten times by an average-level doctor is not as effective as being seen once by a prestigious doctor. Secondly, some cultural products have a “club “product ­nature—the unit cost decreases as the number of audience

24  Theoretical Studies Related to Cultural Trade increases. Originally, as the number of viewers increases to a certain level, there will be crowding costs increase, so there is an optimal audience size. But the emergence of reproducible cultural products such as CDs, television, books, videos or films has reduced the crowding cost significantly, even to zero, which helps a particular artist (or a small group of artists) to satisfy the entire market, resulting in a winner-takes-all ­phenomenon.19 The third reason for the winner-takes-all phenomenon is suggested by Burke in his discussion of the economics of the music industry: search costs,20 where Rosen’s model assumes that there is no cost to consumers of searching for talented artists.21 But search costs may actually be a major cost to people when purchasing the work of unfamiliar artists (e.g., buying an entire album without having heard all of the work). Thus, consumers’ motivation to avoid search costs may lead to an extreme concentration of consumer demand for a particular artist. Burke finds that when an artist releases a work that increases his media exposure, his ranking in the charts increases;22 also, with the advent of the Internet, in the United Kingdom, the top 100 best-selling songs’ share in the annual single sales dropped from 53 percent to 30 percent in 2004–2005 and further to 20 percent in 2008, facts the authors argue that provide evidence for the search cost theory. 2.1.2.2.4  CONSUMPTION CAPITAL REINFORCES WINNER-TAKES-ALL

One characteristic of the demand for cultural products is that there is a “positive addiction effect”. For example, the more good music a person has heard, the more likely he is to have good taste in music, so the marginal utility of cultural consumption increases as people’s appreciation of cultural products increases, and appreciation is a function of past consumption experience.23 Thus, in the process of consuming cultural products, a “consumption capital” is formed, and the marginal utility of cultural consumption increases with the accumulation of consumption capital. Becker distinguishes between two components of consumption capital: personal capital, which is formed by an individual’s past experience of consumption and related experiences24; and social capital, which is the influence of others on an individual’s utility, i.e., the influence of peers and related individuals. The latter can also be classified as a network externalities of consumption as described above. Another theoretical approach is the “learning-by-consuming” theory.25 Here, consumers are unaware of their true preferences and tastes and discover them through repeated experiences, which are sequential and non-systematic “learning-­ by-consumption” processes. However, unlike positive addiction theory, the “learning-­ by-consumption” effect assumes that each experience can have both positive and negative effects on consumers’ tastes and preferences. The expectation value of the effect is zero. 2.1.2.2.5  THE “GATEKEEPER” ROLE OF CULTURAL PRODUCT SUPPLIERS

Caves points out that firms in the creative industries exercise selective production and marketing (from a large or even excess supply of creative content),26 and therefore, they have the ability to determine which cultural goods and services are

Theoretical Studies Related to Cultural Trade  25 offered to consumers. The goal of maximizing profits or ensuring long-term growth is not neutral with respect to cultural production, which affects cultural development. Thus, if record companies believe that hip-hop or heavy metal rock will be commercially successful, they can influence youth culture; or if publishers believe that female readers only love romantic stories with happy endings, they will recommend those stories instead of choosing to publish works of more cultural and social importance, which can have an impact on the image of women. Culture industry vendors, both for-profit and not-for-profit institutions, act as filters or coordinators between artists and consumers and have the ability to influence artists’ careers and cultural output. 2.2  A Brief Review of the Cultural Trade Theory and Its Relevance to China Theoretical explanations of cultural trade are based on the characteristics of the cultural products, with the economies of scale of production and network externalities of consumption as important assumptions of the theoretical model, and study the influence of cultural trade liberalization or trade protection on welfare growth and distribution, considering cultural diversity as an important part of social welfare. Empirical studies are more often found at the level of industry segments. Francois and van Ypersele show that tariffs on cultural goods are welfareenhancing when there are significant economies of scale in product production and strong heterogeneity in the preferences of trading countries.27 For example, if France imposes a tariff on Hollywood films, the market share of Hollywood films decreases, prices increase and the market shares of French and US independent films increase in their respective countries. This could lead to an overall welfare gain in both countries, but only if the following conditions are met: both countries value Hollywood movies similarly, but at the same time a large number of consumers in France believe that French movies are worth a lot more than they are worth to other French citizens, and a large number of consumers in the United States believe that non-Hollywood movies are worth a lot more than Hollywood movies; at this point, overall consumer surplus rises. Janeba applies Ricardian’s standard trade model, assuming constant returns to scale,28 and adds the assumption of positive network externalities in the consumer process of cultural products. His study shows that under certain assumptions, trade has the potential to reduce the level of welfare in a country compared to a closed economy: because trade changes the price of network products and people can switch to imported network products, thus worsening the consumer welfare of domestically produced cultural products because the price and user base of domestically produced cultural products deteriorate. Although the “home market effect model” proposed by Helpman and Krugman is not directly focused on cultural trade,29 it has been deeply used to explain some phenomena in the field of cultural trade because its assumptions are more consistent with some cultural trade situations and has become the basis of cultural trade theory research. For example, Rauch and Trindade add network externalities of cultural product consumption to their model30 based on Helpman

26  Theoretical Studies Related to Cultural Trade and Krugman’s home market effects model31 and combine them with economies of scale in production. The derivation of their model showed that, in a model consisting of two countries with differentiated cultural products, the cultural product of the smaller country may disappear if the cultural discount is not too large and the difference in market size between the two countries is large enough. Thus, the “home market effect” is reinforced by cultural globalization. An increase in cultural globalization—or a decrease in the cultural discount—reduces the number of cultural product styles, leading to the stronger network externalities; at the same time, the quality of future cultural products decreases, because in the model, the quality of future cultural products depends on the current number of cultural products available in both countries. Bala and Van Long study how the relative scarcity or abundance of cultural goods and the resulting price levels allow people to form preferences between generations.32 They show that in a closed economy, preferences differ and are relatively stable between a large country and a small country and that free trade leads to the “extinction” of preferences in the small country. The small country would gradually lose its cultural identity, leading to the conclusion that trade may lead to the disappearance of cultural diversity. The conclusions of the theoretical study can be summarized as the following points: free trade will lead to a reduction of cultural styles worldwide. Cultural styles produced in large countries will dominate, while those produced in small countries will diminish or even disappear completely under certain conditions. The existence and variety of cultural styles produced in small countries will depend on the relative economic size of large countries, cultural differences between them, the cost of communication between them and the network externalities of product consumption. The larger the relative economic size of the large country, the smaller the cultural differences between the two countries, the lower the communication costs between the two countries, and the stronger the network externalities of product consumption, the fewer cultural products produced by small countries, and at a certain threshold, they will disappear to zero. Of course, not all of what large countries produce is necessarily derived from their own cultural styles, and not all of what small countries produce is necessarily derived from the cultural styles of small countries. Policy implications of the theoretical discussions include the followings. First, barriers to cultural trade are beneficial for the globally decentralized production of cultural goods, protecting cultural goods productions in small countries, but not always protecting the cultural styles of small countries, since producers in small countries also produce styles in large countries to reap the network externalities of consumption. That is, protecting production does not necessarily mean protecting culture, and protecting culture or disseminating culture does not necessarily mean protecting domestic production. However, the link between local production and local culture is not entirely absent. The above-mentioned theoretical studies on cultural trade have practical implications for China’s cultural industry and trade in the following aspects: firstly, the size of China’s cultural market is growing rapidly and its gap with that in ­developed countries such as the United States is becoming smaller and smaller; in other words, China is during a process of transition from a small country to a

Theoretical Studies Related to Cultural Trade  27 large country in terms of cultural market. Secondly, China has its own cultural tradition, which is very different from western culture, and there is a considerable cultural distance between them. Thirdly, cultural industries are playing an increasingly important role in China’s economy. “To make cultural industry a pillar industry” and “expansion of the international influence of Chinese culture” have become important goals of the China’s 13th Five-Year Plan. In the above context, how should China’s cultural industry develop in the era of globalization? How to deal with the relationship between the development of cultural industry and the international dissemination of Chinese culture? How to understand the relationship between opening up and protection of cultural industries? The literature on both theoretical and empirical studies of cultural trade sheds light on the answers to the above questions. Notes 1 Luo, Libin. (2013). Cultural Marketing. Beijing: Higher Education Press. 2 Li, Xiaomu and Li, Jiashan. (2007). International Cultural Trade: A Review and Analysis of Concepts. International Trade, 2007(2), 41–44. 3 Towse, Ruth (ed.). (2011). A Handbook of Cultural Economics (2nd edition). ­Cheltenham, and Northampton, MA: Edward Elgar. 4 David, Throsby. (2015). Economics and Culture (1st edition), translated by Wang, ­Zhibiao and Zhang, Zhengrong, China Renmin University Press, p. 122. 5 Liu, Jingjing. (2016). Internet Age: Governance Reform of Public Cultural Services. Beijing: Intellectual Property Publishing House. 6 This characteristic of cultural industries can be explained in the framework of Paul Krugman’s new trade theory. See Thomas A. Pugel, International Trade (15th edition), translated by Zhao, Shudong and Shen, Yanzhi. Beijing: Renmin University of China Press, 2012. 7 UNESCO and UNDP. Creative Economy Report 2013 (Chinese Version). Translated by Yi Na et al. Beijing: Social Sciences Academic Press, 2014. 8 Jiang, Xiaojuan. (2018). Economic Analysis of Sports Industry. Beijing: Citic Press, p. 5. 9 David, Hesmondhalgh. (2006). Cultural Industries. Translated by Liao, Peijun. Taipe: Weber Culture International LTD. Rosen, Sherwin. (1981), The Economics of ­Superstars. American Economic Review, 71: 845–858. Burke, A. E. (2011). The music industry, in A Handbook of Cultural Economics (2nd edition). Cheltenham, and Northampton, MA: Edward Elgar Publishing. Burke, A. E. (2011). The music industry, in A Handbook of Cultural Economics (2nd edition). Cheltenham, and Northampton, MA: Edward Elgar Publishing. 10 Glenn, Withers and Katrina, Alford. (2011). Broadcasting, in Ruth, Towse (eds.) A Handbook of Cultural Economics (2nd edition). Cheltenham & Northampton, MA: ­Edward Elgar. 11 Michael, Curtin and Jane, Shattuc. (2009). The American Television Industry, BFI Publishing. 12 Jiang, Xiaojuan. (2018). Economic Analysis of Sports Industry. Beijing: Citic Press, p. 5. 13 Gunther, G. Schulze. (2011). International Trade, in Ruth, Towse (eds.) A Handbook of Cultural Economics (2nd edition). Cheltenham, and Northampton, MA: Edward Elgar. 14 Katz, Michael L. and Shapiro, Carl. (1986). Technology Adoption in the Presence of Network Externalities. Journal of Political Economy, 94(4), 822–841. 15 Janeba, Eckart. (2007), International Trade and Consumption Network Externalities. European Economic Review, 51, 781–803. 16 Zhou, Duanming. (2005). Economic Analysis Framework of Language. Journal of ­Jiangsu Administrative Institute, 3, 31–35.

28  Theoretical Studies Related to Cultural Trade 17 Burke, A. E. (2011). The music industry, in A Handbook of Cultural Economics (2nd edition). Cheltenham, and Northampton, MA: Edward Elgar Publishing. 18 Rosen, S. (1981). The Economics of Superstars. The American Economic Review, 71(5), 845–858. 19 Gunther, G. Schulze. (2011). International Trade, in Ruth, Towse (eds.) A Handbook of Cultural Economics (2nd edition). Cheltenham, and Northampton, MA: Edward Elgar. 20 Burke, A. E. (2011). The music industry, in A Handbook of Cultural Economics (2nd edition). Cheltenham, and Northampton, MA: Edward Elgar Publishing. 21 Rosen, Sherwin. (1981). The Economics of Superstars. American Economic Review, 71, 845–858. 22 Burke, A. E. (2011). The music industry, in A Handbook of Cultural Economics (2nd edition). Cheltenham, and Northampton, MA: Edward Elgar Publishing. 23 Stigler, George and Gary, Becker. (1977). De Gustibus Non EstDisputandum. American Economic Review, 67, 76–90. 24 Becker G. S. (1996), Accounting for Tastes[M]. Princeton, NJ: Harvard University Press, p. 4. 25 Lévy-Garboua, L. and Montmarquette, C. (1996). A Microeconometric Study of ­Theatre Demand. Journal of Cultural Economics, 20(1), 25–50. 26 Caves, R. E. (2000). The Creative Industries. Cambridge, MA: Harvard University Press. 27 Francois, Patrik and Tanguy, van Ypersele. (2002). On the Protection of Cultural Goods. Journal of International Economics, 56(2), 359–369. 28 Janeba, Eckart. (2007). International Trade and Consumption Network Externalities. European Economic Review, 51, 781–803. 29 [Israel] Erhnam, Helpmann [US] Paul, Krugman. (2014) translated by Yin, Xiangshuo and Yin, Xiangkang, Market Structure and Foreign Trade One by One Incremental Payoffs, Imperfect Competition and International Economy(1st edition), Gezhi Press – Shanghai Sanlian Press – Shanghai People’s Publishing House. 30 Rauch, James E. and Vitor, Trindade. (2009). Neckties in the Tropics: A Model of International Trade and Cultural Diversity. Canadian Journal of Economics, 42(3), 809–843. 31 Helpman, E. and Krugman, P. (1985). Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy. Cambridge: MIT Press. 32 Bala, V. and Long, N. V. (2005). International Trade and Cultural Diversity with Preference Selection. European Journal of Political Economy, 21(1), 143–162.

3

Opening Up of Film Market and the Development of Film Industry in China’s Mainland1

3.1 Introduction Cultural industry, in which film industry is an important part, has gradually become a strategic industry in China. Since the importation of “overseas blockbusters” for distribution on a revenue-sharing basis in 1994, with the deepening of reform and economic growth, great changes have taken place in China’s film industry, with the box office rising from less than 1 billion RMB to 55.839 billion RMB in 2017, an increase of nearly 56 times. Although film market size does not dominate the whole cultural industry, as a “leading industry”, it has a strong driving effect on other types of cultural industries. It is of great significance to summarize the development experience of the film industry and explore the future development path. Opening to the outside world to promote industrial development is a common experience of developing countries to achieve leapfrog development by using comparative advantages and latecomer advantages, which has also been verified in the development process of China’s manufacturing industry since the reform and opening up. However, there has always been a debate of protection and opening up on cultural industry. Because culture involves historical inheritance, value cultivation and even “ideology” issues, due to the protection of cultural diversity, “mercantilism” is popular in cultural industries all over the world, and various countries i­mplement various protection policies for cultural industries including film industry. Although opening to the outside world is an important part of the “reform and opening up” of China’s film industry, the literature on its influence from the perspective of economics is very limited. Current literature focuses more on “reform”. For example, Rao Shuguang, Tang Rong and Zuo Fang have conducted in-depth research on the evolution and marketization of China’s film system.2 The attention of “opening up” is also paid to “opening up to the domestic market”. The literature directly studying the effect of opening up to the outside world on the development of China’s film industry is very limited. The author used “movie” and “opening to the outside world” as title keywords to search CNKI, and only found 23 documents, while using “movie” and “opening up” as title keywords to search, only 2064 results from 1957 to 2018 were obtained, including many articles about the opening of cultural industry. He Yu studied the mode of overseas capital entering DOI: 10.4324/9781003424796-3

30  Opening up of Film Market in China’s Mainland China’s film industry since China’s accession to the WTO.3 In 2014, Contemporary Film magazine published a series of articles analyzing and summarizing the impact of imported films on China’s film industry, and comprehensively summarized and discussed their roles. Wang, Zengfu et al. made a great and profound analysis and review of the background and historical process of the introduction of foreign blockbusters of Chinese film industry.4 Zhang et al. believe that the promotion effect of imported films on the development of China’s industry is well summarized from four aspects: promoting the construction and upgrading of Chinese cinemas, stimulating the production of domestic films, enriching the diversified development of cinemas and promoting the sustainable and stable film market.5 However, this group of articles focuses on the analysis from the perspective of film art. We believe that using the framework of economics to analyze the relationship between the opening and development of the film industry can bring the film industry, which is an important part of the cultural industry, into a unified analysis framework, and provide reference for the analysis of similar problems in other parts of cultural industries. Therefore, this chapter hopes to make some efforts in this respect. After the introduction, the structure of this chapter is as follows: The second section briefly describes the history of China’s film market opening to the outside world and makes an evaluation on its degree of opening up; the third section analyzes the influences of opening to the outside world on the development of China’s film industry; the fourth section puts forward the conclusion and the author’s thinking on the further opening up of China’s film industry. 3.2  A History of Opening Up of China’s Film Market The evaluation criteria for the degree of industrial opening to the outside world include two aspects: one is standard about rules, that is, the level of barriers to entry for foreign products and factors of production, and the higher the barriers, the lower the openness, vice versa. The second is standard about results, that is, the proportion of foreign products in domestic market. The following demonstrates the opening process of China’s film market from the above two aspects, respectively. As for the rules, Chinese film market has been expanding its openness as far as production, distribution and screening. In terms of production, first of all, the regulations on overseas creative personnel participating in domestic film shooting have been relaxed. In 2001, Regulations on the Administration of Hiring Overseas Creators to Participate in the Production of Domestic Films pointed out that domestic feature films “shall not employ overseas directors in principle”,6 and “main members of production team of domestic feature films and feature films co-produced by Chinese and foreign enterprises should generally be citizens in China”.7 If overseas creative personnel are employed due to special needs such as subject matter, technology and role, there are also regulations on the proportion of overseas leading actors and supporting actors in the total number of main actors, which should be “no more than one-third”8 in domestic feature films and “no more than one-half”9 for feature films produced by Sino-foreign cooperation. However, in 2004, the Regulations on the Administration of Sino-Foreign Cooperative Film Production

Opening up of Film Market in China’s Mainland  31 raised the proportion of foreign main actors in films jointly produced by Chinese and foreign enterprises to “no more than 2/3 of the main actors”.10 However, the previous 2003 Detailed Rules for the Implementation of Strengthening Cooperation and Management between the China’s Mainland and Hong Kong Film Industry stipulated that for films jointly produced by China’s mainland and Hong Kong, “the proportion of major actors in China’s mainland shall not be less than onethird of the total number of major actors in the film, and other major creators may not be restricted by the proportion”.11 In terms of joint-ventured production companies, in 2003, the Interim Provisions on Access to Business Qualifications for Film Production, Distribution and Screening allowed foreign equity participation to establish joint ventures or cooperate with existing domestic state-owned film production units to establish film production companies. At this time, the Chinese side of the joint venture was limited to the “state-owned film production unit”.12 In 2004, Interim Provisions on Access to Business Qualifications of Film Enterprises expanded the scope of joint ventures to “domestic companies, enterprises and other economic organizations”,13 stipulating that “domestic companies, enterprises and other economic organizations are allowed to establish joint ventures and cooperate with overseas companies, enterprises and other economic organizations to set up film production companies” and “film technology companies”.14 In terms of distribution, the number of overseas revenue-sharing films was stipulated to be ten per year in 1994. In the 1999 Sino-US Bilateral Agreement on China’s accession to the WTO, China promised to increase the number of overseas revenue-sharing films to 20 after China’s accession to WTO. The 2003 Detailed Rules for the Implementation of Strengthening Cooperation and Management ­between China’s Mainland and Hong Kong Film Industry stipulates that Hong Kong films that have obtained the “Film Release License” shall be distributed in China’s mainland without quota restrictions as imported films. The number of imported Hong Kong films and their screening time are not limited by the ­number of domestic films and imported films and the share of screening time, but are counted separately. On August 8, 2003, China’s second institution with the right to distribute imported films nationwide, Huaxia Film Distribution Co., Ltd. (hereinafter referred to as Huaxia Film), was formally established. In December 2004, other companies were allowed to participate in the distribution of North American buyout films by “assisting in promotion”. In June 2010, the leaders of the two ­associations across the Taiwan Straits signed the Cross-Straits Economic Cooperation Framework Agreement (ECFA), agreeing that from New Year’s Day in 2011, China’s Taiwan films will not be restricted by import quotas and can be distributed and screened in China’s mainland after being examined and approved. In February 2012, China and the United States reached an agreement on a memorandum of understanding to solve WTO film-related problems. China would import 14 more American blockbusters every year, mainly IMAX and 3D films. The share of box office accounts in American movies increased from 13 percent to 25 percent. In terms of film projection, in 2004, Measures for the Administration of Special Funds for the Development of National Film Industry allowed overseas companies to set up cinema construction companies or rebuild cinemas in the form of

32  Opening up of Film Market in China’s Mainland joint ventures upon approval. The proportion of foreign investment in pilot cities should not exceed 75 percent. In the same year, the Interim Provisions on Foreign Investment in Cinemas stipulated that from January 1, 2004, service providers from Hong Kong and Macao were allowed to build, transform and operate cinemas in China’s mainland in the form of joint ventures and cooperation, which were allowed to own no more than 75 percent of the majority shares. Supplementary Provisions of the Interim Provisions on Foreign Investment in Cinemas in 2005 also stipulated that from January 1, 2005, Hong Kong and Macao service providers are allowed to build, transform and operate cinemas in China’s mainland in the form of “sole proprietorship”. In 2006, Supplementary Provisions 2 of the Interim Provisions on Foreign Investment in Cinemas stipulated that starting from January 1, 2006, wholly-owned companies established by Hong Kong and Macao service providers in China’s mainland were allowed to build or rebuild multiple cinemas Table 3.1 Number, Box Office and Proportion of Box Office of Imported Films in China from 1994 to 2017 Unit: 100 million RMB Year

Number of imported films

1994 1995 2000 2001

55 60 42 41

2002 2003

43 40

2004 2005 2006 2007 2010 2013 2014 2015 2016 2017

49 49 50 50 50 61 67 76 102 89

Among them, Total box revenueoffice sharing films 2 10 15 26 Including regional revenuesharing films 19 23 Including 2 partially revenuesharing films 19 20 20 20 20 34 34 34 38 40

– –

9.6 8.7

9 10

15.7 20.46 26.2 33.27 101.72 217.69 296 440.69 492.83 559.11

Box office of imported films

Proportion of box office of imported films

– – – –

– – – –

– –

–

6.75 7 11.8 15.26 44.38 90.02 133.8 169.33 205.35 258.07

42.99% 34.21% 45.04% 45.87% 43.63% 41.35% 45.20% 38.42% 41.67% 46.16%

Source: Data for year 2015 to 2017 are collected from internet; Data for 2014 are quoted from Ding, Yaping and Chu, Shuangyue (2014), and the data for other years are quoted from the China Film Yearbook of each year

Opening up of Film Market in China’s Mainland  33 in multiple locations to operate film screening business. In addition, the examination and a­ pproval procedures and authority for foreign investment in cinemas will be delegated from the central government to the provincial commerce departments and reported to the Ministry of Commerce of China, National Radio and Television Administration and the former Ministry of Culture of China for the record. Judging from the result standard, imported films have played an important role in the domestic film market since 1994. From 1994 to 2017, looking from the overall trend, the number of imported films is on the rise, and the number of revenuesharing films is also on the rise, with the proportion of imported films at the box office mostly exceeding 40 percent (see Table 3.1). Imported films will be shown in cinemas every month in 2017, and the proportion of imported films in the total number of screenings is mostly between 10 percent and 20 percent. 3.3  Influences of Film Market Opening on the Development of China’s Film Industry15 3.3.1  Market Development Effect

At the beginning of the opening of a relatively closed market, high-quality imported goods can often stimulate market demand, which has appeared in markets of many other products in China. The same is true in film market of China’s mainland. First of all, imported films have activated the box office in the film market. Before 1994, when overseas revenue-sharing films were first introduced, the box ­office in China’s mainland film market dropped from 2.8 billion RMB in 1989 to less than 1 billion RMB in 1994, which is also the reason why overseas revenue-­ sharing films were introduced. The “overseas revenue-sharing films” enables people to realize the audio-visual effect that TV cannot bring and begin to return to the cinema.16 According to statistics, the box office revenue in the first half of 1995 rose by more than 50 percent compared with the same period of the last year, and the number of people watching movies in Beijing cinemas increased by 70 percent.17 From 1996 to 2003, in China’s mainland box Office, Hollywood blockbusters ­accounted for an average of 53.52 percent, Hong Kong films accounted for 19.21 percent, and other imported films accounted for 4.74 percent. For a long time, the film market in China’s mainland has been driven by imported films. In 1998, the box office of the American film Titanic reached 360 million RMB, accounting for 25 percent of the total box office of film market in China’s mainland that year. With the increase of the number of overseas revenue-sharing films from 10 to 20, then to 34 and 40 in 2017, the box office of imported films also reached 1.3 billion RMB for Avatar and 2.67 billion RMB for Fast & Furious 8. However, the box office of domestic films also rose, and the box office of Wolf Warriors 2 (Zhan Lang 2) exceeded 5.682 billion. Imported films and domestic films have been competing to set new box office records for domestic films, driving the continuous growth of the film market in China’s mainland. Secondly, because Hollywood movies have the habit of making sequels, and every film and sequel are released almost at the same time of a year, audiences have

34  Opening up of Film Market in China’s Mainland expectations about the time of their release, which further promoted the formation of “movie seasons” in China’s mainland film market.18 In the field of screening, at the beginning of China’s theater chain system, foreign capital also played an obvious “pioneering” role in the film market by participating in cinema renovation. This aspect will be further discussed later. In addition, the introduction of blockbusters requires better audio-visual equipment in cinemas, so the introduction of blockbusters has promoted the transformation and construction of cinemas in China’s mainland. By the end of 1990s, Xinle, Cinemaplex and Huanyi, Cinemaplex in Wuhan, Chongqing and other places had become the first batch of powerful multi-hall cinemas in China’s mainland. After single-hall cinemas were transformed into multi-hall cinemas, the number of films available for simultaneous screening increased, and the screening interval of new films was greatly shortened, which met the increasing demand for cinema film arrangement due to the increase in the number of imported films.19 It is worth emphasizing that the “crowding out effect” brought about by the introduction of overseas revenue-sharing films on the film market of China’s mainland may be far less than its “market development effect”. Before the introduction of overseas revenue-sharing films in 1994, the whole film market was in a serious depression. Every year, a large number of old cinemas are shut down and transferred. Even if there is no competition for the introduction of overseas revenuesharing films, if the film production industry in China’s mainland does not reform, it will be on its way out in a few years.20 3.3.2  Competition Effect

After opening to the outside world, import competition stimulates the competition consciousness of local products, thus improving the quality. The competition effect of foreign films on the film industry in China’s mainland is reflected as follows: In the field of production, “domestic blockbusters” appeared under the competition from overseas “blockbusters”. In the mid-1990s, overseas revenue-sharing “blockbusters” drove the demand for “blockbusters” in film market of China’s mainland. For a long time, almost only “blockbusters” can activate the domestic film market. Even American movies, if they were not big-budget productions with magnificent visual effects and high technology, would also be left out in the cold. For the same reason, French films and Korean films could not have high box ­office in China’s mainland either. Scholars interpret it as “what people had neglected is not movies, but cinemas”.21 Only “blockbusters” can show the advantages of cinemas over other media such as TV. Therefore, due to the need of competition, domestic films have broken through the previously recognized “investment warning line” and competed with foreign blockbusters in the market.22 In 1995, the purchase cost of Blush (Hong Fen) plus promotion investment reached 6 million RMB, and the investment of In the Heat of the Sun (Yang Guang Can Lan De Ri Zi) and Red Cherry (Hong Ying Tao) reached 10 million; The Emperor’s Shadow (Qin Song) has an investment of 40 million RMB, which couldn’t even be imagined

Opening up of Film Market in China’s Mainland  35 for domestic films in previous years. At that time, almost all of the domestic films among the best box office performances had considerable investment size.23 In the following years, “Chinese blockbusters” became the mainstream movie type in the film market in China’s mainland. Starting from Hero (Ying Xiong) in 2002, the investment in domestic blockbusters began to exceed 100 million RMB, and then productions with “over 100 million RMB” appeared every year.24 In his speech at the 2007 National Film Work Conference, Zhao Shi directly mentioned that “the development of mainstream blockbusters is based on the needs of international market competition” and pointed out that “under the open conditions, domestic Table 3.2  Top Box Office Films of the Year in China’s Mainland Film Market (1995–2017) Unit: RMB Year

Title

Box office

Domestic/imported

1995 1996 1997 1998 1999 2000

True Lies First Strike Jurassic Park 4 Titanic Be There or Be Square (Bu Jian Bu San) Final Decision (Sheng Si Jue Ze) Pearl Harbor Hero (Ying Xiong) Mobile Phone (Shou Ji) Kung Fu Master of the Crimson Armor (Wu Ji) Curse of the Golden Flower (Man Cheng Jin Dai Huang Jin Jia) Transformers 1 If You Are the One (Fei Cheng Wu Rao) 2012 Avatar Transformers 3 Lost In Thailand (Tai Jiong) Journey to the West: Conquering the Demons (Xi You Xiang Mo Pian) Transformers 4

103 million 80 million 72 million 360 million 43 million 120 million

Imported Imported Imported Imported Domestic Domestic

104 million 250 million

Imported Domestic (co-production) Domestic

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Monster Hunt (Zhuo Yao Ji) Mermaid (Mei Ren Yu) Wolf Warriors 2 (Zhan Lang 2)

Data source: http://www.boxofficecn.com/boxofficecn

53 million 173 million 181 million

282 million 325 million

Domestic Domestic (co-production) Domestic (co-production) Imported Domestic

466 million 1.382 billion 1.081 billion 1.267 billion

Imported Imported Imported Domestic

1.246 billion

Domestic (co-production)

1.979 billion

Import (co-production) Domestic (co-production) Domestic (co-production) Domestic

291 million

2.439 billion 3.386 billion 5.682 billion

36  Opening up of Film Market in China’s Mainland blockbusters are the main ones that really have the strength to compete with foreign blockbusters at present, and these films have indeed made important contributions helping domestic films win the domestic and foreign markets”.25 Until 2006, six of the top ten films at the domestic box office list were still domestic blockbusters. In the field of distribution, under the strong competitive pressure of foreign blockbusters, domestic films began to attach importance to distribution and promotion. For example, in 1998, when Titanic occupied a large market share in advance, the distribution and screening departments of domestic films attached great importance to promotions of domestic films, resulting in good results in the distribution of some domestic films.26 The competition effect is also reflected in cinema construction. For example, in Wuhan in 1999, foreign capital began to participate in cinema construction, which accelerated the renovation of local cinemas unwilling to be squeezed out of the market. Wuhan Film Company spent tens of millions to build Wuhan Film City. Xinhua Cinema, which used to be the top box office player, also completed the cinema renovation in 1998. The box office of domestic films is rising in the competition. While overseas revenue-sharing “blockbusters” keep breaking the single box office record, the box office of domestic films is also rising. In fact, the box office champions through those years are imported films as well as domestic films (see Table 3.2). The share of domestic films in the box office exceeds that of imported films in most years. The quality and competitiveness of domestic films have been significantly improved, especially in recent years. 3.3.3  Sources of Funds

Many industries in developing countries are facing the problem of poor financing channels before their development is mature. External funds play an important supporting role in domestic industries. Foreign funds play an important role in the production, distribution and screening of Chinese films. At the beginning of the rise of Chinese films, many Chinese films that were famous overseas had foreign investments. For example, Raise the Red Lantern (Da Hong Deng Long Gao Gao Gua) and Farewell My Concubine (Ba Wang Bie Ji) are both produced by China’s Hong Kong, with China’s Taiwan being main source of investment. Most of the works with good box office results and good reputations in overseas markets are sino-foreign co-productions. According to statistics, in 2003, when the cinema chain system was just implemented in China’s mainland, only about 60 cinemas were renovated, but their box office receipts accounted for about 45 percent of the country’s total. Among the 60 or so cinemas renovated, 20 cinemas were renovated with foreign investment, accounting for about one-third of the total.27 3.3.4  Demonstration Effect

Demonstration effect means that after the industry opens to the outside world, foreign competitors provide examples for domestic enterprises, and urge domestic enterprises to achieve leap-forward development through imitation. After China’s

Opening up of Film Market in China’s Mainland  37 mainland film industry began to open to the outside world, the demonstration effect also promoted Chinese films to improve their production levels. First is the “blockbuster” mode. The emergence of “Chinese blockbusters” is also the evidence of the “demonstration effect” of imported films. Chinese blockbusters are produced in accordance with the model of “big investment, big stars and big promotion” of imported revenue-sharing blockbusters. Wan Chuanfa thinks that Hero (Ying Xiong) directed by Zhang Yimou is the first Chinese blockbuster to absorb the Hollywood paradigm.28 In addition to imports, the flow of production factors in the film field, such as personnel cooperation and personnel flow involved in co-productions and cooperative operation in the process of capital cooperation, also provides opportunities for the Chinese film industry to learn the film operation mode. Hero in 2002 is the first movie in China to use Hollywood marketing mode. During the filming process, it was the first time in China’s mainland that the movie had “no media visits”, introduced “poster of characters”, “grand premiere ceremony”, “film promotion documentary” and “strict investigation of piracy”; the film achieved box office of more than 200 million RMB. In that year, when the film market was “relatively sluggish”, such a brilliant box office result was closely related to its reference to the international commercial operation considering the particularity of the ­Chinese market. Yu Yuxi, general manager of Beijing New Picture Film Co., Ltd., the ­domestic distributor of the film, later pointed out in an article that the effective commercial planning and operation of the film also made them realize that the socalled “depressed” film market lacked vitality had been due to the lack of motivation to activate the market. Changing the old patterns with the old over-conformist operation mode of film marketing, so that it can develop in a virtuous circle without losing its norms, requires bold development and continuous innovation.29 Second is the revenue-sharing system. Revenue-sharing system was introduced into China’s mainland films for the second time in 1995, which had a lot to do with the introduction of “imported revenue-sharing blockbusters” in 1994. The success of introducing ten blockbusters encouraged Da Yang Company, after spending 3.8 million RMB to buy out Blush (Hong Fen), to abandon the traditional way of selling off regional distribution rights for the first time in 1995, and began to distribute in a revenue-sharing pattern nationwide, and achieved great success. 3.3.5  Technology Spillover Effects

Opening up can help bring new technologies to developing countries through technology spillover effect, which has been verified in studies of international trade and investment in manufacturing and service industries. In the process of opening up of the film industry, technical levels of Chinese films have also been improving. 3.3.5.1 Foreign Film Technology Companies Entered China, Bringing Advanced Technologies and Talent Trainings

In the past ten or more years, many top foreign film special effect technology companies have entered China to establish joint ventures and provide post-production

38  Opening up of Film Market in China’s Mainland services for many domestic films. This is due to the following reasons: First, the rapidly growing Chinese film market has an increasing demand for special effect technology; second, the fierce competition in developed film special effect centers such as Hollywood30 has prompted local companies to start looking overseas to gain new profit growth points. Technicolor took Beijing as one of its eight R&D centers in the world in 2004. In 2006, the company’s Technicolor film and television post-production brand entered China as a joint venture. Since they can participate in the production of dozens of Hollywood blockbusters every year, the talents involved can gain experiences and become mature very rapidly. During the operation, foreign special effect companies trained local talents, assigned Hollywood experts to join the Chinese film-making team, assisted in completing many domestic film productions and sent Chinese colleagues overseas for training, thus accumulating experience and talents for the local team. Another typical case is Pixomondo, a multinational special effect production company. At the 2012 Academy Awards, the special effect part of Hugo, which won five awards including the best visual effect, was the work of Pixomondo, and 20 percent of the visual effects were produced in China. 120 Chinese special effect personnel from the company’s studios in Shanghai and Beijing participated in the special effect work of the film.31 In addition, they have also completed projects such as Sucker Punch, Fast & Furious 5 ~ 8, Red Tail, Hunger Games and Wonder Woman. The reason why this can be done is also because the joint venture company trains local talents.32 3.3.5.2  Investment Overseas to Acquire Hollywood Technology Companies

In 2010, Chinese film-making company, Orange Sky Golden Harvest (Cheng Tian Jia He), took a stake in American Legendary Pictures. In 2013, another Chinese film-making company, Xiao Ma Ben Teng acquired Digital Kingdom, an American film technology company. In 2016, Anhui Xinke Materials acquired Hollywood production company Midnight Investments L.P. In 2017, Rui Kang Ltd. invested in the acquisition of American film and television company A&T Media, INC. As Chinese film companies acquire top foreign technology companies, they will be more easily used by the Chinese film industry. 3.3.5.3 Technology Introduction Brings Competitive Effect, Demonstration Effect and Cooperation Effect, and Market Expansion Are Conducive to the Application of Technology

The case in this area is the development of digital stereoscopic film technology. Since the first digital stereoscopic film came out in Hollywood at the end of 2005, the market revenue of digital stereoscopic film technology has been rising, which has become a new economic growth point of the global film industry. In the same year, China introduced three mainstream 3D movie projection technologies: ­“polarization spectroscopy”, “spectral color separation” and “liquid crystal timesharing”. The successful attempt of three-dimensional movies has stimulated the creative enthusiasm and capital investment of digital 3D movies in China. Chinese film creators cooperate with excellent foreign teams to try the production of digital

Opening up of Film Market in China’s Mainland  39 3D films in various forms. With the introduction of 3D movies such as Journey to the Center of the Earth, Ice Age and Avatar since 2008, domestic digital 3D movies have also appeared rapidly, such as China Idol Boys (Le Huo Nan Hai), Great Sage Equaling Heaven (Qi Tian Da Sheng), AniMen: Trinton Force (Chao Wa Zhan Shi Zhi Chu Lou Feng Mang), Empires of the Deep (Ren Yu Di Guo), Little Big Panda (Xiong Mao Zong Dong Yuan) and Havoc in Heaven (Da Nao Tian Gong), all of which appeared before 2010. In addition, there have been 3D films that are mainly invested by China, using Chinese culture as the main cultural input, but produced by foreign production teams with advanced technologies. For example, Panda Story (Xiong Mao Zong Dong Yuan) is jointly invested by the Chinese enterprise Beijing Zhong Qi Guangshi Culture Communication Company, Beijing Yishang Media Co., Ltd. and other two German companies. The story was provided by the Chinese companies, and the main image and technical support are undertaken by the foreign parties. It is produced in five major studios around the world and has international standards. The first 3D IMAX movie in Asia, Legend of Daming Palace (Da Ming Gong Chuan Qi), was invested by Chinese companies but produced with Hollywood technical teams. 3.3.5.4 Undertaking Outsourcing Has Also Improved the Level of Related Technologies in China

This is concentrated in the field of animated films. In the process of undertaking animation outsourcing from Japan, the United States and other countries, a large number of animation talents have been trained to adapt to the market.33 Undertaking outsourcing can also promote industrial upgrading. The frontier of industrial development has entered the stage of innovation and knowledge arbitrage. Process innovation and function innovation have become the main paths of industrial upgrading.34 3.3.5.5  International Talents Set Up Special Effect Companies in China

A typical case in this regard is Eclipse Studio, a postproduction visual effect and animation company located in Beijing, which gathers creative elites from China and North America. Each member has participated in the production of a large number of commercial advertisements, TV programs and movies, including various types of blockbusters. Members of this company have participated in the production of many Hollywood films and domestic films such as East Wind Rain(Dong Feng Yu), Alvin and Chipmunks 2, Wonderful Night at the Museum, Red Cliff (Chi Bi), Sophie’s Revenge, Die Hard, Alice in Wonderland, Pirates of the Caribbean, Harry Potter and the Goblet of Fire and Hellboy. It also participated in the special effect production of the movie Flying Swords of Dragon Gate (Long Men Fei Jia) as a member of the special effect team. 3.3.5.6  Driving Institutional Reform

First of all, the introduction of blockbusters promotes the opening of the film ­industry to private capital. Until 1993, China’s film industry system still retained a

40  Opening up of Film Market in China’s Mainland relatively complete planned economic system. Starting from 1995, the Film ­Bureau began to gradually open up the film production to private sector, which was actually very much related to the introduction of overseas blockbusters in 1994. Before that, the film productions were very regulated in a very tight way. At that time, the film industry was in an all-around depression, coupled with the competitive effect of foreign blockbusters. By the late 1990s, almost no film factories were willing to make films because they were unprofitable. As a result, no one could complete the filmmaking tasks assigned by the Film Bureau at the beginning of each year, and domestic films are shrinking day by day. That prompted the Film Bureau to gradually liberalize production and gradually grant private production companies shooting licenses. Today, 80 percent of domestic films are produced by private companies. Opening film production rights to private capital has been of great significance to the development of China’s film industry. Secondly, Sinoforeign cooperations have promoted the reform of the internal governance structure of Chinese film companies. This is mainly reflected in Sino-US co-productions. In some Sino-US co-productions, Chinese producers have only received benefits from China’s box office share and cannot enjoy the global film share. There are many reasons for that. One of the reasons is because the governance structure of film companies in China’s mainland makes them unable to bear the risks of global film distribution. This phenomenon has been improved with the increasing ­co-production of Chinese and American films. On March 16, 2015, Huayi Brothers announced that its wholly-owned American project company plans to sign a cooperation agreement with an American film company. It will jointly invest, shoot and distribute no less than 18 cooperative films before December 31, 2017. Huayi Brothers will enjoy the global revenue share of all cooperative films. This is the first time that a Chinese film company has participated in Hollywood’s complete industrial process system from investment, shooting to distribution. It is also the first time that a Chinese film company has participated in the revenue sharing of the global box office a cooperative film. It is also the first time that a Chinese film company has enjoyed the copyright of a cooperative film according to its share and become internationalized.35 3.3.5.7  Cooperative Effect

Cooperations in the process of opening up have promoted film exports and also helps Chinese filmmakers learn advanced international experience. ­Co-production is the main force of Chinese film export. “Chinese Movies” and “Movies of ­Standard Chinese (Putonghua)”, which rank high at the US box office, are all ­co-productions (see Table 3.3). Cooperation also brings experience in other aspects besides production, such as financing. The film Hero (Ying Xiong) was mainly funded by Hong Kong Elite Entertainment Co., Ltd., Jiang Zhiqiang and others, drawing on the successful and standardized financing experience in international markets, inviting internationally renowned insurance companies to make risk assessment and then borrowing money from banks. As the Chinese film market was relatively sluggish at that time

Yes

Mission:Impossible 5 (Die Zhong Die 5) The Karate Kid (Gong Fu Meng) Kong: Skull Island (Jin Gang: Ku Lou Dao)

Yes

Yes

Yes

Venom (Du Ye)

Yes

Data sources: www.imdb.com

Crouching Tiger, Hidden Dragon(Wo Hu Cang Long) The Last Emperor (Mo Dai Huang Di) Kung Fu Hustle (Gong Fu) Fearless (Huo Yuan Jia)

Fast & Furious 7 (Su Du Yu Ji Qing 7) Transformers 4 (Bian Xing Jin Gang 4) Fast & Passion 8 (Su Du Yu Ji Qing 8) Mission: Impossible 6 (Die Zhong Die 6)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Lust, Caution Yes (Se,Jie) Raise the Red lanterns (Da Hong Yes Deng Long Gao Gao Gua) Lifetimes Yes (Huo Zhe)

House of Flying Daggers(Shi Mian Mai Fu ) The Painted Veil (Mian Sha) The Grandmaster (Yi Dai Zong Shi) Curse of the Golden Flower (Man Cheng Jin Dai Huang Jin Jia) Farewell My Concubine (Ba Wang Bie Ji)

Is it co-produced? Name Is it co-produced? Yes Crouching Tiger, Hidden Yes Dragon(Wo Hu Cang Long) Yes Hero Yes (Ying Xiong)

The highest-grossing Chinese films in the United The highest-grossing Standard Chinese States (Putonghua) films in the United States

Is it co-produced? Name Yes Wonder Woman (Shen Qi Nv Xia) Yes Iron Man 3 (Gang Tie Xia 3)

In the Mood for Love(Hua Yes Yang Nian Hua) Farewell My Concubine Yes (Ba Wang Bie Ji) Hero Yes (Ying Xiong)

Name Lifetimes (Huo Zhe) Raise the Red lanterns (Da Hong Deng Long Gao Gao Gua) Ip Man(Ye Wen)

The most acclaimed Chinese films

Table 3.3 The Most Acclaimed and Highest-Grossing Chinese Films and the Highest-Grossing Standard Chinese (Putonghua) Films in the United States

Opening up of Film Market in China’s Mainland  41

42  Opening up of Film Market in China’s Mainland and the risks of investing in huge films were relatively high, the internationally ­accepted mode provided great convenience for film financing. At that time, China did not develop this industry and it was difficult to develop it in China.36 3.4 Conclusions and Some Thoughts on the Opening of China’s Film Industry The above analysis shows that opening to the outside world plays a multi-faceted role in the development of China’s film industry. Based on that, this chapter hereby puts forward some thoughts on the further opening of China’s film industry. 3.4.1  Further Opening Up Does Not Necessarily Bring “Local Films” to a Standstill

At present, most of the world’s most successful films have entered China’s mainland, while domestic films have not “collapsed” but are becoming more and more competitive. In 2012, the Sino-US Film Industry Memorandum stipulated that China should introduce 14 more films, with “3D and IMAX as the main ones”, basically aiming the open door at large-scale “world-class” films. Table 3.4 lists the top ten global box office rankings in 2017 and their box office rankings in North America. These big box office players have all been introduced into China’s mainland without exception, with the top ten movies in the United States accounting for more than 25 percent of the total box office in North America. Although the box ­office share of domestic films dropped to 48 percent in 2012 when the openness was just improved, it recovered to 58.65 percent in 2013. After that, the box office share of domestic films has been higher than 50 percent and was 53.84 percent in 2017. The same thing happened in South Korea. In 2006, South Korea reduced the number of days of showing domestic films from 146 days to 73 days each year. Although the box office share of domestic films dropped from 60 percent to less than 50 percent in that year and the following years, local films caught up again in a few years, with the box office share of Korean domestic films reaching 58.8 percent and 59.7 percent, respectively, in 2012 and 2013. Moreover, under the fierce competition, the competitiveness of Korean films is getting stronger and stronger, and Korean film export has repeatedly set records. 3.4.2  The Object of Protection Should Be Defined as “Chinese Cultural Elements” and an Open Attitude Should Be Adopted Towards All Resources Conducive to the Development of Chinese Elements

Works that can embody Chinese elements should be protected to some extent in terms of revenue sharing ratio and import quota, regardless of the composition of production factors such as capital and human capital of producers, distributors and projectors. From an economic point of view, if the film works have externalities, the source of externalities is cultural elements. However, the production process,

Opening up of Film Market in China’s Mainland  43 shooting skills, post-production technology, personnel structure, distribution and marketing experience, cinema construction, projection technology and other aspects all belong to the economic field. In fact, there is no obvious “external effect”. Protecting this is bound to have a negative impact on the development of the industry and ultimately is not conducive to the spread of Chinese culture. For example, on the issue of Sino-foreign cooperative production, while encouraging Sino-foreign cooperative production, we should strictly implement the co-production standards, require Chinese elements and use the Chinese market to take Chinese culture elements out. In recent years, China has become the fastest-growing film market in the world, which has attracted the attention of film producers all over the world. Moreover, film markets in the United States and other places are already highly saturated, and more and more Chinese cultural elements are added to the production of American blockbusters suitable for worldwide distributions. If China sets the standard of co-production and regards Sino-US co-production as a domestic film, Chinese market can be used for promoting Chinese cultural elements worldwide; and at the same time, helping with the progress of Chinese films. At present, some films only use “Chinese investment” as the standard for co-production, even if it doesn’t contain any Chinese elements. This is essentially to help Hollywood movies enter the Chinese market. Although we believe that with the growth of the Chinese market, international films co-produced by China and foreign countries in the true sense with Chinese cultural elements will be more competitive, and will eventually defeat the “fake co-production” with “only Chinese investment, but no Chinese cultural elements”, but the latter still brings uncertainty to the development Table 3.4  Top 10 Global Box Office in 2017 and Its Ranking in North American Film Market Unit: 100 million USD Global box office ranking

Title

1

Beauty and the Beast Speed and Passion 8 Star Wars 8 Despicable Me 3 Spider-Man: The Return of Heroes Wolf Warriors 2 Guardians of the Galaxy 2 Thor 3 Wonder Woman Pirates of the Caribbean 5

2 3 4 5 6 7 8 9 10

Source: www.boxofficemojo.com

Global box office

North America/ Proportion

Overseas/ Proportion

North American box office ranking

12.63

5.04/39.9%

7.59/60.1%

1

12.35

2.26/18.3% 10.09/81.7%

2

10.4 10.33 8.8

5.172/49.7% 5.228/50.3% 2.642/25.6% 7.688/74.4% 3.34/37.9% 5.46/62.1%

3 4 5

8.7 8.63

2.72/31.3% 5.98/68.7% 3.899/45.2% 4.731/54.8%

6 7

8.54 8.21 7.95

3.15/36.9% 5.39/63.1% 4.126/50.3% 4.084/49.7% 1.73/21.8% 6.22/78.2%

8 9 10

44  Opening up of Film Market in China’s Mainland of the Chinese film market. However, although movies like Transformers 4 have not obtained the status of co-productions, they have more Chinese elements than any other imported films. This kind of movie has a wide influence in the world and is of great significance for Chinese culture to “go out”. 3.4.3  Raising the Revenue Share Proportion of Imported Films Will Help to Enhance the Attraction of Chinese Elements and Gather Global Advantageous Resources to Serve Chinese Culture

First of all, Hollywood blockbusters are commercial and demand-oriented. In r­ ecent years, overseas markets have increasingly become the main battlefield37 of Hollywood movies. The growth rate of Chinese movie market is the fastest in the world, and the overall market size has become the second in the world. This is an important reason for the increasing number of Chinese elements in Hollywood movies. In 2014, Transformers 4, which contained a lot of Chinese elements, grossed more than RMB 1.9 billion in China’s mainland, which not only became the box office champion in China’s mainland but also made it the global box office champion in that year, although it ranked only fifth in the box office list in North America. In response to this, Christopher Dodd, president of the American Film Association, said in an interview that he “can’t wait to see Hollywood customized movies for the Chinese market”.38 Secondly, for Hollywood filmmakers, although the Chinese film market is growing rapidly, huge in scale, the real income from the box office is only 25 percent of the accounts. Although there are different opinions on the proportion of domestic films and imported films, what is certain is that the proportion of revenue allocated to imported film producers is relatively low. The difference in the proportion of revenue allocated to producers and distributors provides different incentives. For imported revenue-sharing films, this will reduce the attention of producers to China’s mainland market and raise the interest of distributors and projectors of imported revenue-sharing films. As the enthusiasm of producers to please China’s mainland market has declined, it is not conducive to producers to put Chinese elements; moreover, it will make distributors and projectors pay more attention to imported revenue-sharing films, make them more active in introducing imported revenue-sharing films that may not have Chinese elements and provide better scheduling plans. From a commercial point of view, whether Hollywood filmmakers should add Chinese elements to “blockbusters” depends on whether the Chinese element helps them achieve higher global box office. Generally speaking, this depends on the comparison between the increase in revenue made by Chinese elements in the Chinese market and the decrease in revenue in markets outside China. Obviously, the greater the former, the more conducive it is to attract producers to join Chinese elements, while the amount of the former depends on their proportion of revenue share. From this point of view, this share ratio should not be lower but should be higher, which is conducive to promoting Hollywood filmmakers to put Chinese elements, thus contributing to the global spread of Chinese culture. Of course, it is also conducive to the spread of Chinese culture in China, while the low proportion of producers’ share of revenue reduces the enthusiasm of

Opening up of Film Market in China’s Mainland  45 imported films to include Chinese elements and promotes ­exhibitors’ scheduling of imported films, which is conducive to the spread of foreign cultural elements in China and the world. Notes 1 Note: The content of this chapter is revised according to Luo, Libin (2015). 2 Rao, Shuguang. (2008). Genre Experience (Strategy) and the Development Strategy of Chinese Film. Contemporary Film, 5, 4–10. Tang, Rong. (2009). Research on Chinese Film System Reform in 30 Years of Reform and Opening up. Modern Communication: Journal of Communication University of China, 2, 5–9. Zuo, Fang. (2008). Review, Reflection and Prospect of The Development of Chinese Film and Television Industry in the Past 30 Years of Reform and Opening up, Seeking for Difference and Convergence – The Subjectivity Pursuit and Modernity Construction of Chinese Film and Television Culture. The 12th Annual Meeting of Film and Television Association of Chinese Universities and the Fifth China Film and Television High-level Forum, pp. 66–70. 3 He, Yu. (2012). The Mode Analysis of Foreign Capital into China’s Film Industry Since her Accession to WTO. Shanghai: Shanghai Jiao Tong University. 4 Wang, Zengfu, Lu, Yao, and Bian, Jing. (2014). Twenty Years since the Introduction of Revenue-Sharing Film. Contemporary Cinema, 2, 20–23. 5 Zhang, Ruoqi, Sun, Hui, and Liu, Hanwen. (2014). The Effects of the Imported Films to Chinese Movies. Contemporary Cinema, 2, 10–15. 6 See the Clause 3 in the Regulations on the Administration of Hiring Overseas Creators to Participate in the Production of Domestic Films. https://www.chinafilm.gov.cn/chinafilm/contents/159/792.shtml 7 See the Clause 3 in the Regulations on the Administration of Hiring Overseas Creators to Participate in the Production of Domestic Films. https://www.chinafilm.gov.cn/­ chinafilm/contents/159/792.shtml 8 See the Clause 3 in the Regulations on the Administration of Hiring Overseas Creators to Participate in the Production of Domestic Films. https://www.chinafilm.gov.cn/­ chinafilm/contents/159/792.shtml 9 See the Clause 4 in the Regulations on the Administration of Hiring Overseas Creators to Participate in the Production of Domestic Films. https://www.chinafilm.gov.cn/­ chinafilm/contents/159/792.shtml 10 See the Clause 13 in the Regulations on the Administration of Sino-Foreign Cooperative Film Production. https://www.chinafilm.gov.cn/chinafilm/contents/159/794.shtml 11 See Yu, Yixiao (Ed.). (2004). Chinese Film Yearbook 2004. Beijing: Chinese Film Yearbook Press, p. 20. 12 See Chinese Business Yearbook 2004. Beijing: Chinese Business Press, p. 425. 13 See Wu, Yuhui, et al. (Eds.). (2018). An Collection of Entertainment Laws and Regulations I: Film and Television Volume. Beijing: Chinese Film Press, pp. 32–39. 14 See Wu, Yuhui, et al. (Eds.). (2018). An Collection of Entertainment Laws and Regulations I: Film and Television Volume. Beijing: Chinese Film Press, pp. 32–39. 15 This paper takes the introduction of ten overseas blockbusters in 1994 as the starting point for studying the opening up of China’s film industry to the outside world, ­because although China had been importing foreign films before, they were all “bought out”, mostly “old films”, and were distributed and screened under the planned economy. Moreover, they were distributed and screened under the planned economic system, and therefore no market mechanism was implemented. Similar to this paper, Yu, Li (2009), also holds a similar view. 16 Many literatures described the pioneering effect of imported overseas films on the ­Chinese film market at that time. For example, Rao, Shuguang (2008) pointed out that the revenue-sharing films imported from overseas have played a catalytic role in the

46  Opening up of Film Market in China’s Mainland overall downturn of Chinese films. It has activated a stagnant market, made films an important activity in people’s cultural and entertainment consumption again, and promoted a virtuous economic cycle in the Chinese film market. Lao, Mei (1996) directly took “Ten Blockbusters and Market Recovery” as the sub-section title of his article, and clearly pointed out that magnificent blockbusters strongly stimulate people’s desire to watch movies. The audience is back. The grand occasion of crowding people reappeared in front of cinemas; Cinemas frequently put up ‘full’ signs, movie tickets have become popular, and ticket sellers who have disappeared for a long time have become active again; And think that the introduction of ten blockbusters is undoubtedly an essential background and frame of reference for us to analyze and explore the trend of domestic movies in 1995. 17 Ding, Yaping. (2014). Imported Films and Historical Displacement of Chinese Films in the Age of Globalization. Contemporary Cinema, 2, 15–20. 18 Zhong, Minglan. (2005). Sequels and Schedule Construction of Imported Films. China Film Market, 1, 2. 19 Zhang, Ruoqi, Sun, Hui, and Liu, Hanwen. (2014), The Effects of the Imported Films to Chinese Movies. Contemporary Cinema, 2: 6. 20 Wang, Zengfu, Lu, Yao, and Bian, Jing. (2014). Twenty Years since the Introduction of Revenue-Sharing Film. Contemporary Cinema, 2, 20–23. 21 Zhong, Minglan. (2005). Sequels and Schedule Construction of Imported Films. China Film Market, 1, 2. 22 Rao, Shuguang. (2008). State Owned Film and Television Enterprises and China’s Mainstream Blockbusters. New Films, 1, 28–39. 23 Lao, Mei. (1996). Domestic Films: Dawn and Shadow a Glimpse of Chinese Film Market in 1995. Film Art, 2, 43–48. 24 Tong, Gang. (2007). Based on a New Starting Point, and then on a New Level, and Strive to Create a New Situation of Film Creation. Chinese Film Yearbook. Beijing: Chinese Film Yearbook Press. 25 Zhao, Shi. (2007). Breaking New Ground in Film Work and Promoting the New Development of Film Industry. China Film Market, 2, 7. 26 Liu, Jianzhong. (1999). Presents to the 50th Anniversary of the Founding of New China with outstanding Achievements. Chinese Movie, 1, 4–9. 27 Mao, Yu. (2004). China’s Film Market 2003: Moving Forward in Reform. Chinese Film Yearbook. 28 Wan, Chuanfa. (2011). Analysis on the Influence of Co-productions and Revenue-­Sharing Film on Chinese Films from 1987 to 2001. Journal of Communication University of Zhejiang, 18(1), 89–93. 29 Yu, Yuxi. (2003). The Commercial Success and Effective Market Planning of “Hero”. Film Art, 2, 27–30. 30 According to statistics, in Los Angeles alone, there were 194 special effects companies in 2012. 31 Jan, Heinze, the company’s chief operating officer and executive producer for Asia, and Saku, Partamies, director of special effects for Asia Pacific, said in an interview: The Shanghai team completed the most difficult 3D production of the Paris panorama. The Paris panorama was completed with all-CG lenses, and the details were very critical, as small as some bricks. The Beijing team completed a set of scenes in the theater. The location of each row of the audience had to go through a lot of experiments and refinements to achieve the ultimate picture. In fact, a single version of a shot that rendered the opening camera of the movie and pushed it into the railway station required 170,000 hours of processing time. Their preliminary preparation

Opening up of Film Market in China’s Mainland  47 took four months, a total of eight months. The final quality of the effect was completely the same as that of the US and German teams, and they did not lose. 32 The person in charge of the company said in an interview that we will recruit talents who just graduated and have potential, and train them as artists, so that they can become independent talents through training in the fastest way. The Chinese market is very young, and after decades of working in the industry in the US, we can’t find such experienced special effect artists in China. We hope that the young artists we train will be able to improve as a whole by working with their foreign counterparts and getting guidance. 33 Luo, Libin. (2013). Cultural Marketing. Beijing: Higher Education Press. 34 On how to improve the industrial level of China’s animation film outsourcing, see Jiang, Rongchun, Evolution of China’s animation film industry development model based on global value chain: a perspective of evolutionary economics, in Jiang, Xiaojuan. (2018). Service-oriented Economy in the Network Era: China has Entered a New Stage of Development. Beijing: China Social Science Press. 35 See “Huayi Brothers Deeply Participates in Hollywood Signing 18 Films to Enjoy Global Account Sharing”, http://news.hexun.com/2015-03-17/174120317.html, accessed April 27, 2015. 36 Yu, Yuxi. (2003). The Commercial Success and Effective Market Planning of “Hero”. Film Art, 2, 27–30. 37 See Table 3.4 for the top ten films in the world box office in 2017. Nine of them achieve more than 50% of the total box office in markets outside the United States. 38 See “2014 Imported Box Office Hits Highest, Hollywood Releases China Custom Films”, https://www.jidianwang.com/event/1230519.html, accessed April 14, 2023.

4

Imports of Cultural Products and Chinese Culture Going Global The Case of Film Import1

4.1 Introduction China often makes a direct link between “Chinese culture going out” and “Chinese cultural products export”. For example, it is believed that “expanding China’s international cultural trade is an important carrier for implementing culture going out. We need to transform the advantages of cultural resources into competitive advantages of cultural products in the international market” and “narrow the huge deficit of China’s cultural trade”.2 It should be said that almost all literature on the subject of foreign cultural trade agrees that promoting Chinese culture abroad depends on the development of cultural trade exports, while some scholars have expressed disappointment that China is unable to produce cultural products that can capture the international market, and even feel that it is “embarrassing and worrisome” for foreign countries to use Chinese cultural elements to produce cultural products that are welcomed by the world. For example, some people think that Mulan and Kung Fu Panda are culturally Chinese, but the United States has made them into movies; Romance of the Three Kingdoms is also part of Chinese culture, but in online games, it is developed into game software by Japan and becomes a Japanese brand.3 It is undeniable that the export of cultural products and services will eventually become an important way for a country’s culture to go out, especially for a large country with a long history, rich cultural traditions and distinctive features like China. However, it is also worth noting that for a developing country like China, it will take a long time for the export of cultural products and services to become the main force in promoting the cultural outbound. In the era of globalization, at this particular stage, taking advantage of globalization, the import of cultural products and services can become a powerful tool to promote Chinese culture. That is determined by the external environment of globalization, China’s national conditions and the characteristics and attributes of cultural products. Due to the limited international competitiveness of Chinese cultural products, the ability to spread Chinese culture by relying on Chinese cultural products is also limited at present. In a 2015 survey on the awareness of Chinese culture among the general public in six countries, more than 80 percent of the respondents indicated that they were interested in Chinese culture; however, for Chinese cultural DOI: 10.4324/9781003424796-4

The Case of Film Import  49 products, the proportion of those who chose “interested” “plummeted” accounts for less than 50 percent.4 Take Chinese films as an example, the Chinese film market has grown rapidly in recent years, ranking second in the world after North America in terms of box office grosses, and domestic films have been able to beat Hollywood films in the country and account for more than half of the box office. But most domestic films have weak international influence. Boxofficemojo.com has compiled a list of the world’s top 100 grossing films of 2017, and eight of them are Chinese; however, except for The Great Wall,5 a Sino-US co-production, which was shown in more than 60 countries and regions, all other films were shown in less than 20 countries and regions, with most of the major box office sales coming from China’s mainland. The Institute of International Communication of Chinese Culture at Beijing Normal University has organized international communication research on Chinese films for five consecutive years, and the last global survey was conducted in 2014, involving people of different ages, education levels and occupations in 66 countries on five continents, which had 1592 valid samples, and it found that 26.32 percent of the audience had not seen Chinese films, and 53.45 percent of the foreign audience had seen only 1–5 Chinese films. In 2015, the survey was conducted in countries along the Belt and Road, and it was found that 23 percent of the respondents had not seen Chinese movies in the past 12 months, and 38.7 percent of the respondents had only seen 1–5 Chinese movies. That shows that the overall international influence of Chinese films is still weak. The task of promoting Chinese culture through Chinese films is still unrealized. Moreover, with the rapid growth and expansion of the Chinese film market, the global film industry has begun to pay attention to Chinese cultural elements, such as the 2014 global No. 1 film Transformers: Age of Extinction, in which one-third of the entire film was set in Hong Kong and the second female lead was Chinese actress Li Bingbing, as well as the Beijing Olympic complex and the Guangzhou Tower,6 in which as many as ten advertisements of Chinese products are implanted. Hollywood films have the most extensive distribution network in the world, for example, Transformers: Age of Extinction has been shown in 72 countries and regions worldwide. As they are screened around the world, the Chinese cultural elements contained in them also go global. In recent years, it has become increasingly common for Hollywood to include Chinese cultural elements in big-budget films targeting the global market, especially in some films released in China (see Table 4.1), such as the 2018 Hollywood films Lara Croft Tomb Raider: The Cradle of Life, Venom, Fantastic Beasts: The Crimes of Grindelwald and Smallfoot, which are still in theaters at the time of writing.7 The above phenomenon makes it necessary to analyze in more depth the relationship between cultural products and cultural elements in an era of globalization, the relationship between the trade of cultural products and the going out of a country’s culture, and more specifically the relationship between the trade of Chinese cultural products and the going out of Chinese culture. The existing literature in China almost always assumes that the export of Chinese cultural products is the main channel and path for Chinese culture to go out and that Chinese culture going out has become an important goal of China’s foreign cultural trade development;

50  The Case of Film Import Table 4.1  Number of Chinese U.S. Films Shown in China with Chinese Cultural Elements 1995–2000 2001–2005 2006–2010 2011–2015 2016 With standard Chinese (Putonghua) With Chinese location With Chinese investment With Chinese actors (including Hong Kong, Macao, and Taiwan)

0

3

8

9

4

1 0 2

1 3 11

12 7 27

12 14 36

5 12 8

Source: Author’s data compiled from imdb.com website

however, this chapter tries to argue that although Chinese culture going out may ultimately rely on the export of Chinese cultural products, in the current and nearfuture periods, cultural product imports may also play an even better role in promoting the export of Chinese culture and, in turn, promoting the export of Chinese cultural products. 4.2 Relationship Between Cultural Product Exports and Cultural Going Out: A Theoretical Analysis 4.2.1 Do Domestic Cultural Products Necessarily Contain Elements of Domestic Culture?

The reason why people put their hope in cultural going-out in cultural products export is based on the assumption that the cultural elements contained in the cultural products must be domestic. However, if this assumption is true, the following paradox arises: given the existence of cultural discounts, domestic cultural elements are a barrier to exporting cultural products; that is, given other conditions, the more domestic cultural elements, the greater the cultural discounts encountered when exporting, and the lower the likelihood of exporting, thus the less likely it is that cultural exports will lead to cultural going out. Theoretically, domestic cultural products and domestic cultural elements do not necessarily go hand in hand. If the cultural element is an input in the production process of a “cultural product”, then the input of cultural element does not necessarily come from domestic market in the context of globalization. The choice of input depends on the cost-benefit comparison. If the cultural product is mainly for the domestic market, domestic cultural elements can often bring greater benefits, and domestic cultural elements as inputs become the rational choice; on the contrary, if the main target market of the cultural product is abroad, domestic cultural elements as inputs are not necessarily the rational choice. If the target market of a cultural product is both domestic and foreign, it is rational to choose generalist culture or to arrange the input and weight of multiple cultural elements according to the weight of different market segments. The relationship between the production of cultural goods and the input of cultural elements has been clearly explained in some literature in the field of cultural

The Case of Film Import  51 trade policy. In an influential paper, Mas-Colell classifies protection policies in the field of cultural trade into two categories: first, protection of domestic production of cultural goods; and second, protection of domestic production of national culture.8 Such a classification itself implies the following assumption: Domestic cultural products do not necessarily mean production of national culture. Mas-Colell argues that there is a significant distinction between two types of protection policies: the first type focuses on protecting domestic production and employment in cultural industries, which is difficult to distinguish from protecting non-cultural industries such as shoe manufacturing, automobile assembly, etc.9 The second type focuses on protecting elements related to national cultures, such as language, historical stories, clothing and cultural traditions. He argues that many countries’ cultural trade protection policies are actually justified by the second type of protection to support the first. Along these lines, other scholars have discussed the relationship between the two types of protection in more detail, finding that the protection of domestic production of cultural goods through trade policies (i.e., Type I) does not always protect the country’s culture (i.e., Type II). Rauch and Trindade argue that in the context of decreasing international communication and communication costs, because of the network externalities of cultural goods consumption and economies of scale of production, trade protection policies may lead to international “mainstream” forms of content and form, even though the production process of cultural goods is domestic.10 Richardon and Wilkie, using the example of the popular music industry, argue that domestic demand in a country that prefers internationalized content, while domestic broadcasting is restricted by a policy of domestic share of programming, can lead to the combination of domestic artists and internationalized content.11 In contrast, “local content quotas” can lead to an increasing internationalization of domestic music. Although the above literature focuses on cultural trade policies and is not yet supported by sufficient empirical studies, it clarifies two aspects at the theoretical and conceptual levels: first, the relationship between the production of cultural goods and the input of cultural elements as the production of a country’s cultural goods does not necessarily involve only the input of domestic cultural elements; second, the protection of production and employment in domestic cultural industries does not necessarily involve the protection of domestic culture. There is a consistency between the two objectives, but in the context of globalization, there is also a certain contradiction between the two. 4.2.2  The Choice of Cultural Elements in Cultural Products: Demand-Led or Supply-Led?

The cultural element is an integral part of the production of cultural products, which is also the reason why cultural products are considered to have both economic attributes and cultural attributes and why cultural industries and trade have both economic impact and socio-cultural impact and even ideological impact. However, in a market economy, the choice of cultural elements in cultural products is not necessarily determined by the supply side, but ultimately by the supply side or the demand side, depending on the market structure and the “bargaining power” of the

52  The Case of Film Import two parties. If the market is a buyer’s market, then the choice of cultural elements depends on the market demand. If we think that the biggest difference between a seller’s market and a buyer’s market is the difference between shortage and surplus, then the current domestic and global cultural market should be a buyer’s market, and therefore the choice of cultural elements should be more buyer-driven. The characteristics of cultural products themselves also determine the demandoriented nature of their cultural elements. Some cultural products have strong economies of scale, with a “high ratio of fixed costs to variable costs”, which makes them strongly inclined to “maximize audience size”.12 For example, record production involves fixed costs of production including composition, recording, mixing and arranging, all of which require time and effort to produce the melodies that consumers prefer. However, once the original version is produced, subsequent versions can be reproduced at a very low variable cost. This characteristic of cultural products is very different from that of other products. Once a cultural product becomes a best seller, profits increase rapidly and the break-even point is reached, additional unit sales can lead to a spike in profits. As a result, cultural products tend to have a strong tendency to maximize audience size. In addition, cultural products are sold in a “secondary sales” mode, i.e., a product faces two markets: the advertising market and the audience market, with the former often being the main source of income for the cultural product, and the producer of the cultural product must reach a wider audience in order to generate more advertising revenue. Conversely, the broader and larger the audience for a cultural product, the higher the fixed costs it can support, and the more likely it is to improve the quality of the cultural product. Thus, a virtuous circle is formed between high fixed costs and large audiences. This tendency to maximize audience size has led to the production of cultural products in which the cultural element is based on economic principles: if the benefits of adding a cultural element exceed the costs of adding the element, then adding the element becomes the rational choice. Therefore, on the one hand, the production of a cultural product should include more different cultural elements in order to attract people from more types of cultural backgrounds, but on the other hand, it is necessary to prevent the cultural elements from being too complex and increasing people’s cognitive costs, thus reducing the cultural discount. For example, Hollywood blockbusters are set in different countries and include actors from different countries and cultures, but at the same time seek themes that are common to all cultures. In order to appeal to a wider audience, the “Least Offensive Principle” is used, meaning that the program is designed to avoid infringing on the cultural sensibilities of any nationality or ethnicity, and to seek the common cultural aspirations of people in all cultures. The demand-driven nature of cultural elements has led the film industry to focus on the market research. Since 1927, the U.S. Department of Commerce’s Bureau of Foreign and Domestic Commerce has been publishing regular reports on film markets around the world, and its first report was on the Chinese film market, showing the importance the U.S. film industry attaches to the Chinese and global film markets. This is the earliest official survey report on the Chinese film market in the

The Case of Film Import  53 United States. The report is based on comprehensive research conducted by U.S. embassy personnel in China. The report’s foreword includes acknowledgments to 17 government officials and 14 embassies. The report provides a detailed survey, analysis and study of the Chinese film market, including statistics on the number and distribution of movie screens and moviegoers in China at the time, an explanation of the process of Chinese film development, and an introduction to the status of Chinese film regulations, advertising, education and magazines, with special emphasis on political instability, underdeveloped transportation, economic backwardness and competition from domestic films as barriers to American films entering China. The report also discusses Chinese people’s interest in movies, pointing out that Chinese audiences have experienced a change from fighting movies to westerns, and that subjects such as love triangles and conflicts between two generations are not popular with Chinese people because they violate traditional ethics. But ­romance and historical films in general, especially comedies and films with children as the main characters, are popular. The report summarizes narrative features such as reunion and good versus evil as the reasons why American films have been able to dominate the Chinese film market; it also cautions American filmmakers against bringing films that vilify Chinese people to China. The longest part of the report is a survey of theaters in Shanghai, Hong Kong, Tianjin, Beijing, Guangzhou, Xiamen, Hankou, Fuzhou, Dalian, Harbin, Changsha, Qufu, Jinan, Andong, Shantou and Qingdao, providing specific figures from the number of theaters to the number of seats, a detailed and in-depth survey of the Chinese film market that even the Chinese themselves may not have done at that time or even now.13 The principle of demand-driven selection of cultural elements allowed a country to export cultural products and, where possible, to arrange its cultural inputs according to the demand preferences of the target market rather than necessarily depending on the producer’s location. In the history of Hong Kong’s film industry, there have been “Western production units”.14 In other words, the culture embedded in American-made films is not necessarily American, and Chinese export films are not necessarily Chinese. The more cultural categories the target market involves, the more superficial the culture tends to be. For example, the more global a film is, the more emphasis it places on the most universal themes. Some people say that there are no more than 20 themes in the world’s blockbuster films, such as colonial invasion and counter-invasion by the colonized. 4.3  Film Exports: From Home Market Effect to Global Market Orientation Along with the complete life cycle of a country’s film market from introduction, growth and maturity to decline, a country’s film exports can be roughly divided into four stages: international market focus stage; local market focus stage; home market effect stage; and global market orientation stage. The economic characteristics of the product, the cultural input, the main target market, the export motivation and the mechanism and capacity of each stage are different. For countries with larger markets that are latecomers, they will go through the first to the fourth

54  The Case of Film Import stage, while for countries with larger markets that are first movers, they may only go through the second to the fourth stage; for countries with smaller markets, they may only go through the first two stages. 4.3.1  International Market Focus Stage

In this stage, because the local market is small or even almost non-existent, films directly target the international market. But compared with the domestic market, the international market is more mature, as new entrants to the international ­market, films often adopt a “focus” strategy, i.e., they target a certain segment or niche market in the international market, usually by winning awards at influential international film festivals, and by making independent productions with small investments to gain access to international distribution. Such films are often based on national stories but often have an international core of cultural values. After gaining international recognition through international awards, the films are then introduced to the domestic market for attention, feeding the domestic film market. In the 1980s and 1990s, China’s mainland films were exported through such channels. The representative works include Zhang Yimou’s early works, such as Red Sorghum and Raise the Red Lantern. 4.3.2  Local Market Focus Stage

At this stage, the local market is growing rapidly, and national films begin to target the local market. This is often accompanied by the opening of the domestic market, and the competitive effect of international blockbusters is accompanied by the rapid growth of domestic films, and the economic characteristics of film products at this time are that the investment amount increases with the rapid growth of the local market in order to win the competition in the domestic market. For this reason, films are based on domestic stories, but the production methods and modes often begin to converge with international ones. Local film talent and investment are proliferating, but the focus on international markets is declining because the main target markets and competition areas are domestic. This is reflected in the decline in the number of awards won at international film festivals and the limited distribution channels abroad. The increase in the number of films has not resulted in an improvement in the quality of films, nor in their international influence. At this time, the cultural characteristics of films are still about local stories and culture, but they may be based on internationally popular models, including some remakes. Although there are some independently produced films with artistic value, the number of such films is very small. 4.3.3  Home Market Effect Stage

At this stage, the local market enters a mature stage, the market growth rate begins to slow down, the market becomes more competitive, and industry consolidation begins to emerge, with film investment continuing to expand and film quality

The Case of Film Import  55 improving in order to gain a larger domestic market share. The main target market may still be domestic. However, due to the fierce competition in the domestic market leads to increasing investment in films, and the “home market effect” began to emerge and films began to be exported. At this time, exports were not the result of active pursuit, but rather the spillover effect of domestic market competition, and the cultural characteristics of film products are still based on national stories and international models. With the emergence of diversified audience needs and the reemergence of multi-genre films, art films are likely to have room for development again. 4.3.4  Global Market-Oriented Stage

At this stage, the local market has fully matured, or even begun to mature into a period of decline, with zero or even negative growth rates. The number of movie viewings per capita has reached a high level. Some companies begin to exit the market, but those that remain need to make larger investments in films to maintain their local market share. The target market for major investment films has shifted from a predominantly domestic to a global market. From the outset, film production has targeted the global market, aiming to cover both the domestic and export markets. For this reason, in addition to local cultural elements, there is a greater emphasis on cultural elements that are acceptable to the global market, and cultural elements from some fast-growing foreign markets are being emphasized and gaining prominence. When a foreign market is large enough, it is possible to customize a film for that foreign market. The above four stages represent the life cycle of a country’s film market and are accompanied by the transition from high to low growth in the domestic film market. 4.4 Why Are Chinese Films at This Stage Limited in Their Ability to Promote Chinese Culture Abroad? From the above four stages, we can see that at different stages, the export intentions of a country’s film producers and the export competitiveness of films differ. China’s film market is in the second stage and will be transitioning to the third stage in the next few years, so “exporting and promoting culture abroad” is hardly the main goal of enterprises. According to the growth rate of the film market, China’s film market is currently in the second stage, or the third stage is just beginning to take off. From 2012 to 2015, the year-on-year growth rate of China’s film market box office has never been lower than 27 percent. It was 3.73 percent in 2016 and 13.45 percent in 2017, belonging to a period of high growth. At most, it is a transition period from high to medium growth. The domestic film market still has high-expected profits, which makes the domestic market attractive in a way that the international market does not. International experience and data from several Chinese industries show a clear negative correlation between domestic market growth and export growth.

56  The Case of Film Import For example, in 2013, sales in the Korean broadcast television industry increased by only 5.3 percent, a significantly lower growth rate than the 13.1 percent in 2010, 14.1 percent in 2011 and 11.2 percent in 2012; however, in the same year, Korean television program rights exports generated over 300 USD million in profits, an ­increase of 32.3 percent over 2012, the highest increase in recent years.15 For cultural enterprises, domestic sales and exports are two alternatives that can be substituted for each other, and both are opportunity costs. When the former is growing rapidly and bringing huge profits, the opportunity cost of the latter is increasing, so domestic filmmakers will not focus on exports. The domestic market as the primary target for domestic cultural industry players is conducive to the prosperity of Chinese culture and may also be beneficial to the international spread of Chinese culture in the long run, but at this stage, this function is difficult to achieve. The situation in the Chinese cultural market is more in line with Porter’s observation that “the profit opportunities supported by large domestic markets may weaken the willingness of local firms to expand abroad and hinder their export competitiveness”.16 This is mainly due to the large size of the domestic market, and the fact that the growth rate of the domestic market is still at a high level and competition on the supply side is still not fierce to a certain extent. Although the cultural elements of Chinese films at this stage are based on domestic stories and domestic settings, they are likely to have internationally mature genres; moreover, international distribution channels are almost non-existent or have only just emerged, and the brand effect of the place of origin is almost nonexistent, so exports are sporadic and initially based on the same cultural circle, so international influence is small. Films in this stage are very meaningful for the revival and promotion of national culture in the country, but they not very useful for the export of national culture, because they mainly target domestic market and have not yet developed international influence. The length of time it takes to move from stage 2 to stage 3 or even stage 4 varies, depending on two main factors: the size of the total domestic market and the level of competition. It all boils down to one thing: market growth. If the domestic market is large, the transition may take longer, all else being equal, because firms have more room for profit at home. This may explain the difference between Chinese and Korean cultural trade exports. Because of the huge size difference between the two, export strategies may be different. The Korean market is relatively small, so it can quickly reach saturation and growth declines, so it quickly begins to consider exporting to remain profitable, whereas China does not. In addition, the level of competition from imported movies is also an important factor. If the competition from imported movies is fierce, the transition from the second stage to the third stage will sometimes be accelerated because the growth space left for domestic movies is reduced. In other words, fierce competition can lead to more competitive cultural products, and Korean cinema provided a case in point in this regard. In 2006, South Korea cut the number of days a year it screens domestic films from 146 to 73, even though the share of domestic films’ box office in Korea dropped from 60 percent to less than 50 percent that year and in subsequent years; however,

The Case of Film Import  57 it did not take long for local films to catch up. From 2012 to 2015, the share of ­Domestic films at the box office reached 58.8 percent, 59.7 percent, 49.31 percent and 51.28 percent, respectively. Not only that, Korean films have become increasingly competitive under the effect of fierce competition, with record exports, from 26.8 billion won in 2006 to 62.8 billion won in 2015 .17 China has now rapidly grown to become the second-largest film market in the world, which should be considered a normal reflection of the reality that China ranks second in the world in terms of total GDP. Many people expect China to surpass the United States to become the world’s No. 1 film market, but I believe that since China’s GDP is the second largest in the world after the United States, the overall growth of China’s economy is necessary for China to surpass the United States to become the world’s No. 1 film market. Worldwide, the share of a country’s box office in the global box office is roughly the same as its GDP in the world (see Figure 4.1). Therefore, it is not expected that China’s box office growth rate will always remain high at or above 25 percent; in fact, China’s box office growth rate has begun to slow after 2016, and this is likely not a short-term change, but the beginning of a new phase. The rapid growth of China’s box office over the past few years is likely to be a “compensatory” growth. The annual per capita movie-going in China’s mainland is now more than one. It is expected that China’s box office will still grow, but at a slower pace, gradually transitioning from the second to the third stage.18 In the future, as China’s film industry transitions from Phase II to Phase III, the home market effect in China’s domestic market will gradually emerge, and exports of Chinese films will gradually increase and their international influence will grow. But this phenomenon has not yet occurred at present.

Figure 4.1 Relationship between the global share of GDP and the global share of box office (2015).

58  The Case of Film Import 4.5  Why Can Film Imports Promote Chinese Culture Going Abroad? 4.5.1  The Film Industry of Developed Countries, Represented by the United States, Has Entered the Fourth Stage, and It Is the Main Strategy of Its Film Producers to Strive for Fast-Growing International Markets as Global Target Markets

In some developed countries (e.g., the United States), the cultural industry has reached its fourth stage of development. The development of the cultural industry in these economies has entered a mature stage, and the domestic market is growing slowly or even declining (see Table 4.2). However, due to the huge investment already supported by its local market, its cultural products have the home market effect of trade. Competition is fierce, so companies are pursuing fast-growing export markets without abandoning their home markets. Incorporating the cultural elements of the main export target markets is an important strategy. The more intense the competition, the more likely it is to incorporate cultural elements from that region. Even customizing cultural products for the main export market. Several major U.S. Hollywood studios produce global blockbusters targeting global markets (see Table 4.3). For this reason, their films are often chosen for global themes, set on global locations and released worldwide. However, the inclusion of cultural elements from larger, fast-growing countries and regions is also an important competitive strategy. 4.5.2  Rapid Growth of China’s Film Market Is Changing Its Position in the Global Film Market and Attracting Global Film Makers to Shift Their Target Markets

The explosive growth of the Chinese film market in recent years has led to a rapid change in its position in the global film market, even from a “niche market” to part Table 4.2  North American Box Office and Growth Rate, 2005–2017 Year 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

Total domestic box office (billion USD) 11.1 11.4 11.11 10.36 10.92 10.84 10.17 10.57 10.6 9.63 9.66 9.21 8.84

Growth rate (%) −2% 2% 7.4% −5.2% 0.8% 6.5% −3.7% −0.3% 10% −0.3% 4.9% 4.2% −5.8%

Source: http://www.boxofficemojo.com/yearly/?view2=domestic&view=releasedate&p=.htm

The Case of Film Import  59 Table 4.3  Share of Overseas Box Office of American Films in 2017 Unit: million USD Title Star Wars: The Last Jedi Beauty and the Beast (2017) The Fate of the Furious Despicable Me 3 Spider-Man: Homecoming Guardians of the Galaxy The Hunger Games: Mockingjay The Martian Cinderella Spectre

Overseas box office

North American Total box office box office

Overseas box office share

692

604

1296

53.40%

759

504

1263

60.10%

1010

2.26

1236

81.70%

770 546

2.64 3.34

1034 880

74.40% 62.00%

474

3.89

864

54.9%

371

2.82

653

56.89%

401 342 681

2.28 2.01 200

630 544 881

63.75% 62.99% 77.28%

Source: https://www.boxofficemojo.com/

Table 4.4  Top 20 Highest-Grossing Foreign Films That Include Standard Chinese (Putonghua) Ranking

Title

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Wonder Woman Spider-Man 2 The Mummy Ocean’s Eight Angels & Demons 4: Rise of the Silver Surfer Life of Pi Tower Heist Gangs of New York Romeo Must Die Ghosts of Girlfriends Past Don’t Say a Word 3:10 to Yuma Sneakers Goldfinger Australia Mike and Dave Need Wedding Dates The Money Pit The Number 23 Patriots Day

Data source: http://www.imdb.com/search/title?title_type=feature&languages=zh&sort=boxoffice_ gross_us,desc

PacificRim: Uprising

Tomb Raider

xXx Rogue One: A Star Wars Story Kong: Skull Island Arrival Mission: ImpossibleRogue Nation The Amazing Spider-man X-Men: Days of Future Past Transformers: Age of Extinction Gravity

Pacific Rim Iron Man 3

2018

2018

2017 2017

2013 2013

2013

2014

2014

2014

2017 2017 2015

Title

Year

81 72

87

72

95

98

60 78 76

73 74

57

51

Number of regions distributed to

Hong Kong, Li Bingbing, Han Geng, Red Bull China Tiangong-1 space station, Shenzhou spacecraft, Ping Pong paddle, pot-bellied Maitreya Buddha, Chinese control button Hong Kong, Chinese triplets Fan Bingbing, Wang Xueqi, TCL cell phone, Yili

Fan Bingbing, China Temple

Jian Nan Chun

Jing Tian Ma Zhi, Chinese language TCL Display

Jing Tian, Zhang Jin and other Chinese actors, Shanghai, China, Standard Chinese (Putonghua) Daniel Wu, Hong Kong, China, Cantonese, Standard Chinese (Putonghua) Donnie Yen, Wu Yifan Jiang Wen, Donnie Yen

Chinese cultural elements involved

Table 4.5  Some Information About Hollywood Films with Chinese Cultural Elements

77.2% 66.3%

61.7%

77.8%

68.7%

71.4%

32.5% 8.5% 72.2%

51.58% 7.17%

30.75% (as of April 7, 2018)

41. 59% (as of April 7, 2018)

25.2% 10.2%

10.0%

29.3%

15.7%

13.6%

46.15% 16.74% 19.4%

52.43% (as of April 7, 2018) 38.82% (as of April 7, 2018) 59.28% 14.31%

Box office outside Box office in North America/ China/Global Global box office

32.6% 15.4%

16.2%

37.6%

22.8%

19.0%

22.9% 24.2% 26.9%

26.5% 40.3%

39.9%

25.1%

Box office in China/Box office outside North America

60  The Case of Film Import

Skyfall

Madagascar3: Europe’s 73 Most Wanted Looper 65

Battleship

Men in Black III

Resident Evil: Retribution Kung Fu Panda 2 Transformers: Dark of the Moon

2012

2012

2012

2012

2012

2011 2011

2012

2013 2013

84 79

59

63

63

91

59 56

59

Cloudy with a Chance of Meatballs 2 G.I. Joe: Retaliation Enders Game

2013

67

Cloud Atlas

2013 56. 6%

79.2%

82.5%

71.3%

78.5%

62.1%

shadow 75.2% Lenovo, TCL, Yili, CCB, Zhou Hei Duck 68.7%

Modern landscape of future Shanghai, Jiangnan water town, the line “I come from the future world, the leader of the future world is China”, Xu, Qing Sun Tzu’s Art of War, Hong Kong, Chinese researchers Yao, Ming, “Wu Yuan Restaurant”, “The sky is long and the earth is endless, this hatred is endless”, Tsingtao Beer, Golden Dragon Fish Li Bingbing

Lee, Byung-hun, a Tibetan woman 67.0% 50.8% The young generation’s brave attempts to adopt a positive attitude towards the Eastern cultural spirit, the “weasel worshipping the chicken—no good intentions” and “turning enemies into friends”, and the idea of turning enemies into friends The colorful night scene of Shanghai, the 72.6% classical Chinese dragon lantern outside the Macao casino Northeast Tiger 71.1%

Reincarnation, all things connected and other Chinese philosophical ideas “What goes around comes around”

14.3% 14.9%

46.3%

12.8%

15.9%

11.2%

4.2%

5.4%

0.6% 17.7%

21.2%

(Continued)

19.1% 21.7%

56.1%

17.9%

20.3%

18.0%

6.0%

7.4%

0.8% 34.8%

26.8%

The Case of Film Import  61

The Spy Next Door

Shanghai Farewell Atlantis

Transformers:Revenge 66 of the Fallen Sherlock Holmes 60

Batman Begins

2010

2010 2009

2009

2008

2009

2010

The Karate Kid The Last Airbender Harry Potter and the Deathly Hallows The Sorcerer’s Apprentice

2010 2010 2010

85

32 76

53

55

78 78 73

101 83

Avatar Alice in Wonderland

2010 2010

Number of regions distributed to

Title

Year

Table 4.5 (Continued)

Chinese old ladies, red lanterns, dragon dances, traditional Chinese instruments such as suona and gongs, Cantonese language, acupuncture Jackie Chan, Chinatown, cheongsam of Chinese restaurant waitresses Gong Li Mt. Everest, Potala Palace, Himalayas, Chinese map, Chinese soldiers, Chinese Tibetan religion, the idea of “let fate take its course” Shanghai, Hong Kong, Chinese characters Sherlock Holmes and Watson have repeatedly used Chinese kung fu to kill their way out Victoria Harbour, Hong Kong

The idea of “unity of heaven and man” Line “We can expand our business territory to China and use Hong Kong as our trading base” Jackie Chan Tai Chi, Bagua, Hung Gar Kung Fu Chinese shadow

Chinese cultural elements involved

63.3%

60.1%

51.9%

99.5% 78.4%

46.7%

70. 7%

51.0% 58.8% 69. 2%

72.7% 67.4%

2.2%

8.0%

71.9% 2.6%

22.3%

28.4%

2.0% 1.4% 3.2%

7.3% 3.4%

Box office outside Box office in North America/ China/Global Global box office

3.7%

15.3%

72.3% 3.3%

47.8%

40.1%

3.9% 2.4% 4.6%

10.0% 5.0%

Box office in China/Box office outside North America

62  The Case of Film Import

The Forbidden Kingdom

The Children of Huang 25 Shi

2008

2008

53

The Mummy: Tomb of 56 the Dragon Emperor

2008

79

Kung Fu Panda

2008

Fatalism, the idea that “once a teacher, always a father” The Great Wall of China, Qin Shi Huang’s Palace, Xi’an Old Town, Old Shanghai Nanjing Road and Song and Dance, Shangri-La, Himalayan Snowman, Jet Li, Michelle Yeoh, Chinese Kung Fu Hengdian, Dunhuang, Wuyi Mountain, Zhejiang Xianju, Jackie Chan, Jet Li, Li Bingbing, the Royal Palace, Kabuki, men working and women weaving 1930s Shanghai Beach, Communist Party member Chen Hansheng, the idea of “going to the ground for peace” 87.2%

27.7%

21.1%

3.9%

74.6%

59.4%

4.2%

65.8%

31.8%

35.6%

5.2%

6.4%

The Case of Film Import  63

64  The Case of Film Import of the “mainstream market” position. With the huge market size and high growth rate, the film producers targeting the Chinese market will not only be Chinese enterprises but also enterprises from all over the world, and the cultural elements in the cultural products they produce will become more and more Chinese as a result of the demand-oriented input of cultural elements. The highest-grossing films in the United States that contain Standard Chinese (Putonghua) are not in Chinese, but in English, as shown in Table 4.4. American Hollywood commercial blockbusters have always targeted the global market, and in recent years the Chinese market has gradually increased its share in the global box office (see Table 4.5), so it is easy to understand the importance it attaches to Chinese elements and the Chinese market. 4.5.3  In Order to “Please” the Chinese Market, Chinese Elements in Hollywood Films Are Mostly Positive

As mentioned above, the 1927 U.S. study on the Chinese film market mentioned “a particular point to guard against is the sending of pictures to China which show a Chinese as a menial—often a comic type or as a villain”.19 In recent years, the Chinese elements in American films have become more and more positive about China. Hollywood’s attitude toward China can be seen in a film that ended up without Chinese elements. Red Dawn is a 1984 action film released by MetroGoldwyn-Mayer (MGM) that tells the story of the Soviet invasion of the United States and the defeat of a group of American high school students by the resistance. In 2008, MGM decided to remake the film, but the invaders were changed from the former Soviet Union to China. The film was not released because the distributor feared that the film would upset China, an important overseas market, not only by offending the Chinese audience but also by undermining the various partnerships and long-term interests it had painstakingly built with the Chinese General Administration of Radio, Film and Television. MGM had to invest in a major post-­ production overhaul of the film, replacing “China’s People’s Liberation Army” with “Korean People’s Army”. Although the film was not eventually released in China, the incident is a clear indication of Hollywood’s change of attitude toward Chinese elements in the pursuit of profit. Foreign media have also commented on this issue, with the Guardian (UK) reporting “Why Hollywood is kowtowing to China” and the Globe and Mail (US) reporting “Is Hollywood surrendering to China”. The Los Angeles Times argues that the film’s back-and-forth reflects the enormous influence of the Chinese government on the entertainment industry in the United States and around the world: even before the film was produced, the Chinese government did not speak out in protest, and the producers automatically made changes to remove negative Chinese elements based on economic interests.20 The intention of using positive Chinese elements in Hollywood films in recent years to “please” the Chinese market is obvious: the extensive live-action shooting in Shanghai in Mission: Impossible—Ghost Protocol; the last human base in Hong Kong in Pacific Rim; the Chinese-built “Noah’s Ark” in Farewell Atlantis; in Gravity, the ­Chinese ­“Tiangong” space station and “Shenzhou” spacecraft help

The Case of Film Import  65 the heroine return to Earth21; in Transformers 4, Beijing opera faces, famous mountains and rivers, Hong Kong live-action, and leading lady Li, Bingbing. The actual Macao scenes of Now You See Me 2, the scenes of one of the main characters, Jay, Chou and his performance of the global theme song in Standard Chinese (Putonghua). The Standard Chinese (Putonghua) lip-syncing version of Kung Fu Panda 3 and the global theme song; the 2018 Hollywood films Lara Croft Tomb Raider: The Cradle of Life, Venom, Fantastic Beasts: The Crimes of Grindelwald and Smallfoot, all of which are in theaters at the time of this book’s writing, have a number of Chinese cultural elements.22 It can now be said that almost all of the big-budget Hollywood movies released in China’s mainland have more or less Chinese cultural elements, not because they favor China, but because China’s mainland market accounts for 19 percent of the global box office, and without the support of China’s mainland market, their pressure to recover costs would be much higher. 4.5.4  Hollywood Films, Which Are Distributed Worldwide, Can Efficiently Disseminate Various Cultural Elements

As one of the cultural industries with the most substantial economies of scale in production, movies have the most obvious tendency to maximize the number of audiences. Hollywood films have huge fixed costs and therefore have to be shown to almost all countries in the world in order to recover their costs and make profits. Tables 4.5 and 4.6 show the number of regions in which American films with Chinese cultural elements and some popular Chinese films have been distributed in recent years, as well as other information on the number of regions in which they have been distributed worldwide. As can be seen from the number of distribution regions in the world, relatively speaking, Hollywood films are higher than Chinese domestic films in the number of distribution countries and regions and the global box office. In terms of the number of countries and regions of distribution, the average number of Hollywood movies in the sample is 68.18, while the average number of Chinese movies is 14.36. 4.5.5  Hollywood Blockbusters with Chinese Cultural Elements Help Export Chinese Cultural Products

Because of their wide distribution and high competitiveness, Hollywood blockbuster movies with Chinese cultural elements have the potential to form a brand effect internationally and help Chinese cultural products to be exported. For example, the Hollywood animated movie Mulan has made Mulan a symbol of Chinese culture in the world, which makes many domestic cultural products take the story of Mulan as a background and go to the international market. For example, the acrobatic drama Mulan created by Chongqing Acrobatic Troupe has been a great success overseas. Although acrobatics is a traditional Chinese item, it is also important that the Hollywood animated film Mulan made the story of Mulan widely known. Wang, Yafei, head of the acrobatic troupe, clearly stated in an interview that, “The main reason for choosing Mulan is that the American audience already has a certain

Journey to the West: The Demons Strike Back(Xi You Fu Yao Pian) Kung Fu Yoga (Gong Fu Yu Jia) Never Say Die (Xiu Xiu De Tie Quan) Wolf Warrior 2 (Zhan Lang 2) Skiptrace (Jue Di Tao Wang) The Monkey King 2 (Xi You Ji Zhi Sun Wu Kong San Da Bai Gu Jing) Mermaid (Mei Ren Yu) Line Walker (Shi Tu Xing Zhe) Monster Hunt (Zhuo Yao Ji) Lost in Hong Kong (Gang Jiong) Goodbye Mr. Loser (Xia Luo Te Fan Nao) The Monkey King (Xi You Ji Zhi Da Nao Tian Gong) Breakup Buddies (Xin Hua Lu Fang) The Breakup Guru (Fen Shou Da Shi) Dad, Where Are We Going? (Ba Ba Qu Na Er) So Young (Zhi Wo Men Zhong Jiang Shi Qu De Qing Chun) Young Detective Dee: Rise of the Sea Dragon (Di Ren Jie Zhi Shen Du Long Wang) American Dreams in China (Zhong Guo He Huo Ren) Journey to the West: Conquering the Demons (Xi You Xiang Mo Pian) Tiny Times (Xiao Shi Dai) Finding Mr. Right (Bei Jing Yu Shang Xi Ya Tu) Personal Tailor (Si Ren Ding Zhi) Chinese Zodiac (Shi Er Sheng Xiao) Cold War (Han Zhan)

2017

2013 2013 2013 2012 2012

2013 2013

2016 2016 2015 2015 2015 2014 2014 2014 2014 2013 2013

2017 2017 2017 2016 2016

Title

Year

Table 4.6  Information About Some Popular Chinese Movies

7 5 4 34 13

12 12

13 7 14 6 2 11 6 3 1 18 17

19 4 11 24 18

17

Number of regions distributed to

0.78 0.84 1.16 1.55 –

0.87 2.15

5.18 – 3.85 2.56 2.29 1.82 1.96 1.12 1.13 1.18 0.99

2.63 3.3 8.7 1.36 1.94

2.49

0.76 0.81 1.12 0.85 0.40

0.84 1.95

5.09 0.91 3.76 2.49 2.22 1.70 1.90 1.08 1.13 1.13 0.94

2.62 3.3 8.54 1.33 1.80

2.48

97.3% 96.8% 96.3% 54.7% –

– 90.7%

98.2% – 97.7% 97.1% 97.0% 93.6% 97.2% 96.7% 100.0% 95.5% 95.0%

99.7% 99.9%a 98.2% 97.8% 92.8%

99.6%

Global box office China box office China/Global (billion USD) (billion USD)

66  The Case of Film Import

Back to 1942 (Yi Jiu Si Er) Painted Skin: The Resurrection (Hua Pi 2) The Silent War (Ting Feng Zhe) Lost in Thailand (Tai Jiong) The Flowers of War (Jin Ling Shi San Chai) Beginning of the Great Revival (Jian Dang Wei Ye) Detective Dee and the Mystery of the Phantom Flame (Di Ren Jie Zhi Tong Tian Di Guo) Little Big Soldier (Da Bing Xiao Jiao) Aftershock (Tang Shan Da Di Zhen) 14 Blades (Jin Yi Wei) Ip Man 2 (Ye Wen 2) Under the Hawthorn Tree (Shan Zha Shu Zhi Lian) Sacrifice (Zhao Shi Gu Er) Let the Bullets Fly (Rang Zi Dan Fei) A Simple Noodle Story (San Qiang Pai An Jing Qi) The Stand-In (Shi Yue Wei Cheng) Red Cliff II(Chi Bi (Xia)) The Founding of a Republic (Jian Guo Da Ye) Red Cliff (Chi Bi) Ip Man (Ye Wen) Forever Enthralled (Mei Lan Fang) Painted Skin (Hua Pi) Connected (Bao Chi Tong Hua) Kung Fu Dunk (Da Guan Lan) If You Are the One (Fei Cheng Wu Rao ) 29 27 18 17 16 9 9 23 22 13 6 60 20 17 12 11 9 7

11 10 7 6 28 3 29 – 1.00 – 0.50 – – 1.04 – – 1.21 0.61 1.28 0.22 – 0.38 – – –

– 1.19 – 2.05 0.95 0.65 0.52 0.23 0.96 0.21 0.34 0.21 0.27 0.70 0.32 0.31 0.36 0.58 0.40 0.09 0.14 0.30 0.06 0.14 0.25

0.59 1.11 0.37 1.59 0.70 0.63 0.42 – 96.0% – 68.0% – – 67.3% – – 29.5% 94.3% 30.9% 42.5% – 77.7% – – –

– 93.5% – 77.5% 73.3% 96.9% 81.2%

a

NEVER SAY DIE was released in only three countries: China, Singapore, the Philippines, with ominous box office results in two countries except China, where 99.9% of the total is estimated.

Source: https://www.boxofficemojo.com/

2010 2010 2010 2010 2010 2010 2010 2009 2009 2009 2009 2008 2008 2008 2008 2008 2008 2008

2012 2012 2012 2012 2011 2011 2010

The Case of Film Import  67

68  The Case of Film Import understanding of the ancient Chinese story of Mulan taking the place of her father because of the Disney animated film Mulan”.23 4.5.6  The Competitive Effect of Imported Films Has Accelerated the Advancement of Domestic Films to the Third and Fourth Stages

For an industry like film, where economies of scale in production are obvious, a huge domestic market is like a double-edged sword: on the one hand, it motivates filmmakers to invest and reinvest and is therefore a major advantage for the industry’s international competitiveness; on the other hand, the abundant opportunities brought by a large domestic market may also lead to a loss of willingness of filmmakers to go abroad, thus creating factors that are detrimental to international competition.24 A large domestic market must be sufficiently competitive, otherwise the most favorable demand conditions will not necessarily create its competitive advantage.25 Therefore, if domestic products are to be internationally competitive, they need to develop a competitive landscape in the domestic market that is internationally competitive. The entry of globally leading imported products into the domestic market creates an international competitive environment in which domestic products have the opportunity and incentive to compete with international films and improve their competitiveness. As mentioned in Chapter 3, in the 1990s, China’s policy of importing, blockbusters with shared revenues, had a competitive effect. Driven by imported blockbusters, for a long period of time, as only “blockbusters” could activate the domestic film market, domestic films broke through the previously accepted investment threshold to compete with foreign blockbusters in the market. 2006 saw a reduction in the number of days Korean domestic films could be screened from 146 to 73 days per year, and although the share of Korean domestic box office dropped from below 60 percent to below 50 percent in that year and the following years, local films soon caught up, from 2012 to 2015, the share of Domestic films at the box office reached 58.8 percent, 59.7 percent, 49.31 percent and 51.28 percent, respectively. In addition, Korean films have become increasingly competitive under the effect of fierce competition, with record exports, from 26.8 billion won in 2006 to 62.8 billion won in 2015.26 The famous Hong Kong filmmaker Jackie Chan has said more than once that he must use his “real fists” to compete with Hollywood high technology, otherwise he cannot compete with them, but it was under this strong competitive pressure that he was able to make kung fu films that surpassed the level of Hollywood and eventually became the most successful action actor in the world. Kung fu films have also become a symbol of Chinese film in the world. 4.5.7  Imported Productive Factors Are More Conducive to Chinese Films and Chinese Culture Going Out Together

Compared with imported “finished” films, imported productive factors of the film industry are more directly beneficial to Chinese cultural products and even Chinese culture going abroad, especially the role of imported human capital.

The Case of Film Import  69 A huge Chinese cultural market attracts talents from different countries to e­ ngage in the production of cultural industries. This “human importation” has also led to the development and growth of China’s cultural industries and increased international competitiveness. For example, the U.S. cultural industry has never just belonged to Americans; in the center of the U.S. cultural industry, there are cultural professionals with dreams from all over the world, and the developed U.S. cultural industry has made it a platform for these professionals to go global. On the other hand, the “imported” talents from all over the world are also ensuring that the U.S. cultural industry, despite its long history, remains vibrant and full of new talent. With the expansion of the market in China’s mainland, it is becoming the center of the cultural industry with Chinese language. Because of the huge market size of China’s mainland, it is attracting not only talents speaking standard Chinese (Putonghua) from all over the world but also talents from non-Chinese speaking regions. They all help to spread the Chinese language and culture around the world through the cultural trade. The entry of foreign stars into the Chinese market can drive the popularity of Chinese cultural products and create an international branding effect. For example, Zhang Yimou’s The Flowers Of War (Jin Ling Shi San Chai) has brought in Hollywood actors to help get Chinese films out of China. I Am a Singer(Wo Shi Ge Shou) has featured Korean stars in its recent episodes, which has helped the show gain recognition in Korea. Also, when Korean stars participate in the show, they try to choose Chinese songs to compete. The Chinese film market has grown rapidly in recent years to become the ­second-largest market in the world, and Chinese and foreign collaborations are beginning to emerge for films with China as the main target market. For example, the 2015 comedy film Hollywood Adventures (Heng Chong Zhi Zhuang Hao Lai Wu) co-produced by Light Pictures and Seven Stars Entertainment, features a large number of American actors, and even some world-famous actors, speaking standard Chinese (Putonghua). Famous filmmaker Jackie Chan once confirmed in an exclusive interview: “Now the Chinese film market is very strong, and even many Hollywood companies ask me to introduce them to China, just to develop and open branches in China”.27 4.6  Conclusions and Policy Implications 4.6.1  China Can Use Cultural Products from Around the World to Promote the International Spread of Chinese Culture

In this chapter, we hope to demonstrate the significance of “importing” cultural products to promote China’s cultural outreach by arguing that, in the context of globalization, since cultural products have a tendency to maximize the number of consumers. If a country has a large cultural market, it can attract cultural products and productive factors from all over the world to add that country’s cultural elements and spread them around the world. China is one of the few countries with a large cultural market, and one of the few countries that can take advantage of the globalization opportunity to attract global resources to help spread Chinese culture

70  The Case of Film Import internationally through its large market size. China’s cultural product market can become a platform for cultural products with Chinese cultural elements to compete with each other. Once again, it should be emphasized that not all countries and economies have such characteristics and advantages, but China’s huge economic volume and the size of its cultural industries and markets are unique advantages. The case study of the film market in this chapter shows that China, as the world’s fastest-growing film market and the second largest in terms of total size, is on its way to becoming the world’s most competitive film industry and a platform for fair competition among the best cultures in the world. China’s history and traditional culture, combined with the network externalities of consumption and “positive ­addiction” of cultural products, give Chinese culture an advantage in this competition. This competitive environment will serve as an important platform for Chinese culture to flourish in the world. It is worth emphasizing that language, as a carrier of culture, plays an important role in the dissemination of culture. The increasing economic strength and international status of China also provide good opportunities and conditions for the international spread of the language of standard Chinese (Putonghua), and with the government’s efforts to promote standard Chinese language, the international spread of standard Chinese language and Chinese cultural trade will form a good interaction and promote each other. 4.6.2  The Government Has Shifted Its Protection from Chinese Cultural Industries to Chinese Cultural Elements

The government, as the inheritor of traditional culture, can protect the best traditional culture, but the target of protection should be Chinese cultural elements, regardless of the nationality of the producer of the cultural product. In other words, the target of protection should be the culture itself, not the local production of cultural products. Language, as one of the core carriers of culture, should be an important object of protection for the government to promote international communication. Current film policies are not necessarily conducive to using global resources to promote Chinese culture abroad. For example, the fact that the share of the producers of imported share films is lower than that of domestic films provides different incentives for producers and distributors, i.e., it reduces the importance of imported share films to the China’s mainland market and increases the interest of distributors, which is not conducive to the inclusion of Chinese elements by producers. But it will make distributors pay more attention to the imported revenuesharing films, making them more active in introducing imported revenue-sharing films that may not necessarily have Chinese cultural elements and providing better scheduling plans. If a Hollywood studio’s decision to include Chinese elements in its films depends on the ratio of the increase in revenue from Chinese elements in the Chinese market to the decrease in revenue from markets outside of China, then it is clear that the greater the former is, the more likely it is to attract producers to include Chinese elements. From this point of view, this share ratio should not be lower but higher, which is conducive to the global spread of Chinese culture.

The Case of Film Import  71 4.6.3  The Importation of Films Does Not Necessarily Mean a Loss of Economic Revenue for Chinese Enterprises

At present, some Chinese film enterprises have rapidly integrated into Hollywood and become co-producers of Hollywood blockbusters, so the importation of films does not necessarily mean the loss of economic revenue for Chinese enterprises. In addition, with the accelerated pace of foreign investment by Chinese film companies, the center of the international film industry may even begin to shift across borders, with China becoming the most advantageous destination. For example, the Wanda Group and the Qingdao Municipal Government are jointly building the Oriental Film City, which is attracting Hollywood studios to shoot in Qingdao by offering subsidies of up to 40 percent of the film production cost.28 As China’s economic strength continues to rise and its film market continues to expand, coupled with a certain degree of protection for Chinese cultural elements, China may become the only country that does not have to worry about the U.S. cultural invasion through cultural products. On the contrary, other countries may begin to worry about Chinese cultural invasion, a phenomenon that has already begun to emerge, as many foreign media outlets, including Hollywood, have begun to worry about Chinese cultural invasion in recent years. For example, an October 23 Forbes article, “Will China’s Wanda Take the Movie Industry from the United States”, suggests that Chinese films should be severely restricted from being shown in U.S. theaters and their share of box office revenues should be reduced. Chinese films should also be banned from showing on Christmas or Labor Day weekends, setting conflicting release times for the most promising Chinese films.29 This trend also warrants close attention from researchers and is a subject for further study. Finally, it should be emphasized that the author is not arguing that China’s cultural exports are not important for the dissemination of Chinese culture, but rather that as a large country with a long history and rich cultural resources, China will eventually move toward a stage where it relies primarily on cultural exports to promote the dissemination of Chinese culture. However, it is also believed that before this stage, at a specific stage when the domestic cultural industry is already competitive but insufficient to promote the export of Chinese culture on a large scale, and the opening of the domestic market combined with the protection of national cultural elements is a more efficient way to use global resources to promote Chinese culture. It is also believed that the growth of China’s economy and the deepening of globalization will lead to the production of cultural products with Chinese cultural elements in a globalized mode, which will eventually be produced mainly within the Chinese economy. The imported cultural products with Chinese elements that emerge in pursuit of the Chinese market will eventually become ­locally produced in China through industrial transfer.

72  The Case of Film Import Notes 1 Parts of this chapter have been published in Dongyue Tribune Dongyue Luncong, 2017(5). 2 Peng, Y. Y. (2006). Research and countermeasures on the development of international cultural trade industry. Statistics and Decision, (021), 113–115. 3 Liu, Xiaoxu. (2009). On Comparative Advantage in Cultural Trade. Jiangxi Social Sciences, 2, 86–90. 4 Yu, Dan and Yang, Yueming. (2015). “Supply” and “Demand”, the Core proposition of “Going Out” Strategy of Chinese Culture: Based on the Survey of People’s Awareness of Chinese Culture in six Countries. People’s Forum, (24), 72–75. 5 Although The Great Wall is a Sino-American co-production, the production team is mainly a Hollywood crew. 6 Wang, Baoqi. (2015). Chinese Elements in Transformers 4. Study & Play, 1, 2. 7 Lara Croft Tomb Raider: The Cradle of Life has a lot of Hong Kong locations and ­Chinese actor Daniel, Wu as the lead actor; Venom has a lot of Chinese community scenes, Chinese characters, Chinese actors and Chinese language; Fantastic Beasts: The Crimes of Grindelwald has Chinese beasts; and Smallfoot has a lot of Chinese characters and Standard Chinese (Putonghua). It can be said that there are very few big-budget Hollywood movies released in China now that target the global market and do not contain any Chinese cultural elements. 8 Mas-Colell, A. (1999). Should Cultural Goods Be Treated Differently? Journal of Cultural Economics, 23(1), 87–93. 9 Mas-Colell, A. (1999). Should Cultural Goods Be Treated Differently? Journal of Cultural Economics, 23(1), 87–93. 10 Rauch, J. E., & Trindade, V. (2009). Neckties in the tropics: a model of international trade and cultural diversity. Canadian Journal of Economics/Revue canadienne d’économique, 42(3), 809–843. 11 Richardon, M. and Wilkie, S. (2015). Faddists, Enthusiasts and Canadian Divas: Broadcasting Quotas and the Supply Response. Review of International Economics, 23(2), 404–424. 12 David, Hesmondhalgh. (2006). Cultural Industries. Translated by Liao Peijun. Taipei County: Weber Culture International LTD. 13 North, C. J. (1927). The Chinese Motion Picture Market, Trade Information Bulletin, No. 467, Bureau of Foreign and Domestic Commerce, United States Department of Commerce. 14 Zhong, Baoxian. (2007). The Rise and Fall of Hong Kong film Industry (1997–2007). Contemporary Film, 3, 69–73. 15 Song, Jiaxuan. (2015, 12 January). South Korean TV Program Export Made Remarkable Achievements. China Culture Daily, p. 3. 16 Yi, Xianzhong, Yan, Weilong, and Li, Chenhua. (2016). Large Domestic Market and Export Competitiveness of Local Enterprises---New Evidence and Explanations from Consumer Electronic Industry. Finance & Trade Economics, 04, 86–100. 17 Zhang, Yan and Tan, Zheng. (2014). 2012–2013: The New Territories of The Revival of South Korean Film Industry–The Enlightenment to the Current Chinese Film. Journal of Beijing Film Academy, 1, 44–49. Park Hee, Sung. (2015). Scanning of South Korean Film Industry in 2014. Film Art, 02, 54–59. Park Hee, Sung. (2016). Scanning of South Korean Film Industry in 2015. Film Art, 02, 32–37. 18 This is argued in more detail in Chapter 8 of the book using econometric models. 19 North, C. J. (1927). The Chinese Motion Picture Market, Trade Information Bulletin, No. 467, Bureau of Foreign and Domestic Commerce, United States Department of Commerce, p. 4. 20 Li, Yang. (2014), The Chinese Culture Represented in American Films (2000-2013), Master’s Degree Thesis, Lan Zhou University. p. 43.

The Case of Film Import  73 21 Li, Yang. (2014), The Chinese Culture Represented in American Films (2000-2013), Master’s Degree Thesis, Lan Zhou University. p. 42. 22 Lara Croft Tomb Raider: The Cradle of Life has a lot of Hong Kong locations and ­Chinese actor Daniel Wu as the lead actor; Venom has a lot of Chinese community scenes, Chinese characters, Chinese actors and Chinese language; Fantastic Beasts: The Crimes of Grindelwald has Chinese beasts; and Smallfoot has a lot of Chinese characters and Standard Chinese (Putonghua). It can be said that there are very few big-budget Hollywood movies released in China now that target the global market and do not contain any Chinese cultural elements. 23 Cai, Meng. (2010, 23 March), Acrobatics Drama Hua Mulan: From Chongqing to Abroad. China Culture Daily, p. 11. 24 Ding, Ping and Zhang, Erzhen. (2013). The Domestic Demand and the International Trade: A Review. International Trade Questions, 2, 166–174; Yi, Xianzhong, Yan, ­Weilong and Li, Chenhua. (2016). Large Domestic Market and Export Competitiveness of Local Enterprises: New Evidence and Explanations from Consumer Electronics Industry. Finance & Trade Economics, 04, 86–100. 25 Porter, M. E. (1990). The Competitive Advantages of Nations. New York, NY: The Free Press. 26 Zhang, Yan and Tan, Zheng. (2014). 2012–2013: The New Territories of The Revival of South Korean Film Industry–The Enlightenment to the Current Chinese Film. Journal of Beijing Film Academy, 1, 44–49. Park Hee, Sung. (2015). Scanning of South Korean Film Industry in 2014. Film Art, 02, 54–59. Park Hee, Sung. (2016). Scanning of South Korean Film Industry in 2015. Film Art, 02, 32–37. 27 See Dragon Blade celebrates for its Box Office Surpassed 5 Billion RMB, Jackie Chan Bowed Four Times to Show Gratitude.CCTV website. http://dianshiju.cctv. com/2015/02/27/VIDE1425018974447404.shtml 28 Wang, Jianlin. China Opportunities for World Cinema, http://www.ocn.com.cn/­ chanjing/201610/unefr18113800.shtml, accessed October 30, 2016. 29 The American media worries that the film industry will be taken away by China’s Wanda and advocates for restrictions on filming in China, https://baijiahao.baidu.com/s?id=15 49556069794634&wfr=spider&for=pc, accessed April 14, 2023.

5

Rise of China’s Economy and International Influence of Standard Chinese Language

Language, cultural industries and trade benefit each other mutually. Language itself is an important part of a country’s culture; therefore, rising international influence of a country’s language is a manifestation of better international influence of its culture, and it will reduce cultural discounts and trade costs when exporting cultural products with this language, thereby promoting the export of cultural products from this country. This chapter discusses the role played by the rise of China’s economy in enhancing international influence of standard Chinese language, hoping to show that the rise of China’s economy has provided the most favorable conditions for the development of China’s cultural trade. 5.1  A Literature Review Language communication plays a subtle role in spreading culture.1 In recent years, research on international spread of standard Chinese language has begun to appear, and one of the important research themes is about determinants of international spread of Chinese language. Most studies find that the international status of a language is affected by economic, political and cultural factors. Wu states that although the international spread of languages still mainly depends on a country’s “hard power”,2 the focus of connotations of hard power has shifted to the “economy, military and technology” after the twentieth century, in which economic power is the most basic and important factor. Many scholars also hold this view, such as Guo, Zou and You and Zhang.3 They have used different methods when demonstrating this kind of view. For example, Wang and Ning have studied language learning as a way of human capital investment from the perspective of language economics and found that the supply and demand status of workers who have mastered certain language skills in the labor market and the status of that language in that specific language community are the internal driving forces that promote the spread of that language.4 Wu et al. and Wang have analyzed the determinants of the international spread of standard Chinese language on a case study of Thailand.56 Wu et al. point out that the spread of standard Chinese language in Thailand is closely related to China’s international economic and trade development.7 During the decade from 2003 to 2012, the trade volume between China and Thailand has been closely related to the number of standard Chinese DOI: 10.4324/9781003424796-5

Rise of China’s Economy  75 language learners. Every time the total trade volume between China and Thailand increases by 100 million USD, the number of people learning Chinese language in Thailand will increase by 2,000. Therefore, Wu has put forward a “bold” argument that the increase in the number of people learning standard Chinese language in a country will indirectly promote the increase in the trade volume between a country and China, and the trade volume between China and a country will form a benign interactive relationship with the spread of standard Chinese language in a country. Wang believes that the development of China’s economy, the similar cultural origins of Thailand and China, as well as the active promotion of standard Chinese language in Thailand by the Chinese and Thai officials have all played an important role in the spread of Chinese language in Thailand.8 In short, scholars have reached a certain consensus on the conclusion that economic factors affect the international status of standard Chinese language. However, if reading the previous literature more carefully, it will be found that the research on the specific mechanism of economic factors affecting the international spread of standard Chinese language is insufficient, especially the research on the specific impact of the rise of China’s economy on the international spread of standard Chinese language. So, even if it is agreed that economic factors affect language spread, and the specific mechanism of economic factors affecting language spread, especially when the impact of China’s economic rise on the communication of Chinese language is not understood well, it may be impossible to follow this rule and let economic development and language spread to promote each other simultaneously, whether it is at the enterprise level, educational institution level or government level. Therefore, this chapter hopes to make more attempts in this regard. It will discuss the language learning motivations at the micro level, language spread path at the macro level and the specific impacts of the rise of China’s economy in promoting the international spread of standard Chinese language. Moreover, this chapter is intended to draw conclusions that China’s economic rise has created unique favorable conditions for the international spread of standard Chinese language and that in the process of promoting the international spread of Chinese language, we should take advantage of those favorable conditions to yield twice the result with half the effort in promoting the international spread of standard Chinese language. 5.2 Economic Factors in Promoting the International Spread of Standard Chinese Language 5.2.1  Instrumental Motivation Is the Major Motivation for Standard Chinese Learning

In terms of international spread of languages, economic factors play an important and decisive role. From a micro level, the effectiveness of international spread of languages depends on people’s motivation to learn a certain language. Among the studies on motivations of second language learning, the most influential is the social psychological model proposed by Gardner and Lambert, which defines language learning motivation as two different orientations, namely,

76  Rise of China’s Economy integrative orientation and instrumental orientation.9 The current international a­ cademic circle is increasingly inclined to believe that instrumental motivation is the effective motivation for second language learning, at least in English teaching, ­instrumental motivation has an overwhelming advantage.10 For standard Chinese, which has a far lower international status than English, the job opportunities created by the rapid development of China’s economy and the demand for understanding China have become the main motivation for foreign students to learn standard Chinese. The US magazine Newsweek once states that the reason for learning standard Chinese language is ample. China is rising rapidly, and everyone wants have a share. Learning to speak standard Chinese can not only benefit communications with the new rich in China but also promote bilateral trade relations.11 At present, most empirical studies on learning motivations of standard Chinese language show that instrumental motivation is more important. For example, Zhou and Jin find that most students in Central Asia show a very clear purpose to learn standard ­Chinese, that is, to find a good job.12 Among the interviewees, 65.43 percent of them feel that learning standard Chinese is beneficial to personal development, and 67.4 percent think that standard Chinese language is a skill for a living in the future; in addition, the scholarship system has also played an important role in reducing the cost of learning standard Chinese language for international students. Lin and Wang also conclude that job and business opportunities brought by learning standard Chinese language are the most direct motivations for most foreigners to learn the language.13 Li and Wei believe that personal development, immigration and examinations are the most important motivations to learn standard Chinese language for preparatory students coming to China and that students of liberal arts have stronger instrumental motivation than students of science.14 Lei and Ni have conducted a study on the motivations to learn standard Chinese language of ethnic students from Xizang Middle School in Ganzi Prefecture, Sichuan Province.15 They have found that students focus more on external motivation (or instrumental motivation) such as immediate exams and admission to higher education. Studies have also shown that even if the initial motivation is not instrumental, after studying in China, an instrumental motivation will become more important, and its influence on learning will be strengthened. When studying the learning motivation of standard Chinese language in the target language environment, Ding has also found that three factors, namely, “the influence of China’s politics and economy”, “the influence of the close cooperation between a country and China”, and “interest in Chinese characters”, are effective in improving students’ motivations or efforts to learn Chinese language, while the motivation of “communication with Chinese people” shows a significantly decreasing role in improving their efforts, indicating that the “instrumental motivation” is increasing, and the “integrative motivation” is decreasing.16 Zhang has applied Gardner’s (1985) the Attitude/Motivation Test Battery (AMT) scale to standard Chinese language learning motivations of students at Columbia University.17 She has found that in the English teaching environment in the United States, instrumental motivation is more important than

Rise of China’s Economy  77 integrative motivation. Students generally take Chinese courses because “China’s economic development makes them feel that Chinese language is very useful”. Students in different countries and regions show different motivations. Ru has found that American students have a higher internal learning motivation because of the interest in Chinese language and culture, and their professional and external motivations are much lower than those of Asian and African students18; Feng et al. have also concluded that the reason why American students learn Chinese is that they are interested in Chinese language and culture, instead of external motivations such as the need for credits or the requirements of parents.19 5.2.2  Economic Factors Become the Most Important Determinants of the International Spread of Standard Chinese Language

Wu has conducted a study on the internationalization of the five official languages of the United Nations and summarized a convincing conclusion that in the current world with main themes of peace and development, a country’s economy is the most important factor in determining the international influence of its language.20 Wu believes that after the twentieth century, determinants of international influence of a language have changed.21 Historically, the internationalization of the world’s major languages was based on the rigid spread of colonial language by force. However, since the 1950s, as colonial countries won independence, it was no longer possible to achieve rigid spread of language by military force. Although the international spread of a language still mainly depends on the hard power of a country, the focus of the connotations of hard power has gradually shifted to the economy, military and technology after the twentieth century. Among them, economic power is the most basic and important. For example, since the twentieth century, the status of English, French, Spanish, Russian and Arabic as international languages has changed. The explanation is that economic strength of relevant countries affects the development. For example, the reason for English continuing to rise is because the economic size of the United States, United Kingdom, Canada and Australia account for a high proportion of the world’s total economy. As the international spread of languages shifts from a rigid pattern dominated by military power to a flexible one dominated by economic power, the strategy of internationalization of a language becomes very different. The rigid pattern is dominated by the willingness of the supply side, and the demand side is forced to learn a certain language, while the flexible pattern is mainly dominated by the demand side, and the supply side competes for the needs of the demand side and achieve goals through meeting language learners’ needs. Even if a government is required to formulate a series of language policies in consideration of the nature of language being a public goods, those policies must appear in a more subtle way. In this regard, the process of establishing the status of English in Singapore can be a good illustration. Guo has conducted an in-depth study on this topic. He finds that English has become one of the most important languages in Singapore, a country where Chinese people accounts for a big proportion of the total population. The process has not undergone any mandatory policies on the surface. Although the

78  Rise of China’s Economy Singaporean government has established language goals with English as the main language, it has always been the choice of children’s parents as the main motivation to learn a language in reality. When parents were given the choice between learning English in Chinese schools or learning Chinese in English schools, parents chose a language that can bring useful knowledge to their children throughout their lives.22 Moreover, whenever there were policies to strengthen the education of Chinese language in Singapore, the opposition did not come from other ethnic groups, but more from the Chinese people themselves. Behind this phenomenon was the background of the powerful English language and stagnant development of China at that time. As Chinese economy has grown and developed since the twenty-first century, Singapore has begun to focus on standard Chinese language. For example, at the National Day Rally of Singapore in 2002, the President of Singapore has encouraged Singaporean investors to use their knowledge of standard Chinese language and culture to cooperate with Chinese companies in order to take advantage of the business opportunities provided by China. In the concluding remarks of the speech, the President has directly pointed out: …to make full use of these opportunities, Singaporeans must be able to use Chinese proficiently… We need to re-examine how to improve Chinese language teaching, so as to cultivate bilingual Chinese elites who understand Chinese culture, history and contemporary China’s development.23 From the perspective of language economics, the development of a country’s economy will increase the economic value of its language, raise the marginal utility and reduce the marginal cost of learning the language. The minimum effective size theory of language survival put forward by Zhou has clearly explained the determinants of language spread.24 In this theory, he regards language learning as a rational choice after measuring benefits and costs. The benefits and costs of language are both functions of the number of users of the language. The benefit function R is an increasing function, and it is concave, which means that as the number of users increases, language benefits will not only rise, but also increase faster because the greater the number of users, the greater the communication value of the language. The cost function C is a decreasing function, and it is concave, which means that as the number of users increases, the cost of language will not only decrease, but also decrease faster because the greater the number of users, the better language learning environment, and the more opportunities for communication. The intersection of the language benefit curve and cost curve is the minimum effective scale of the language. The smaller the scale, the stronger the vitality of the language, and the easier for it to spread. As long as the number of users exceeds this scale, the benefits begin to exceed the costs, and the more it exceeds the scale, the more the benefits exceed the costs. Therefore, in order to improve the efficiency of language spread, it is necessary to reduce the minimum effective scale. One method is to raise the benefit of language learning, which moves the R curve

Rise of China’s Economy  79 upward or reduce the language learning cost, making the C curve move downward. Under the theoretical framework of Zhou, on the one hand, these two changes depend on the openness and freedom of a society25; and on the other hand, on the economic development level of the region where the language is spoken. The latter mainly affects language learning benefits, because the higher the level of regional economic and social development, the more external communication and trades, and the greater benefits. Meanwhile, in order to trade with the region, the external society has to learn the language. This benefits the spread of the language in the region, which in turn increases the potential benefits of the language in the region. Therefore, the higher the regional economic and social development level, the higher the benefit of the language learning in the region; the lower the regional economic and social development level, the lower the benefit of the language learning in the region. Zhou’s model clearly illustrates the path dependency or externality of language spread.26 Once the minimum effective scale is exceeded, language communication enters a fast path. After reaching the minimum effective scale, the benefits of the language learning begin to outweigh the costs, and the gap will become bigger. According to this theory, the rise of China’s economy provides favorable conditions for the international spread of standard Chinese language, because the rising economy increases the benefits of standard Chinese language learning and makes R1 in the following figure shift upward to R2, thereby reducing the minimum effective scale of survival of Chinese language (see Figure 5.1). The rest of this chapter will describe the importance of China’s economic rise to the international spread of standard Chinese language from more specific aspects.

Figure 5.1  Minimum effective scale of a language survival. Source: Compiled by the author based on Zhou’s model (Zhou, Duanming. (2005). An Economic Analytical Framework of Language. Journal of Jiangsu University of Administration, (03), 31–35).

80  Rise of China’s Economy 5.3  Rise of China’s Economy Provides Favorable Conditions for the International Spread of Standard Chinese Language 5.3.1  The Rise of China’s Economy: One of the Most Important Events in the twenty-first Century

The rise of China’s economy is one of the most important events of world economy in the twenty-first century. Between 2005 and 2017, the share of China’s GDP of the world’s GDP has increased from 4.86 percent to 15.05 percent, with an average annual increase of about 1 percent. Contrary to this is the decline in the economic share of developed countries. During the same period, the GDP share of the United States has dropped from 27.72 percent to 24.44 percent; the share of 28 European Union countries from 30.33 percent to 21.83 percent; the share of Japan from 10 percent to 6.16 percent. At the same period, the average annual growth rate of China’s per capita GDP is 3.6 percent, while that of the United States is 1.55 percent, Japan 1.88 percent and the world average 1.97 percent.27 5.3.2  The Economic Rise Provides Favorable Conditions for the International Spread of Standard Chinese Language 5.3.2.1 The Growth of China’s Economy Raises the Utility of Speaking Standard Chinese

Previous research on language economics shows that language can be considered as human capital. Vaillancourt points out that just as the knowledge and skills acquired through work experience or through formal education in subjects such as mathematics and history, language itself is also part of human capital.28 Zhang states out that a language satisfies the three criteria to define human capital.29 First, languages must be acquired at a price (cost); second, languages are productive; third, language is dependent on the human body. As a kind of human capital, the economic value of different languages is different. The economic value of a particular language depends on the number of users of the language in various tasks, occupations and activities in various sectors, and is also governed by the law of supply and demand of the language. Vaillancourt believes that in the labor market, the demand for a language depends on employers’ choice.30 The choice is mainly determined by the employers’ own language skills, as well as languages used in the market and technology input. The economic utility of language depends on its use in different markets, including whether it is urgently needed in the labor market, how much it is used in private and public consumer markets, and whether it is commonly used in interpersonal communication. Professor Fumio Inoue of the National Institute for Japanese Language and Linguistics in Japan has discussed the relationship between language and economy based on the specific data of Japanese and other languages. Through surveys on language maps, worldwide censuses and Google searches, he has concluded on the determinants of the market value of languages and their orders, namely, population, economy and information. Standard Chinese is the language spoken by the biggest population in the world.

Rise of China’s Economy  81 With the growth and rapid rise of China’s economy, a huge attractive market has been formed in China, which has greatly improved the utility and economic value of standard Chinese language and has also raised people’s need for it. At the same time, more and more information that is closely related to this big market is expressed in standard Chinese, which will also enhance the market value of standard Chinese language. 5.3.2.2 Being the Largest Trading Country and the Increasing Status in the Global Value Chain Provide Favorable Conditions for Using Standard Chinese Language in International Trade

Carr has once compared language use and currency use in international trade.31 He believes that a single universal language is like a universal currency, which can reduce trade costs. In other words, language plays the similar role as currency in international trade to a certain extent, and both language and currency are tools to reduce transaction costs. In this sense, the basis for any language to play a role in international trade is the frequency of transactions conducted by people who speak that language and the amount of currency involved. China has been the world’s largest trading country since 2012, so this plays an important and fundamental role in the international spread of Chinese language. In addition, the status of Chinese companies in the global value chain is also rising from the mid-to-low-end to the mid-to-high-end. China’s foreign trade is undergoing a process of change of advantages. The 13th Five-Year Plan on national economy clearly states that China must cultivate new advantages in exports. It can be expected that technologies, standards, brands, quality, service and other new advantages in the foreign economy will replace traditional advantages in terms of productive factor costs.32 This replacement will greatly enhance the ability of Chinese companies to dominate the global value chain, and the Chinese companies will also have stronger control over the choice of trade language. 5.3.2.3 China’s Becoming One of the World’s Main Sources of Foreign Direct Investment Strengthens the Foundation of the International Spread of Standard Chinese Language

Since investors are often in the position of employers, they have stronger ­decision-making capabilities in terms of language use.33 In the literature on language strategies of multinational corporations, the administrative nature of language is emphasized. That is, the existence of multiple languages represents language competition and the level of language and reflects the status and strength of language users in the company.34 Studies on the instrumental nature of languages also show that languages are important because they determine the extent to which ­multinational companies can share knowledge with subsidiaries scattered around the world. In terms of internal information sharing of multinational companies, the study has found that there are far more examples of information flow from the parent company to the subsidiary company than from the subsidiary company to

82  Rise of China’s Economy the parent company or between the subsidiary companies. In other words, a large amount of communication is from top to bottom, and from the top of the company to the grassroots. This decides the advantage of the mother tongue of the parent company in transmitting information. There are two possible reasons: one is that the parent company has the advantages of knowledge, resources and channels; the other is that some subsidiaries are unwilling or even resist internal communication because they have different self-interests and local humanistic knowledge and characteristics from the parent company.35 At present, China has become one of the world’s main sources of foreign direct investment, and the growth rate is high, with wide global distribution. In 2016, China’s foreign direct investment flow hit a record high of 196.15 billion USD, with a year-on-year increase of 34.7 percent. Since China released its annual foreign direct investment data in 2003, it has achieved growth for 14 consecutive years, with an average annual growth rate of 38.6 percent. The flow in 2016 was 72.6 times than that of 2002. Although the flow decreased in 2017, it was still as high as 124.63 billion USD, ranking third in the world in total. Apart from that, China’s current stock of foreign investment has entered top ten in the world, ranking 8th globally in 2017. Considering that China is the second-largest economy in the world, the scale of China’s foreign direct investment will still maintain a relatively high growth rate. In 2016, foreign direct investment in China has increased by 33.8 percent over 2015, with investment from nearly 80 percent of countries and regions around the world. Chinese people are becoming employers in the international market, and they have a relatively strong power to determine the language requirements of their employees. Research on the language planning of multinational companies has shown that although the frequency of English use is increasing with the deepening internationalization of multinational companies, the mother tongue of multinational companies will still play a very important role. The main reasons are: first, the early leaders of multinational companies generally speak the official language of the country where the parent company originated, which will encourage the entire management personnel to speak the same language; second, branches of multinational companies still need to communicate with the parent company frequently, including contacting and receiving visits from the headquarters; and third, many customers of multinational companies still come from the country where the headquarters are located.36 5.3.2.4 Chinese People’s Traveling and Shopping Overseas Raise the Demand for Standard Chinese Language

In recent years, Chinese people’s overseas travel and shopping increased a lot. In 2017, the outbound tourism market reached 130 million persons, with an increase of 45.8 million persons from 2012, and an average annual growth rate of 9.17 percent on a comparable basis. China has been the world’s largest source of outbound tourism for many years.37 With the increasing number of outbound

Rise of China’s Economy  83 tourists, China’s travel expenses have also continued to increase. Compared with 2015, the international tourism expenditure of China has increased by 25 percent in 2017, reaching 292 billion USD, ranking first in the world; the United States spent 120 billion USD on tourism in the same year, and the number of tourists was 73 million; and Germany and the United Kingdom ranked third and fourth in tourism spending, reaching 76 billion USD and 63 billion USD, respectively.38 Furthermore, China has also become the largest source of tourists for many foreign countries. Table 5.1 lists the countries where China has become the largest source of tourists. As the outbound tourism of China promotes the economic development of tourist destinations, in order to meet the needs of Chinese tourists, foreign businesses would increase the number of signs, tour guides and shopping guides in standard Chinese language. Some local businesses will even hire more service personnel who speak standard Chinese in order to promote sales, which has subtly promoted the spread of standard Chinese language in local areas. For example, in January 2015, Japan has issued 250,000 tourist visas to Chinese tourists, reaching a record high over the same period. In order to be prepared for the shopping peak of Chinese tourists, large department stores in Japan such as Mitsukoshi and Matsuzakaya have delivered standard Chinese language training courses for some employees to improve their Chinese speaking skills.39 The Ginza Mitsukoshi Department Store in Tokyo, Japan, honored as the highest hall of Japanese department stores, has hired standard Chinese-speaking shopping guides in September 2013. As of February 2015, there are four Chinese-speaking shopping guides, and the number is planned to increase to ten guides during the Spring Festival because 50 percent of the customers in the store during the Spring Festival are Chinese tourists. In addition, the current Chinese shopping guides in this store have also compiled their own textbooks to deliver standard Chinese language lectures for all shop assistants.40 Table 5.1  Countries Where China Has Become the Largest Source of Tourists Countries/Regions Number of Chinese tourists in 2017

Rankings among Proportion of international tourists international tourists

Thailand Japan Vietnam Russia Cambodia Indonesia Maldives

1st Source Country 1st Source Country 1st Source Country 1st Source Country 1st Source Country 1st Source Country 1st Source Country

28% 25.6% 31% N.A. 21% 14.95% 25%

1st Source Country

31%

South Korea

9.8 million 7.356 million 4 million 1.5 million 1.2 million 2.059 million 0.24 million (from January to September) 4.17 million

Data Source: 2017 Outbound Tourism Big Data: 130 million Chinese citizens travel abroad. Retrieved from http://travel.china.com.cn/txt/2018-04/27/content_50976602.htm

84  Rise of China’s Economy 5.3.2.5 The Development of Cultural Industries Attracts Foreigners’ Participation

A country’s language and cultural industry promote each other, because on the one hand, language communication can subtly spread culture,41 and on the other hand, cultural prosperity can also play an important role in language spread. Besides instrumental motivation, people’s interest in culture is another important motivation to learn a certain language. Ding has studied the motivation of foreign students to learn standard Chinese language before coming to China and found that learners’ interest in Chinese characters and Chinese films, TV series and books have the greatest influence.42 Learners who are interested in cultural products such as Chinese films, TV series and books make more efforts in learning Chinese language. The interviews in the study have found that some students are fond of Chinese poems in the Tang and Song dynasties, while some like to watch TV series such as The Romance of the Three Kingdoms (San Guo Yan Yi), and others love watching TV channels such as CCTV4. This indicates that films and TV series are very important resources for motivating overseas students to learn Chinese language. The development of the cultural industry has also provided valuable teaching resources for teaching Chinese as a foreign language. For example, Chinese-speaking cartoons such as Big-eared Tutu (Da Er Duo Tu Tu), Big Head Son and Small Head Dad (Da Tou Er Zi Xiao Tou Ba Ba) are all resources used in Chinese teaching in South Korea, and have received warm welcome from students.43 Under the background of economic globalization, a developed cultural industry can play an important role in promoting the spread of a language. 5.3.2.5.1 A DEVELOPED CULTURAL INDUSTRY CAN PRODUCE HIGH-QUALITY CULTURAL PRODUCTS

While meeting the needs of other countries for cultural products, cultural industry has also become a carrier of language communication. For example, the popularity of variety shows and movies has promoted the international spread of standard Chinese language. For instance, the popular film of Lost in Thailand(Tai Jiong) has promoted tourism to Thailand and increased the demand for Chinese-speaking guides in local Thailand; and the variety shows such as I Am a Singer(Wo Shi Ge Shou) and If You Are the One (Fei Cheng Wu Rao) have also enhanced the enthusiasm of local people to learn standard Chinese language. 5.3.2.5.2 A DEVELOPED CULTURAL INDUSTRY WILL ATTRACT RELEVANT FOREIGN PRACTITIONERS

For them, in order to be employed in the developed cultural industry, language becomes a necessary employment skill. For example, if Chinese film and television workers want to work in the United States, they need to learn English. Nowadays, the development of China’s cultural industry has attracted overseas practitioners to engage in the production of Chinese-language cultural products. Take a TV

Rise of China’s Economy  85 program as an example. In April 2015, A Bright World (Shi Jie Qing Nian Shuo) co-produced by Jiangsu Satellite TV and Interesting Media was officially launched. This is a Chinese-speaking TV program featuring 11 foreigners as guests. Those foreigners are all able to speak fluent Chinese, and they make discussions in ­Chinese language on topics that Chinese young people are most concerned about. ­Another TV program Informal Talks (Fei Zheng Shi Hui Tan) is a cultural variety show produced by Hubei Satellite TV in 2015. Youths from ten different countries and four hosts discuss hot topics and concerns of youth. In December 2015, the second season of this program has already been aired. According to preliminary statistics, there are currently at least seven or eight TV programs in which foreigners are main guests such as Happy Chinese (Kuai Le Han Yu) of CCTV International Channel, Beijing Guest (Beijing Ke) of Beijing Satellite TV, Love Travel and Love Shoot (Ai You Wo Pai) of Hubei Satellite TV, Life Is Different (Sheng Huo Da Bu Tong) of Dragon TV, and Hello, China (Hello, Zhong Guo) of Guangdong Satellite TV. They are all programs where foreigners are the main guests. In addition, there are some TV programs where foreigners are not main guests, but hosts, such as Buyers Are Crazy (Mai Jia Ye Feng Kuang) of Henan Satellite TV, Truth in Food (Shi Jian Chu Zhen Zhi) of Tianjin Satellite TV and Hidden Singer (Shui Shi Da Ge Shen) of Zhejiang Satellite TV. There are also examples in movies. Due to the rapid growth of the Chinese film market in recent years, China has become the second-largest film market in the world. Chinese and foreign companies begin to cooperate in producing movies with China as the main target market. For example, the movie Hollywood Adventure (Heng Chong Zhi Zhuang Hao Lai Wu) jointly produced by Enlight Pictures and Seven Stars Entertainment in 2015 has used a large number of American actors and even some world-renowned actors, speaking standard Chinese in the film. 5.3.2.5.3 FOREIGN CULTURAL PRODUCTS TARGETING THE GLOBAL MARKET HAVE ADDED STANDARD CHINESE LANGUAGE AND CULTURAL ELEMENTS TO CATER TO THE HUGE CHINESE MARKET

That is most evident in Hollywood movies. Hollywood blockbusters are commercialized and demand-oriented. In recent years, overseas markets have increasingly become the main battlefield of Hollywood movies.44 The rapid growth of Chinese film market has made it the fastest-growing country in the world. In 2017, film box office in China’s mainland has increased by 13 percent year-on-year to 7.9 billion USD, ranking second largest in the world.45 According to the Global Entertainment & Media Outlook released by PwC, it is estimated that by 2020, global box office revenue is expected to rise to 49.3 billion USD at a compound annual growth rate of 5.97 percent. China is the locomotive for the growth of the global film market. If China’s box office revenue is not included, the compound annual growth rate of global box office revenue in the next five years will fall to 2.27 percent. This has prompted the increasing number of Chinese elements in Hollywood blockbusters targeting the global market. In 2014, Transformers 4, which contains a lot of Chinese elements, won a box office of more than 1.9 billion RMB in China’s mainland.

86  Rise of China’s Economy It has not only become the box office champion in China’s mainland but also become the global box office champion of that year, though it only ranked fifth in the North American market.46 Christopher Lloyd, chairman of the Motion Picture Association of America (MPAA), said in an interview that he can’t wait to see the appearance of customized Hollywood movies targeting the Chinese market.47 Due to the embedding of many Chinese elements, Hollywood’s blockbusters for the global market, including Transformers 4, have been different from the previous ones. For example, in Transformers 4, audiences can see the hero using a savings card with the Chinese characters of China Construction Bank and drinking products with the Chinese character An Li (Amway); in addition, one-third of the movie scenes are shot in Hong Kong, China, and the second heroine in the film is also the Chinese movie star Li Bingbing. In Independence Day 2, Chinese actress Angelababy has joined the starring role and held the Chinese flag on the movie poster. In the movie, the pilot used Tencent’s social media QQ to communicate with the earth and drank Mengniu Space milk. In order to fight for the Chinese film market, more and more Hollywood films have added substantial Chinese elements. These Hollywood blockbusters will be released simultaneously in many countries around the world, and the Chinese cultural and language elements in those movies will also be spread globally (see Table 4.5). 5.4 Conclusions and Discussions on the Orientation of International Spread of Standard Chinese Language This chapter shows that in the current era with peace and development as the main theme, economic factors have become the most important factor influencing the international spread of a country’s language, and the rise of China’s economy has provided the most favorable and basic conditions for the international communication of Chinese language. Factors such as becoming the world’s largest trading country, a major home country for foreign direct investment, the improvement of Chinese consumption power, the emergence of overseas shopping craze and the development of China’s cultural industry have all provided favorable conditions for the international spread of standard Chinese language. At the end of this chapter, it needs to be emphasized that the fundamental role of the economic rise for the international spread of standard Chinese language does not mean that the role of the government is not essential. Language international spread is an activity with a very strong network externalities. A study using the film industry as an example has analyzed the country concentration and language concentration in the world film rankings from 1980 to 2017 and found that the decline in language concentration in the film rankings has been very limited in the past 30 years, though the country concentration has decreased more. It indicates that the network externalities of languages are very significant. The significant network externalities will make the use of global languages converge. Although the international status of Chinese language has risen significantly in recent years, compared with English, its internationalization level is still relatively low. Therefore, the role of the government is still indispensable. If the market can play a fundamental role,

Rise of China’s Economy  87 then it also needs a functional government to play a better role, which will also be the future research direction. Notes 1 Sun, Qiang. (2012). Strategies and Paths for Promoting Cultural Soft Power of Chinese International Communication. Nanjing Social Sciences, 12(7), 98–103. 2 Wu, Yinghui. (2011). A Country’s Hard Power is the Decisive Factor in the Globalization Process of Its Language. Studies of Chinese Language in International Communication, 1(1), 1–14. 3 Guo, Xi. (2007). International Status and International Communication of Chinese. Journal of Bohai University: Philosophy and Social Sciences Edition, 01, 54–59. Zou, Jiayan and You, Rujie. (2001). Chinese language and Chinese Society. Shanghai: Fudan University Press. Zhang, Li. (2012). A Survey on Use of Chinese in the International Business. Language Teaching and Linguistic Studies, 1, 30–36. 4 Wang, Hailan and Ning, Jiming. (2014). An Analysis of the Laws of Language Communication Based on the Characteristics of Individual Language Skill Capital Investment. Social Sciences Journal, 03, 95–100. 5 Wu, Yinghui, Yang, Qing, Liang, Yu, et al. (2012). Thai Model of Chinese Teaching Development Worth Being Learned by the World–on the Model of Rapid Chinese Language Teaching Development in Thailand and Its Enlightenment to Chinese Language Globalization. Studies of Chinese Language in International Communication, 1, 13. 6 Wang, Lingling. (2015). Chinese Education in Thailand and the Globe Spread of Chinese Language and Culture. Studies on Nanyang Issues, 04, 71–77. 7 Wu, Yinghui, Yang, Qing, Liang, Yu, et al. (2012), Thai Model of Chinese Teaching ­Development Worth Being Learned by the World–on the Model of Rapid ­Chinese Language Teaching Development in Thailand and Its Enlightenment to Chinese ­ ­Language Globalization. Studies of Chinese Language in International Communication, 01, 13. 8 Wang, Lingling. (2015), Chinese Education in Thailand and the Globe Spread of ­Chinese Language and Culture. Studies on Nanyang Issues, 04, 7. 9 Gardner, R. C., Lambert, W. E. (1972). Attitudes and motivation in second-language learning. Mass: Newbury House Publishers 10 Zhang, Li. (2015). An Analysis of the Correlation between Chinese Learning Motivation and Performance of American College Students–Taking Columbia University students as an Example. Chinese Language Teaching and Research, 03, 6–10. 11 Sun, Qiang. (2012). Strategies and Paths for Promoting Cultural Soft Power of Chinese International Communication. Nanjing Social Sciences, 12(7), 98–103. 12 Zhou, Diansheng and Jin, Yan. (2013). Economic Factors of Second Language Learning Motivation: A Case Study of Central Asian Students. Journal of Xinjiang Normal University: Philosophy and Social Sciences Edition, 01, 98–103. 13 Lin, Yu and Wang, Jianqin. (2011). The Enlightenment of the Rise and Fall of Japanese Chinese Education on the International Spread of Chinese. Journal of Fujian Normal University: Philosophy and Social Sciences Edition, 05, 134–139. 14 Li, Xiangnong and Wei, Min. (2015). A Study on the Types of Preparatory Chinese Learning Motivation of International Students. Education Research and Experiment, 04, 92–96. 15 Lei, Li and Ni, Liang. (2014). Chinese Learning Motivation Model of Ethnic Minority Students in Remote Tibetan Areas and Its Enlightenment – Investigation and Analysis of Y Tibetan Middle School in Ganzi Prefecture, Sichuan Province. Ethnic Education Research, 03, 129–134. 16 Ding, Anqi. (2015). An Analysis of Motivation Change of Motivated Chinese Language Learners in the Target Language Context. Applied Linguistics 02, 116–124.

88  Rise of China’s Economy 17 Zhang, Li. (2015). An Analysis of the Correlation between Chinese Learning Motivation and Performance of American College Students – Taking Columbia University ­Students as an Example. Chinese Language Teaching and Research, 03, 6–10. 18 Jiang, Xin. (2007). Psychological Exploration of Teaching Chinese as a Foreign Language. Beijing: Education Science Press. 19 Feng, Liping, Bu, Yanxin, and Li, Hong. (2013). An Analysis of Extra-curricular Language Contact among Short-term American Students in China and its Influencing ­Factors. Language and Character Applications, 03, 109–116. 20 Wu, Yinghui. (2011). A Country’s Hard Power is the Decisive Factor in the Globalization Process of Its Language. Studies of Chinese Language in International Communication, 01, 1–14. 21 Wu, Yinghui. (2011). A Country’s Hard Power is the Decisive Factor in the Globalization Process of Its Language. Studies of Chinese Language in International Communication, 01, 14. 22 Guo, Xi. (2008). Mother Tongue Maintenance in a Multilingual Cultural Context: A Singaporean Case. Applied Linguistics, 04, 2–11. 23 Mary, Mathew, Chandrasekhar, Krishnamurti, and Zeljko, Sevic. (2005). A Survey of Singaporean Chinese Investors in China’s Mainland and their Knowledge of the Chinese Language. Cross Cultural Management: An International Journal, 12(1), 46–59. 24 Zhou, Duanming. (2005). An Economic Analytical Framework of Language. Journal of Jiangsu University of Administration, 03, 31–35. 25 Zhou, Duanming. (2005), An Economic Analytical Framework of Language. Journal of Jiangsu University of Administration, 03, 5. 26 Zhou, Duanming. (2005), An Economic Analytical Framework of Language. Journal of Jiangsu University of Administration, 03, 5. 27 Data Source: Calculated with data from world bank WDI database. 28 Vaillancourt, F. (1989). The Administrative and Compliance Costs of the Personal ­Income Tax and Payroll Tax System in Canada, 1986. Canadian Tax Foundation. 29 Zhang, Weiguo. (2008). Language as Human Capital, Public Goods and Institution: A Basic Analytical Framework of Linguistic Economics. Economic Research Journal, 02, 144–154. 30 Vaillancourt, F. (1989). The Administrative and Compliance Costs of the Personal ­Income Tax and Payroll Tax System in Canada, 1986. Canadian Tax Foundation. 31 Carr (1985). cited in.Grin, François (1996)“The Economics of Language Survey,Assessment, and Prospects” International Journal of the Sociology of Language, 121, 17—44. 32 For more information, refer to the Chapter Ten of the Outline of the Thirteenth Five-year Plan for National Economic and Social Development of the People’s Republic of China. 33 Vaillancourt, F. (1989). The Administrative and Compliance Costs of the Personal Income Tax and Payroll Tax System in Canada, 1986. Canadian Tax Foundation. 34 Yu, Guang. (2007). A Review of Language Strategy Research of Multinational Corporations. Shandong Social Sciences, 03, 120–123. 35 Yu, Guang. (2007). A Review of Language Strategy Research of Multinational Corporations. Shandong Social Sciences, 03, 120–123. 36 Iri, Nekvapil and Marek, Nekula. (2006). On Language Management in Multinational Companies in the Czech Republic. Current Issues in Language Planning, 7(2–3), 307–327. 37 For more information, refer to “2017 Outbound Tourism Big Data: 130 million Chinese citizens travel abroad”. Retrieved from http://travel.china.com.cn/txt/2018-04/27/content_50976602.htm. 38 Qi, Zhongxi and Liu, Hui. (2016, 10 May).China’s International Tourism I­ncome Ranks Second and Expenditure Ranks First in the World. China Economy Website. Retrieved December 6, 2022 from http://district.ce.cn/newarea/roll/201605/10/ t20160510_11427278.shtml.

Rise of China’s Economy  89 39 For more information, refer to “Japanese shops equipped with Chinese-Japanese automatic translation machines to welcome Chinese tourists” at Sina.com. Retrieved on May 14, 2016 from http://finance.sina.com.cn/world/20150221/110621580527.shtml. 40 For more information, refer to “Chinese Language Girls in Top Japanese Shopping Malls”. Retrieved on April 16, 2023 from http://china.chinadaily.com.cn/2015-02/11/ content_19554768.htm. 41 Sun, Qiang. (2012). The Strategy Remodeling of Chinese International Dissemination Enhancing Country Cultural Soft Power. Nanjing Journal of Social Sciences, 12, 98–103. 42 Ding, Anqi. (2014). A Study of Chinese Language Learners’ Motivation Intensity. Journal of College of Chinese Language and Culture of Jinan University, 3. 43 Wang, Yaomei. (2012). The Evolution and Development of TCFL Textbooks from the Perspective of Cross-cultural Communication. Journal of Communication University of China, 12, 115–117. 44 Among the top ten movies with the largest global box office in 2014, the box office of the top eight in markets outside the United States have accounted for more than 50 percent of the total box office. 45 See the Motion Picture Association, https://www.motionpictures.org/wp-content/­ uploads/2018/04/MPAA-THEME-Report-2017_Final.pdf. 46 Luo, Libin. (2016). The Role of Opening Up to the Development of Chinese Film ­Industry and a Study on the Strategy of Further Opening Up. Cultural Industry ­Research, 01, 179–190. 47 For more information, refer to “Foreign movies with the highest box office, and ­Hollywood movies targeting Chinese audiences in 2014”. Retrieved from http://ent.163. com/14/1125/06/ABSIGD09000300B1.html.

6

International Trade in TV Formats, Home Market Effects and Chinese TV Program Exports

TV program industry is relatively big among core cultural industries,1 and its international trade is an important part of international cultural trade. In recent years, China’s TV program exports have made some achievements, such as Doudou and Her Mother-in-Law (Xi Fu de Mei Hao Shi Dai), Empresses in the Palace (Zhen Huan Zhuan) and If You Are The One (Fei Cheng Wu Rao), which have been broadcasted in many countries; however, in general, the international competitiveness of Chinese TV programs is still weak and the international trade has been in deficit. In-depth research on the development rules of TV program industry and trade, international trends and China’s advantages is of great practical significance to promote the development of China’s international trade in TV programs. Since the twenty-first century, one of the prominent features of the global TV program sector is the accelerated growth of TV format2 copyright trade. Although TV format licensing has long existed,3 it really boomed after the twenty-first century. This period has seen a significant increase in the value of trade in TV formats, with the emergence of specialized trading markets and copyright protection agencies, and a stronger foundation in the legal system.4 There is also a significant shortening of the reach and globalization cycle of successful TV formats; and an increase in the variety of TV formats involved in the trade, including drama formats which are considered as the “most difficult to be formatted”5; more and more countries and regions are participating in TV format trade and becoming exporters.6 China has also begun to import more foreign TV formats in recent years to produce localized programs, and many have been well received. Academic interest in TV formats began with descriptive studies, such as an overview of TV format trade,7 and the background and history of TV format copyright formation.8 There are a few theoretical studies, such as the global value chain theory, which argues for the division of labor among stakeholders in the global value chain of TV programs and considers the TV format providers to be in a “weak position”9; Chinese domestic scholars have extensively discussed how TV formats affect the Chinese television industry,10 and in recent years, close attention has been paid to the protection of intellectual property rights of TV formats. Concerns about the negative effects of TV format importation have also emerged and intensified, arguing that it leads to duplication of program formats and is a “cultural invasion” by foreign countries.11 This concern is also reflected in the policies DOI: 10.4324/9781003424796-6

International Trade in TV formats  91 of relevant authorities. For example, in October 2013, the Chinese National Radio and Television Administration (NRTA) stipulated that “each TV station shall not introduce more than one new foreign copyrighted formatted program per year”; in June 2016, NRTA issued the Notice on Vigorously Promoting Independent Innovation in Broadcasting TV Programs, stipulating that all TV star-rated channel shall not broadcast more than two overseas copyrighted formatted programs between 19:30 and 22:30 each year; each TV channel shall not broadcast more than one overseas copyrighted formatted program each year, and shall not broadcast between 19:30 and 22:30 in the first year,12 reflecting the concern of the policy-making department about the negative impact of imported TV formats. We believe that the development of international trade in TV formats is a significant “institutional change” in the television program industry, and its impact not only involves the improvement of television program production efficiency and globalization but also brings about cultural pluralism on a global scale due to the nature of television programs as cultural products.13 Because of the “unique” characteristics of the Chinese television program industry, international trade in formats can also promote the leapfrogging growth of Chinese program exports. At present, domestic academic studies still focus more on normative evaluations, mostly “comprehensive” general discussions, and fewer specialized studies, with more conceptual inferences and fewer empirical records. Although there are some individual case studies on localized program exports, there are not enough theoretical analyses and no systematic empirical studies on the export of programs driven by TV format introduction. This chapter hopes to make some attempts in this area and comment on related issues. 6.1 Theoretical Analysis of International Trade of TV Formats in Promoting Chinese TV Program Exports 6.1.1  Mechanisms of TV Format Import in Promoting Program Export

6.1.1.1 The brand effect of internationalized TV formats enhances the chance of success and reduces the risk of TV programs, prompting program producers to increase investment and improve the quality of program production under other conditions, which is more likely to break “cultural discounts” and enhance export competitiveness. According to a research, approximately half of new programs developed by commercial television stations worldwide fail after their first broadcast, and on average only one in eight programs achieve long-term success.14 In the TV format trade process, an important reference indicator for TV format importers is the ratings and track record of the TV format after it has been broadcast in other countries,15 which makes the programs with imported format, although “new” in

92  International Trade in TV formats the country or region of the importer, much less likely to fail. The chances of failure are greatly reduced. With a higher chance of success, program producers can ­increase their production costs. According to statistics, in China, the cost of producing a variety show with imported format has risen more than five times compared to before, and the number of cameras used for production is four times higher than before. Such large investments improve the quality of program production and can enhance export competitiveness. The first season of Voice of China (Zhong Guo Hao Sheng Yin), a program that has attracted phenomenal domestic attention in China, cost as much as 80 million RMB to produce, and the crew arranged nearly 40 camera positions inside and outside the studio, with 96 minutes of content per episode coming from up to 1,000 minutes of callable material, with a film ratio of 140:1, more than 40 times that of similar domestic programs.16 6.1.1.2 The success of programs with imported formats in the domestic market is likely to contribute to the overall expansion of the domestic TV program market. The increasing number of foreign variety TV formats introduced in China in recent years has indeed contributed to the expansion of the variety program market. From 2012 to 2015, for example, when the introduction of foreign variety show TV formats was more concentrated, the share of variety shows in the broadcast of all programs was decreasing,17 from 6.5 percent to 6.4 percent and 6.1 percent to 5.9 percent, but its rating share was basically on the rise, at 10.8 percent, 11.5 percent, 11.4 percent and 13 percent, respectively, and the ratio of ratings share to broadcast share in the four years was 1.77 percent, 1.8 percent, 1.87 percent and 13 percent, respectively. Among the top ten programs in the national sample city market in 2015, eight were variety programs and five were localized programs with foreign TV formats, namely Final Episode of The Voice of China 4 (Zhong Guo Hao Sheng Yin 4), Running Man (Ben Pao Ba Xiong Di) (April 17 to July 3), Running Man (Ben Pao Ba Xiong Di) (October 30 to December 25), Final Episode of I Am A Singer (Wo Shi Ge Shou) and Running Man (Ben Pao Ba Xiong Di) (January 2 to January 16). The expansion of the local market makes it easier for TV programs, which have strong economies of scale, to better exploit the “home market effect” and generate more diverse and better quality programs, forming a virtuous circle and promoting exports through “spillover” effects. 6.1.1.3 First, the internationalized TV formats’ popularity in the international arena reduces the cost of recognition for international viewers and plays a certain marketing and publicity role for program exports. For example, the Chinese version of I Am A Singer was with format originated from Korea, so it also attracted the interest of Korean viewers immediately after its broadcast in China, especially after the introduction of Korean singers, and the comments of Korean fans on the Chinese version of I Am A Singer can be found directly on the Internet. Second, a globalized TV format can also provide an international platform for localized content exports. For example, TV format The Voice may bring together contestants from all over the world to produce a show. This unified TV format greatly facilitates worldwide cooperation. The theory of intermediate input trade proposed by Helpman and Krugman can well explain the effects of TV formats’ shifting from being “non-tradable” to

International Trade in TV formats  93 “tradable”.18 According to Helpman and Krugman, if the differentiated intermediate inputs are not tradable and the final products are tradable, then even if the factor endowments of two countries are identical, inter-industry trade is still possible.19 This is suitable to explain the situation before the TV format became tradable: the TV format itself was not tradable, while the TV program was tradable, which led to the emergence of a so-called “industrial complex” in a country where the TV formats were located, concentrated in one country and reinforced by the home market effect. This “one country” is the United States. This is one of the reasons why, prior to TV formats’ becoming tradable, U.S. TV programs were exported “one way” to countries around the world—including other developed countries with factor endowments similar to the United States. In turn, Helpman and Krugman argue that when both differentiated intermediate inputs and final products are tradable, the pattern of trade is similar to ordinary intra-industry trade, in which countries specialize in producing some of their product patterns and then engage in intraindustry trade with each other. This is also what happened after the TV formats became tradable: two-way intra-industry trade in TV programs between the United States and developed countries began to increase. The shift of TV formats from being “non-tradable” to “tradable” has increased the possibility of other countries exporting television programming to the United States as well. 6.1.2  Home Market Effect: Favorable Conditions for Export of Localized Program with Imported TV Formats

The TV format trade helps countries to integrate and leverage global resources to distribute cultural content with local characteristics in an industrialized way around the world. But for this possibility to become a reality, a number of conditions must be met. In order to understand these conditions, it is necessary to first understand the “home market effect” theory. 6.1.2.1  Home Market Effects and Television Program Exports

The theory of home market effect was proposed by Helpman and Krugman, which proposes when there are increasing returns to scale in the production of a product and there are transportation costs, heterogeneous industries tend to concentrate in larger markets, and the share of production of heterogeneous products in countries with larger domestic markets will exceed their share of consumption, and then a larger local market can be the basis for exports.20 Helpman and Krugman argue that if there are no economies of scale and transportation costs, a large local market can become the basis for product imports, while when there are economies of scale and transportation costs, a large local market in turn forms the basis for a country’s product exports, and point out that this home market effect is quite common in practice. This home market effect is not difficult to understand, due to the existence of transport costs. All other things being equal, the closer distance between the place of production and consumption of products can save transport costs, so local production is more advantageous than imports when the product has a tendency of

94  International Trade in TV formats local production and local consumption. However, if the production has obvious economies of scale, then the “big countries” tend to form a larger production scale when they produce in their own country thus reducing the production cost. When this decrease in production costs can in turn make up for the higher transportation costs, the cost of production in the “small country” will be higher than the cost of imports from the large country, leading to the small country began to import from the large country, at this time the local market size of the large country becomes the basis of its export advantage. The home market effect emerges. The production of TV programs is consistent with the theoretical assumption of home market effect. The production of television programs has obvious economies of scale, and the “very high ratio of fixed costs to variable costs” is a prominent feature of the production of cultural products, including television programs.21 While the shipping costs of TV shows are often negligible, there is another important trade cost, the “cultural discount”. Hoskins and Mirus argue that in the presence of a “cultural discount”, a particular television program, film, or video rooted in a culture is, all else being equal, more attractive in the domestic market, where the audience shares the same common sense and lifestyle, but less attractive elsewhere, where it is difficult for the audience to identify with the style, values, beliefs, history, mythology, social systems, natural environments and behavior patterns.22 Cultural structural differences are the main cause of the “cultural discount” phenomenon. The existence of a “cultural discount” leads to a preference for locally produced television programs with local cultural characteristics, all other things equally equal, pushing the production of television programs closer to the place of consumption. There are “economies of scale” and “cultural discounts” in television production, which can lead to three effects. (1) “Cultural discount” effect, i.e., other things being equal, “cultural discount” reduces the export competitiveness of TV programs produced in a country with local cultural characteristics. The “cultural discount” effect leads to a convergence between where TV programs are produced and where they are consumed, making TV programs domestically market-oriented from the outset; (2) the “low unit cost effect of equal quality” in large countries, i.e., when TV programs are first oriented to the domestic market, if the production cost per viewer is defined as the “unit cost” of a program, then other things being equal, including fixed inputs representing quality, the unit cost of TV programs in large countries is lower than that in small countries, thus increasing the export competitiveness of programs in large countries; and (3) the “high quality effect of the same unit cost” in large countries, i.e., when TV programs are first oriented to the domestic market, assuming that the “unit costs” are the same, the fixed costs of program production in large countries will be higher than those in small countries due to the large market size and other conditions being the same, and the quality of programs will be higher than those in small countries, thus improving their export competitiveness. When the strength of the “low unit cost effect of equal quality” or “high-quality effect of equal unit cost” exceeds the “cultural discount effect”, the large country starts to export its TV programs. A typical example of the former is the worldwide popularity of Japanese

International Trade in TV formats  95 animated programs23; a typical example of the latter is the worldwide popularity of American television programs. The “home market effect” is the most important explanatory factor for international trade in television programs in the existing literature, and it has been argued in a number of papers. In 1994, Waterman and Rogers conducted a statistical survey and systematic analysis of imported programs in nine East Asian countries,24 demonstrating that the more a country’s GDP or broadcast television infrastructure, the greater the proportion of domestically produced programs and the lower the dependence on imported U.S. programs, especially serials. It is also found that its share of imported U.S. programming was on average 20 percent, which is relatively low. On this basis, Dupagne and Waterman studied the determinants of imported U.S. non-documentary TV programs in 17 Western European countries, further confirming a negative correlation between a country’s GDP or the size of its broadcast TV infrastructure and its dependence on imported U.S. programs.25 The home market effect has also been an important theoretical explanation in media economics for the “one-way flow”26 of U.S. television programming to the world. For example, in 2014, the U.S. television advertising market reached 67.062 billion USD, ranking first in the world and more than four times the size of China’s market, exceeding the combined market size of the countries ranking second to ninth, which was 66.146 billion USD. The huge domestic market size can support the U.S.’s huge investment in television production. For example, the Fox Film Corporation’s series 24 Hours cost 2.5 million USD per episode to produce, and the total cost of the 120 episodes produced by 2009 was 300 million USD.27 Take another example, the production costs of different versions of the popular global TV show format Who Wants to Be a Millionaire? American version of the show costs 700,000 USD per episode, while the Hong Kong version produced by Asia Television Limited costs only 80,000 per episode. This difference in production costs is mainly a reflection of the difference in the size of the target market that can support the scale of investment.28 Not only does the large U.S. market support the huge scale of investment that can improve the quality of production and the use of more “stars” or “special effects”, but also, as U.S. television programs successfully entered the international market, their market size further expanded. According to statistics, by the beginning of the twenty-first century, overseas sales of U.S. TV programs accounted for as much as 35 percent of its total revenue.29 This further strengthens its home market effect and increases the scale of its programming investment, thus creating a “virtuous circle”. 6.1.2.2 Conditions for the Introduction, Localization and Export of Formatted Programs

While the introduction of TV formats and program localization can help local programs succeed in the local market, the export of programs requires emphasis on the home market effect mentioned above. For a television program that is primarily aimed at the domestic market in the first place, the fixed costs involved

96  International Trade in TV formats in its production need to be shared and recovered primarily in the local market. Assuming that the minimum possible production cost of a program is Fs, and the size of the local market is M, and the expected market share of the program is p, then only if pM>Fs will the production of such a program become a rational behavior; and the larger the value of pM, the higher the production cost supported by it, the higher the quality of the program,30 and the more competitive it is, and the more likely it is to be exported. Based on the above logic, this chapter argues that the following conditions are needed for the export of localized programs with imported TV formats. Condition (1), the size of the domestic market is large enough, i.e., the M value above is large enough. If the size of the domestic market is too small, it will not only be unable to support its export competitiveness but may even prevent localized programs from appearing; the larger the domestic market, the stronger the export competitiveness, all else being equal. Condition (2), the market share of domestic TV programs should be large enough, i.e., p above should also be large enough. If the market share of domestic TV programs is particularly small, the pM will also be too small enough to support the cost of producing its domestic TV programs; while the larger the p, the larger the value of pM, the more it can support higher production costs and the more competitive and likely its exports will be, all else being equal. Condition (2) implies that for latecomer countries and industries, cultural discounts or trade barriers need to exist to a certain extent to prevent the domestic market space of local programs from being squeezed. Why? Because imported programs often have a very large cost advantage over self-produced programs.31 Due to the low marginal cost, the price of imported programs is often not related to the production cost of the program itself, but only to the income price elasticity of the importing country.32 This means that there is a clear “price discrimination” in the international TV market due to the significant “economies of scale” in the production process of TV programs. Table 6.1 shows the price of a one-hour U.S. TV series in different countries in 2004, which shows that the price of the same episode of a TV series in different countries is very different, although the cost is exactly the same. The logarithms of price,33 GDP per capita and GDP of each country are taken from the table for multiple regression analysis, and the correlation coefficients between the logarithm of price and the logarithm of GDP per capita and GDP are found to be 0.56 and 0.58, respectively. Both variables are significantly different from zero at 1 percent level, which indicates that the elasticity of TV series price to GDP per capita and total GDP of the importing country are 0.56 and 0.58, respectively (see Table 6.1). It has been suggested that the low price of TV series exported from the United States is due to the low marginal cost of providing an additional unit of “copy” of the program.34 For television broadcast platforms, the decision to broadcast self-produced programs or imported programs depends on the cost-benefit comparison between the two, and broadcasting self-produced programs becomes a rational choice only if the revenue generated by local self-­produced programs exceeds that of

International Trade in TV formats  97 imported programs and if this additional revenue can cover the additional cost of self-­produced programs. Assuming that the production cost of self-produced programs and the import cost of imported programs are Ph and Pm, respectively, and the revenues they bring are Mh and Mm, respectively. Local self-produced programs will become a rational choice only when Mh-Mm ≥ Ph-Pm. And the smaller Pm is, the larger Mh-Mm is required. In reality, there are three possible reasons why Mh is greater than Mm: first, cultural discount; second, trade barriers; and third, quality advantage. However, since “quality advantage” often requires higher investment in production, which depends on the market size, the quality advantage of ­locally produced programs is not easily reflected if the imported programs come from countries with larger markets than their own. Therefore, for the “latecomer industries”, if local self-production becomes the rational choice, it basically depends on the first two factors, i.e., cultural discounts and trade barriers. If there are no cultural discounts and trade barriers, imported programs with “first mover advantage” will easily form a “Matthew Effect”, thus squeezing the living space of local programs. It should be said that the larger the size of the local market and the higher the cultural discounts and trade barriers, the more obvious is the advantage of using the globalized format to develop localized programs, and the easier it is to stimulate the “home market effect”, which eventually leads to the export of international TV format localized programs and drives the export of local culture. Table 6.1 Prices of One-Hour Imported U.S. TV Series on Different National TV Stations (2004) Country Albania Australia Bangladesh Bolivia Brazil Canada (Englishspeaking region) France Germany India Iraq Israel Japan Mexico Saudi Arabia South Africa United Kingdom Zimbabwe

Average price (USD) GDP per capita (USD) GDP ($billion) 250–300 25,000–35,000 250–350 250–750 4,000–7,000 20,000–60,000

2,416.60 30,440.90 462.3 978.3 3,596.20 31,979.90

7.31 612.70 65.11 8.77 669.32 1,023.20

10,000–50,000 20,000–55,000 1,000–2,000 350–500 800–1,500 45,000–70,000 1,500–5,000 800–1000 2,000–2,250 20,000–100,000 150–200

33,874.70 34,165.90 640.6 1,391.60 19,888.20 36,441.50 7,115.10 10,756.00 4,901.10 38,305.90 451.20

2,124.11 2,819.25 721.58 36.63 135.42 4,655.80 770.27 258.74 228.59 2,297.89 5.81

Source: Prices of imported TV series quoted from Havens, Timothy. (2006). Global Television Marketplace. London: British Film Institute; GDP per capita and GDP data quoted from World Bank database

98  International Trade in TV formats 6.1.3 TV Format Introduction, Program Localization and Export: China’s Advantages 6.1.3.1 China’s Huge TV Program Market Is Conducive to the “Home Market Effect”

In 2014, China’s TV advertising market reached 16.414 billion USD, the second largest in the world after the United States (see Table 6.2). According to the previous analysis, the large size of the local market is conducive to the “home market effect”. Since this chapter focuses on the role of “format introduction”, in the context of this chapter, a large market size can have the following effects: (1) it provides a basis for paying higher royalties to acquire quality foreign formats, and it will also encourage more and more international quality formats to develop for the Chinese market and combine with Chinese local culture to produce high-quality finished programs with Chinese cultural characteristics In 2013, China became the fastest growing country in terms of TV program imports from the UK for the second year in a row, up 40 percent to 17 million pounds. In 2012, Canxing Productions and Zhejiang Satellite TV imported The Voice from Talpa Entertainment Productions (TEP) in the Netherlands when paid TEP more than 2 million RMB for the format. However, in 2013, Canxing Productions and TEP conducted the first contract renewal negotiations on The Voice TV format and were able to renew the contract successfully at a price of 60 million RMB per year35; (2) it attract more international talent in the field of TV format development or program production, such as Korean TV program team in recent years has increasingly joined the Chinese TV program creation team. As the Chinese market continues to grow, it is expected that the number will continue to increase; (3) the high level of investment in TV production makes it easier to produce good TV programs.36 Table 6.3 gives the annual production costs of Energy Pictures from 2011 to 2013, which shows that the Table 6.2 Top 10 Countries and Regions in World TV Advertising Market (2013–2014).  Unit: Billion USD Ranking

Country

1 2 3 4 5 6 7 8 9 10

United States China Japan Brazil United Kingdom Germany France Italy Australia Canada

2013

2014 633.77 159.82 166.18 101.02 72.32 61.41 48.58 47.74 40.11 37.7

670.62 164.14 144.21 101.91 74.33 56.76 42.65 42.17 35.29 34.62

Data source: Author’s calculations based on data provided by CTR Market Research CO. Ltd (CTR) combined with exchange rate information on the website of the State Administration of Foreign Exchange

International Trade in TV formats  99 Table 6.3 Program Production Costs of Energy Pictures from 2011 to 2013. Unit: Million RMB 2011

2012

2013

3,184.27

4,425.28

13,567.39

Data source: Prospectus for Beijing Energy Film and Television Communication Co., Ltd.’s Initial Public Offering of Stocks on the Growth Enterprise Market, P212, http://www.csrc.gov.cn/csrc/c101803/ c1008640/content.shtml

production costs of the programs are up to more than 100 million RMB and have been rising rapidly in recent years, with 2013 being 3.07 times higher than 2012. 6.1.3.2  Cultural Discount and Progressive Liberalization Policy Interventions

The Asian market, including China, has a high cultural discount for the current strong U.S. television industry. For example, the average share of imports of U.S. TV programs from East Asian countries is 20 percent, which is low compared to Europe and the rest of the world, probably because Asian countries are culturally distant from the United States and therefore have a higher cultural discount.37 Hofstede’s cultural dimension38 is a more widely accepted measure of cultural distance, which uses four dimensions to distinguish between cultures in different countries, namely power distance, individualism, masculinity and uncertainty avoidance. In a later series of studies, two additional dimensions were added, namely long-term orientation and indulgence,39 and Hofstede scored each of the 102 countries according to these six dimensions. Based on research needs and data availability, this chapter selects 80 countries with complete scores on all six dimensions and calculates the cultural distance of these 80 countries with the United States based on the method of W. Fu and Lee,40 which is calculated by 6

CulDistc =

∑[(I

ic − IiA)

2

/ Vi] / 6

i =1

where Iic and IiA represent the scores of country C and the United States in dimension i, respectively, and Vi is the variance of the scores of the sample countries in dimension i. This chapter uses the variance to “standardize” the differences between country C and the United States in each indicator to make them more comparable. Finally, the “standardized” differences are averaged to obtain the cultural distance between country C and the United States. The larger the value, the greater the cultural distance between the country and the United States, and therefore the greater the cultural discount that U.S. cultural products may experience when entering country C. The cultural distance values for some representative countries are listed in Table 6.4, in descending order of magnitude.

2.94 2.59

3.41 3.24 3.23 2.98 69 70

63 64 65 69 Canada Argentina

Netherlands Iceland Germany Denmark

Sweden India Spain France Norway

Country/Region

Source: Author’s calculations based on the data on http://www.geert-hofstede.com

30 37

12 17 18 26

52 53 56 57 59

Ukraine Korea Russia China Taiwan region, China Singapore Japan Indonesia Hong Kong, China Malaysia Mexico

1 2 3 5 11

4.83 4.66 4.66 3.99 3.58

Country/Region Cultural distance Ranking from the U.S.

Ranking

1.32 1.29

1.51 1.51 1.49 1.39

1.88 1.88 1.68 1.66 1.56

80

76 77 78 79

71 72 73 74 75

United States

Ireland United Kingdom New Zealand Australia

Italy Luxembourg Finland Switzerland South Africa

0

0.26 0.24 0.21 0.03

1.23 1.03 0.96 0.91 0.28

Cultural distance Ranking Country/Region Cultural distance from the U.S. from the U.S.

Table 6.4 Cultural Distance of Countries and regions from the United States (from far to near)

100  International Trade in TV formats

International Trade in TV formats  101 From the calculation results, Asian countries and regions in general are culturally distant from the United States. Ranked from far to near, except for India, most of Asian countries and regions are in the top 30. Malaysia, which has the lowest cultural distance value, also reaches 2.94. Except for Ukraine and Russia, most European countries and Latin American countries are culturally close to the United States. In addition to the United States itself, the closest cultural distance to the United States is Australia and New Zealand, which have cultural distance values of 0.03 and 0.21, respectively. The cultural distance between China and the United States is 3.99, which is clearly among the relatively distant countries, and China is ranked 5th among all countries from far to near. Even in Asia, the cultural distance between China and the United States is among the more distant. In addition, foreign TV programs face barriers to entry into China. According to the Regulations on the Introduction and Broadcasting of Foreign TV Programs (NRTA Decree No. 42), which was promulgated by NRTA on September 23, 2004 and came into effect on October 23 of the same year, in addition to the approval process required for the introduction of foreign TV programs, each TV channel shall not broadcast more than 25 percent of the total broadcast time of the TV program of the day; other foreign TV programs shall not broadcast more than 15 percent of the total broadcast time of the day; without the approval of NRTA, no foreign TV program shall be broadcast during prime time (19:00-22:00) on February 9, 2012, the NRTA issued the Notice of the NRTA on Further Strengthening and Improving the Introduction and Broadcast Management of Overseas TV Drama, which more strictly stipulates that overseas TV dramas shall not be broadcast during prime time (19:00–22:00). Each TV channel shall not broadcast more than 25 percent of the total broadcasting time of the TV drama of that day; each TV channel shall not broadcast overseas TV dramas in disguised form of short drama or introduction of overseas TV dramas without the approval and distribution license of NRTA. The length of each episode of foreign films and TV dramas shall not exceed 3 minutes, and the total time of using foreign film and TV drama clips shall not exceed 10 minutes. For information programs introducing foreign TV dramas, the length of the clips of foreign TV dramas shall not exceed 1 minute; avoid individual TV channels to focus on broadcasting foreign TV dramas of a certain country or region within a period of time. In recent years, the rapid development of video websites has given foreign TV programs a new platform to enter China. In response to this, the NRTA promulgated NRTA Notice on Further Implementation of Relevant Provisions on the

102  International Trade in TV formats Management of Online Overseas Film and Television Dramas on September 2, 2014, clearly stipulates that the total number of overseas film and television dramas introduced and broadcasted by a single website in a year shall not exceed 30 percent of the total number of domestic film and television dramas purchased and broadcasted by the website in the previous year. The trend of globalization of TV programs combined with China’s advantages to promote the export of Chinese programs has begun to emerge. For example, the broadcasting rights of Asian Wave (Sheng Dong Ya Zhou) of DRAGON TV have been successfully exported to South Korea, Singapore, Thailand, Malaysia and other countries; in recent years, the variety shows produced with imported international TV format in China’s mainland began to be exported to Taiwan region of China and achieved very good ratings. This has largely changed Taiwan’s position as the leading variety show in China and has made mainland variety shows more competitive. In recent years, there has been an explosion of “reality” variety shows from China’s mainland in Singapore, with Singapore’s largest TV group, MediaCorp, introducing over 800 hours of Chinese programming in 2015. Speaking at the 2015 Shanghai TV Festival, the president of MediaCorp Wen Yujun said, The recent Chinese variety shows are of a very high standard, with big productions, gorgeous costumes, backdrops, and big money to bring in stars from China’s mainland, Hong Kong and Taiwan region. Those blossoming talent shows often leave Singapore audiences dumbfounded and awestruck. In the following part of this chapter, we take Singapore’s MediaCorp Channel U as an example to empirically analyze the impact of TV format introduction and home market effects on the export of variety shows from China’s mainland. 6.2 Empirical Analysis of TV Format Introduction, Home Market Effects and Chinese TV Program Exports: A Case Study on Singapore’s MediaCorp Channel U 6.2.1  Sample Selection and Research Process

There are two Chinese-language TV channels in Singapore, Channel 8 and Channel U. Channel 8 mainly broadcasts local TV programs produced by MediaCorp, while Channel U broadcasts both local programs and imported programs, with a much higher proportion of imported programs than Channel 8. This chapter uses a sample of variety TV programs on MediaCorp’s Channel U for two weeks between April 1 and April 14, 2006–201541 and analyzes the source structure of variety TV programs broadcast on MediaCorp’s Channel U over the past ten years. The purpose of this study is to empirically analyze the changes in its Chinese language TV program trade and its determinants, and to observe the

International Trade in TV formats  103 broadcast of variety programs from China’s mainland on Channel U. There are four reasons for choosing variety shows on Channel U: (1) variety shows are chosen ­because one of the important objectives of this chapter is to observe the influences of introduced formats on China’s mainland’s program exports; although international trade in formats has developed to a wide range of genres, variety shows are still the best formatted, most frequently traded, and most heavily weighted program genre; variety shows are also one of the most frequent and numerous types of programs introduced in China’s mainland in recent years, and on other program genres TV formats are still relatively rare. Therefore, choosing variety shows is more in line with the research objectives of this chapter; (2) although there are two Chinese channels in MediaCorp, Channel 8 mainly broadcasts local programs, while Channel U mainly broadcasts imported programs. The lowest proportion of imported variety shows on Channel 8 is between 20.7 percent and 38.1 percent, and the highest is between 37.6 percent and 54.1 percent,42 while the lowest proportion of imported variety shows on Channel U is 66.7 percent and the highest is 98.7 percent, which is more in line with the research objectives of this chapter; (3) The length of variety shows on Channel U exceeds that of Channel 8, which is relatively more like a Chinese-language general channel with a wide range of programs, while channel U mainly broadcasts variety shows and TV dramas. From 2006 to 2015, Channel U broadcasted 626.5 hours of variety programs, accounting for 31.6 percent of the channel’s total program hours, while Channel 8 broadcasted 399.16 hours of variety programs, accounting for 12.1 percent of the channel’s total program hours. (4) In comparison, the source of variety programs on Channel U is easier to count, and the data is more accessible and accurate; the program previews of Channel U itself indicate whether the variety programs are local or not, and there are also very obvious clues about the source of programs such as language notes, which makes the statistics more accurate. Most of the programs it broadcasts are very well-known programs in the field of Chinese TV programs, so the source is clearer and more accurate. The source of the data used in this chapter is the Singapore Lianhe Zaobao from April 1 to April 14 of each year between 2006 and 2015. Lianhe Zaobao, one of the most important Chinese dailies in Singapore, publishes a daily schedule of the day’s television programs in the paper, which directly indicates the type of program and whether it is a local program. The newspaper classifies the types of programs into current affairs programs, variety shows, information programs, serials, cartoons, movies and news, among which variety shows are clearly subdivided into local variety shows and non-local variety shows. In this study, the origin of “local variety shows” is defined as “Singapore”, while for non-local variety shows, many of the program titles in Lianhe Zaobao are followed by parentheses to comment on the language of the program. For example, “Dual Sound Track: Chinese-Korean”, “Dual Sound Track: Chinese-Japanese” or “Dual Sound Track: Chinese-English”. The presence of such a note often means that the program is from “Korea”, “Japan” and “Europe and America”, respectively. Other non-local variety shows that do not have any language notes include many that have a high profile themselves, such as Variety Big Brother(Zong Yi Da Ge

104  International Trade in TV formats Da), 100 percent Entertainment (Yu Le Bai Fen Bai) and Guess Guess Guess(Wo Cai Wo Cai Wo Cai Cai Cai) are all well-known variety shows from Taiwan region; while Where Are We Going, Dad?(Ba Ba Qu Na Er), Celebrity Battle (Quan Neng Xing Zhan) and If You Are the One (Fei Cheng Wu Rao) are well-known variety shows from China’s mainland. In addition, the TV program page on the Lianhe Zaobao has some introductions to programs, in addition to a description of some of the programs that will be broadcast on that day, which will also provide some clues about the source of the program. For all of the above non-local variety shows, whether they have language notes or not, whether they are well-known or not and whether they are introduced in the newspapers or not, this chapter confirms their places of origin by searching online information such as Baidu Encyclopedia, or by searching for their videos online and watching them to ensure the accuracy of the statistics of their places of origin.43 This chapter also divides the airtime into (1) prime time, which is between 19:00 and 23:0044 and (2) non-prime time, which is other than prime time. The ratings are higher during prime time, so separating prime time from non-prime time is meaningful to show which programs are more emphasized and have higher ratings. In order to analyze the impact of TV format introduction on the export of programs from China’s mainland, this chapter also divides variety programs from China’s mainland into two categories: “TV format introduction” and “non-TV format introduction”, in order to observe the impact of TV format introduction programs. 6.2.2  Changes in the Distribution of Broadcasting Hours of Variety Programs on MediaCorp Channel U 6.2.2.1 During the Sample Period Before 2011, the Number of Variety Programs Broadcasted in China’s Mainland Was Zero, and Variety Programs in Taiwan Region Were Absolutely Dominant

As can be seen from Table 6.5, during the sample period before 2011, there were no variety shows from China’s mainland on Channel U. Almost all variety shows were produced locally in Taiwan region and Singapore, and Taiwan region’s variety shows were in an absolute leading position. In 2011, programs from Taiwan region reached the highest proportion, in the 76.75 hours of total variety show programs, 71.5 hours, or 93.5 percent of the total hours, were Taiwan programs. Even in 2006, the year with the lowest share, the share of variety programs in Taiwan reached 61.9 percent (see Table 6.5). 6.2.2.2  Variety Show Programs from China’s Mainland Rose Rapidly After 2012

The year 2012 saw a dramatic change in the structure of variety show programs on MediaCorp Channel U. The proportion of variety programs from China’s mainland and South Korea caught up quickly, especially as the number of hours of variety programs from China’s mainland increased significantly, quickly undercutting the high proportion of variety programs from Taiwan region. By 2014, China’s

International Trade in TV formats  105 Table 6.5 Structure of Broadcasting Hours and Sources of Variety Show Programs on MediaCorp Channel U from April 1 to 14, 2006–2015. Unit: Hours Year

2006

Total 63 Singapore 21 Taiwan, 39 China China’s 0 mainland (of which (0) TV format category) Korea 0 Others 3

2007

2008

2009

2010

2011

59.5 14 45.5

59.75 70.5 13 18 44.75 52.5

84.5 11 67.5

0

0

0

(0)

(0)

0 0

0 2

2012

2013

2014

2015

76.75 64 1 3 71.5 50.5

67 8 38

53.5 7 17.5

32 5 10

0

0

3

7

17

12

(0)

(0)

(0)

(0)

(4)

(4)

(6)

0 0

0 6

0 2.25

5.5 0

4 6

13 4

3 2

Data source: Self-produced by the author

mainland variety shows were almost the same as Taiwan regions, with a difference of only 0.5 hours; and by 2015, China’s mainland variety shows had surpassed Taiwan regions, taking up the largest share of Singapore’s Channel U. From 2012 to 2015, the number of hours of variety shows in China’s mainland was 3, 7, 17 and 12, accounting for 4.7 percent, 10.4 percent, 31.8 percent and 37.5 percent of the total number of hours of variety shows (see Figure 6.1). In contrast, the proportion of variety shows broadcast in Taiwan has been decreasing year by year, from 2012 to 2015, 78.9 percent, 56.7 percent, 32.7 percent and 31.25 percent, respectively (see Figure 6.1). 6.2.2.3 The Change in the Distribution of Prime-Time Program Sources Is Basically Similar to the Overall Situation and Also Shows the Rise of Variety Programs from China’s Mainland

Before 2013, variety show programs from Taiwan region of China were not only in a dominant position in terms of total airtime, but it also overtook local programs from Singapore to dominate prime-time variety programs from 2008 to 2013, with a share of the percentages were 77.14 percent, 59.09 percent, 77.78 percent, 100 percent, 80.56 percent and 55 percent, respectively. In particular, 100 percent of prime-time variety shows in 2011 were from Taiwan region of China (see Figure 6.2). Before 2011, China’s mainland programs did not appear on Channel U at all and certainly could not enter prime time; in 2012, although China’s mainland variety shows began to appear on Singapore’s Channel U, they did not enter prime time; after 2013, China’s mainland variety shows began to enter prime time on Channel U and the length of airtime increased rapidly. The total number of hours broadcasted in prime time in 2013 was five hours; in 2014, it was also five hours, while the number of hours broadcasted in prime time for Korea and Taiwan region programs was eight hours and 3.5 hours, respectively, and the number of

106  International Trade in TV formats

Figure 6.1  Distribution of sources of variety shows on MediaCorp Channel U, 2006–2015. Data source: The author.

Figure 6.2 Distribution of prime-time variety shows sources on MediaCorp Channel U, 2006–2015. Data source: The author.

hours broadcasted in prime time for China’s mainland program had surpassed that of Taiwan region; in 2015, although the number of hours broadcasted was not as long as that of Taiwan region, the total number of hours broadcasted in prime time in the sample week was very small, only four hours in total. From 2013 to 2015, the proportion of prime-time variety programs broadcast in China’s mainland was 25 percent, 28.57 percent and 37.5 percent, which has been increasing (see Figure 6.2).

International Trade in TV formats  107 6.2.2.4 The Introduction of International TV Formats and Localization Production Has Contributed to China’s Mainland’s Rapid Overtaking of Taiwanese in Terms of Variety Shows

Nine China’s mainland variety shows have been broadcast on Singaporean Channel U since 2012, namely Gold-medal Magicians (Jin Pai Mo Shu Tuan), Don’t Stop Me Now (Shi Bu Ke Dang), Yongzhe Wudi (Yong Zhe Wu Di), Meishi Dawangpai (Mei Shi Da Wang Pai), Superstar China (Wo De Zhong Guo Xing), If You Are the One (Fei Cheng Wu Rao), Celebrity Battle (Quan Neng Xing Zhan), China’s Got Talent (Zhong Guo Da Ren Xiu) and Grandpas Over Flowers (Hua Yang Ye Ye), of which four programs have formally purchased TV format rights from foreign countries or cooperated with them, namely Don’t Stop Me Now (Shi Bu Ke Dang), Superstar China (Wo De Zhong Guo Xing), China’s Got Talent (Zhong Guo Da Ren Xiu) and Grandpas Over Flowers (Hua Yang Ye Ye) (see Table 6.7). The other five programs, although they did not directly purchase the TV format rights or co-produce with foreign copyright holders, also borrowed foreign TV formats. For example, Meishi Dawangpai (Mei Shi Da Wang Pai) borrowed from Japan’s Dotch Cooking Show; If You Are the One (Fei Cheng Wu Rao) borrowed from the UK’s Take Me Out, and Celebrity Battle (Quan Neng Xing Zhan) borrowed from Norway’s Ultimate Entertainer. In terms of program airtime, from 2013 to 2015, the airtime of programs that formally purchased TV format rights from foreign countries or engaged in copyright cooperation was four hours, four hours and six hours, accounting for 57.1 percent, 23.5 percent and 50 percent of the total airtime of variety programs in China’s mainland, respectively. Localized programs with international formats also occupy an important position in the prime-time China’s mainland programs on Channel U. In 2013, five hours of China’s mainland programs were broadcast in prime time, of which two Table 6.6 Hours of Prime-Time Variety Programs by Source on MediaCorp Channel U from April 1 to 14, 2006–2015. Unit: Hours Year Total Singapore Taiwan, China China’s mainland (of which TV format category) Korea Others

2006

2007

2008

13.5 8.5 4

8 6 2

8.75 2 6.75

0

0

(0) 0 1

2009

2010

2011

2012

2013

2014

2015

11 4.5 6.5

22.5 2 17.5

23 0 23

18 0 14.5

20 0 11

17.5 0 3.5

4 0 2.5

0

0

0

0

0

5

5

1.5

(0)

(0)

(0)

(0)

(2)

(2)

(0)

0 0

0 0

0 0

2 2

8 1

Data source: Self-produced by the author.

(0) 0 3

(0) 0 0

3.5 0

0 0

Duration

4.5

3 6 3

2

2 2

3 2

3 Grandpas Over Flowers(Hua Yang Ye Ye) Celebrity Battle(Quan Neng Xing Zhan) 1.5

If You Are the One(Fei Cheng Wu Rao) Celebrity Battle(Quan Neng Xing Zhan) China’s Got Talent(Zhong Guo Da Ren Xiu) If You Are the One(Fei Cheng Wu Rao)

Yongzhe Wudi(Yong Zhe Wu Di) Meishi Dawangpai (Mei Shi Da Wang Pai) Yongzhe Wudi(Yong Zhe Wu Di) Superstar China (Wo De Zhong Guo Xing) Don’t Stop Me Now(Shi Bu Ke Dang)

Gold-medal Magicians (Jin Pai Mo Shu 3 Tuan) Don’t Stop Me Now(Shi Bu Ke Dang) 4

Source: The author.

2015

2015

2015

2014 2014 2015

2014

2014 2014

2013 2014

2013

2012

Broadcast Program name year

0

0

1.5

0 3 0

0

0 2

3 0

2

0

No

Yes

No

No No Yes

Yes

No Yes

No No

Yes

No

Jiangsu Satellite TV

DRAGON TV

Jiangsu Satellite TV DRAGON TV Britain’s Got Talent Korea CJ E&M Korea Grandpas Over Flowers

Anhui TV Station; ENLIGHT MEDIA

Hu Bei Satellite TV

Anhui TV Station; ENLIGHT MEDIA

UK Fremantle Media’s Don’t stop me now

Korea Super Star K

UK Fremantle Media’s Don’t stop me now

Prime-time TV format category Source airtime or not

Table 6.7 China’s Mainland Variety Shows Broadcast on MediaCorp Channel U from April 1–14, 2012–2015

108  International Trade in TV formats

International Trade in TV formats  109 hours were localized programs with international formats—Don’t Stop Me Now (Shi Bu Ke Dang); in 2014, two hours of the five hours of prime-time programs were international localized programs—Superstar China (Wo De Zhong Guo Xing) (see Tables 6.6 and 6.7). 6.2.2.5 The Difference in Production Costs Is Another Important Reason Why TV Variety Shows from China’s Mainland Have Replaced Taiwan Variety Shows

The production cost of Superstar China (Wo De Zhong Guo Xing) is 70 million RMB, the full production cost of China’s Got Talent (Zhong Guo Da Ren Xiu) is 10 million RMB,45 and the production cost of the Celebrity Battle (Quan Neng Xing Zhan) program reaches 8.5 million RMB per episode. The production cost of the seventh season of Dream of China (Zhong Guo Meng Xiang Xiu) became about 3 million RMB per episode, with a total cost of about 40 million RMB, while the total production cost of its first season was up to about 80 million RMB.46 However, the average production cost of an episode of 49 well-known variety shows in Taiwan region, China is 202,700 yuan, and the highest production cost is 844,000 RMB for an episode of One Million Star (Hua Ren Xing Guang Da Dao). In contrast, the average production cost of an episode of a well-known variety show in China’s mainland is 7.137 million RMB, 35 times more than that in Taiwan region, China.47 TV production costs are influenced by a variety of factors, but when comparing the differences in TV production costs between China’s mainland and Taiwan region, it is important to consider the differences in the state of the TV industry in the two regions. (1) In terms of industry size, the television program industry in Table 6.8 Chinese variety shows that achieved excellent ratings on Singapore’s Channel U, 2012–2014 Program Name

Original TV format Domestic source producers and broadcasters

Ratings results on U Channel

China’s Got Talent (Zhong Guo Da Ren Xiu) Don’t Stop Me Now (Shi Bu Ke Dang)

Britain’s Got Talent DRAGON TV

No. 1 in 2012 Variety Ratings

UK Fremantle Media’s Don’t stop me now Dream of China (Zhong BBCW’s Just Guo Meng Xiang Xiu) Tonight Super Brain (Zui Qiang German Super Da Nao) Brain Chinese Odyssey (Tian UK Copycat Xia Wu Shuang) Singers China’s Got Talent 4, Britain’s Got Talent (Zhong Guo Da Ren Xiu 4) Source: The authors.

Anhui TV Station; ENLIGHT MEDIA DRAGON TV Jiangsu Satellite TV Tianjin Satellite TV DRAGON TV

No. 1 in 2013 Variety Ratings No. 2 in 2013 Variety Ratings No. 1 in 2014 Variety Ratings No. 2 in 2014 Variety Ratings No. 3 in 2014 Variety Ratings

110  International Trade in TV formats China’s mainland is much larger than that in Taiwan region. Taking the total TV advertising revenue as an example, according to the data of China Statistical Yearbook, the total TV advertising revenue in China’s mainland was 111.926 billion RMB and 111.619 billion RMB in 2013 and 2014, respectively, both above 100 billion RMB, while the 2012 TV advertising revenue in Taiwan region was 24.06 billion RMB,48 only one-fifth to one-fourth of the mainland region. (2) The number of TV channels in Taiwan region is large and the competition is fierce. As of January 2012, there were 134 TV channels in Taiwan region,49 and the competition is very fierce. In contrast, the average number of channels that can be received by urban and rural households in China’s mainland in 2014 is 64.8 channels per household, and the maximum number of TV channels that can be received in northern China is 72.1 channels.50 The relatively small overall market size combined with the decreasing concentration due to fierce market competition makes it difficult for Taiwan region to invest in “big costs” and “big productions” like China’s mainland, and the quality of program production is hardly comparable, and the export competitiveness starts to decline. 6.3 Conclusion In the face of the international division of labor in the field of TV formats and the rapid development of its international trade, the Chinese television program industry has the unique advantage of being able to leapfrog forward and rapidly realize the export of Chinese television programs by introducing international television formats and localizing them for production. The unique advantages of China’s TV program industry include the huge market size which is conducive to the “home market effect”, the strong cultural discount of Chinese language culture, and the import barriers set by the Chinese government for imported TV programs. The empirical analysis in this chapter shows that the importation of international TV format rights, combined with the high production costs supported by the large market size in China’s mainland, has enabled China’s mainland variety shows to rapidly overtake Taiwan region’s in recent years to become a significant or even major part of the variety shows broadcast on Singapore’s MediaCorp Channel U. The policy implication of this chapter is that China should seize the opportunity of the division of labor in the relevant cultural industries in the process of globalization and use its unique domestic advantages to achieve “leapfrog” development in the export trade of cultural products, including the television program industry. Notes 1 In 2017, the total revenue of Chinese radio and television was 606.021 billion yuan, while the comprehensive revenue of movies was 55.839 billion yuan and the total revenue of performance market was 48.951 billion yuan in the same period, and the ­actual sales revenue of Chinese game industry market was 203.61 billion yuan in 2015 (Source: China Audio and Video Association Game Industry Committee, Gamma Data, International Data Corporation (IDC)) published the 2017 China Game Industry Report,

International Trade in TV formats  111 see http://tech.ifeng.com/a/20171219/44811376_0.shtml, accessed on November 29, 2018). 2 A television format is a production process with unique narrative elements at its core, specified in specific formal details (such as duration, sets, lighting, line scripts, music, special effects, host style, production arrangements, etc.), and market-tested for portability and tradability to serve the reproduction of specific program content (Zhang, Jianzhen and Peng, Kan, 2013). 3 The first television program based on a licensed radio format was the BBC’s Ignorance is Bless, broadcast live on April 24, 1947, which used the New York radio format of It Pays to Be Ignorant. The first truly transnational television format was What’s My Line? The BBC cloned the program and it was launched on the BBC on July 16, 1951 (Zhang, Jianzhen and Peng, Kan, 2013). 4 Yin, Le. (2014). Global Situation of TV Mode Industry Development and Chinese Countermeasures. Modern Communication, 07, 106–111. 5 Chalaby, J. K. (2015). Drama without Drama: The Late Rise of Scripted TV formats. Television & New Media, 17(1), 3–20. 6 For a more detailed description of the current state of development of television formats, please consider my other article, “International Trade in Television formats: Drivers and Implications for the Global Television Program Industry”, which will be published in Cultural Industries Research, Series 14. 7 Zhang, Jianzhen and Peng, Kan. (2013). A Brief history of the development of International Trade in TV program mode. Spring And Autumn News, 2, 65–71; Chalaby, J. K. (2015). Drama without Drama: The Late Rise of Scripted TV formats. Television & New Media, 17(1), 3–20; Chapaby, Jean K. (2011). The Making of an Entertainment Revolution: How the TV Format Trade Became a Global Industry. European Journal of Communication, 26(4), 293–309; Esser, A. and Jensen, P. M. (2015). The Use of International Television Formats by Public Service Broadcasters in Australia, Denmark and Germany. The International Communication Gazette, 0(0), 1–25. 8 Chalaby, J. K. (2012). At the Origin of Global Industry: The TV Format Trade as an Anglo-American Invention. Media, Culture & Society, 34(1), 36–52. 9 Chalaby, J. K. (2015b), The Advent of the Transnational TV Format Trading System: A Global Commodity Chain Analysis. Media, Culture & Society, 37(3): 460–478. 10 Yin, Le. (2014), Global Situation of TV Mode Industry Development and Chinese Countermeasures. Modern Communication, 7: 6; Zhang, Jianzhen and Peng, Kan. (2013), A Brief History of the International Trade for Television Program Formats. Spring and Autumn News, 2: 65–71. 11 Yin, Le. (2014), Global Situation of TV Mode Industry Development and Chinese Countermeasures. Modern Communication, 7: 6. 12 http://www.nrta.go v.cn/art/2016/6/20/art_31_31064.html 13 http://www.nrta.gov.cn/art/2016/6/20/art_31_31064.html 14 PACT. A New Age of UK TV Content Creation and a New Role for the BBC. https:// downloads.bbc.co.uk/bbctrust/assets/files/pdf/our_work/content_supply/2015/pact_­ annex.pdf, accessed on April 16, 2023. 15 Chalaby, J. K. (2015b), The Advent of the Transnational TV Format Trading System: A Global Commodity Chain Analysis. Media, Culture & Society, 37(3): 460–478. 16 Gao, Yaliang. (2014). The Characteristics of the Business Model of TV Variety Shows in the “Blockbuster Era”–A Case Study of the Comparison between The Voice of China and Happy Boys. Southeast Communication, 4, 66–68. 17 The decline in broadcast share should be attributed to the government’s “entertainment restriction” and “song restriction”, see 2014 National Variety Program Ratings Analysis in China TV Ratings Yearbook 2015, Communication University of China Press, 2015. 18 (Israel) Helpman and (U.S) Krugman. (2014). Increasing Returns, Imperfect Competition, and the International Economy: Market Structure and Foreign Trade. Translated by Yin Xiangshuo and Yin Xiangkang. Shanghai Gezhi Publishing House; Shanghai Sanlian Publishing House; Shanghai People’s Publishing House.

112  International Trade in TV formats 19 Helpman, E. and Krugman, P. (2014). Increasing Returns, Imperfect Competition, and the International Economy: Market Structure and Foreign Trade. Translated by Yin Xiangshuo and Yin Xiangkang. Shanghai Gezhi Publishing House, Shanghai Sanlian Publishing House, Shanghai People’s Publishing House. 20 Helpman, E. and Krugman, P. (1985). Market Structure and Foreign Trade. Cambridge, MA: MIT. 21 David, Hesmondhalgh. (2006). Cultural Industries. Translated by Liao Peijun. Taipei County: Weber Culture International LTD; Rosen, Sherwin. (1981). The Economics of Superstars. American Economic Review, 71(5), 845–858; Burde, Andrew E. (2011). The Music Industry, A Handbook of Cultural Economics (2nd edition). Cheltenham and Northampton, MA: Edward Elgar. 22 Hoskins, C. and Mirus, R. (1988). Reason for the US Dominance of the International Trade in Television Programs. Media, Culture and Society, 10, 499–515. 23 Hiromichi, Masuda. (2012). The Business Operation Mode of Japanese Animation Industry. Translated by Li Xiwang. Beijing: Longmen Book Company. 24 Waterman, D. and Rogers, E. M. (1994). The Economics of Television Program Production and Trade in Far East Asia. Journal of Communication, 44(3), 89–111. 25 Dupagne, M. and Waterman, D. (1998). Determinants of U.S. Television Fiction Imports in Western Europe. Journal of Broadcasting & Electronic Media, 42(2), 208–220. 26 The “one-way flow” is the media economics community’s way of describing the phenomenon of U.S. television program trade running a surplus for all countries in the world and a deficit for other countries. 27 Curtin, M. and Shattuc, J. (2009). The American Television Industry. BFI Publishing. 28 Keane, M., Fung, A., and Moran, A. (2007). New Television, Globalisation and the East Asian Cultural Imagination. 29 Havens, Timothy. (2006). Global Television Marketplace. London: British Film Institute. 30 Havens, Timothy. (2006). Global Television Marketplace. London: British Film Institute. 31 Havens, Timothy. (2006), Global Television Marketplace. London: British Film Institute; Hoskins, C. and Mirus, R. (1989). Reason for the US Dominance of the International Trade in Television Programs. Media, Culture and Society, 10, 499–515. 32 Historically, the “capture” of the global market by Hollywood television programs has been characterized by a great deal of “package sales”, in which Hollywood manufacturers “packaged” a large number of their past television productions and demanded that customers purchase them at the same time. This is one of the major reasons why Hollywood TV programs have entered so many markets in other countries. See Havens (2006). 33 Regressions are taken at the upper end of the average price in the table. 34 Hoskins, C., Mirus, R. and Rozeboom, W. (1989). U.S. Television Programs in the International Market: Unfair Pricing? Journal of Communication, 39, 55–75. 35 This data is based on a combination of various websites in China, and while there is no agreement on the amount of money The Voice of China pays to the originator for its rights, one thing is clear: its price is rising rapidly. This is evidenced by the 2016 copyright dispute between Canxing Productions and the original publisher due to high royalty fees. 36 The United States can be used as a case study in this regard. Many TV show models originated outside of the United States, but are known worldwide after being produced by American companies as finished programs. For example, the TV series Ugly Betty, produced by the American broadcasting Company (ABC), was originally taken from a Colombian model that has been produced in several versions around the world, but the ABC version is the best known internationally, and ABC has exported it to more than 130 countries to compete with the original Colombian show, see Curtin and Shattuc

International Trade in TV formats  113

37 38 39 40 41

42

43

44 45 46 47 48 49 50

(2009), p. 116. In addition, the most well-known version of The Voice, which originated in the Netherlands and is exported to more than 40 countries, is the American version. Waterman, D. and Rogers, E. M. (1994). The Economics of Television Program Production and Trade in Far East Asia. Journal of Communication, 44(3), 89–111. See the Hofstede culture scores website: http://www.geert-hofstede.com/. A detailed description of what the six dimensions refer to can be found at http://www. geert-hofstede.com/. Fu, W. W. and Lee, T. K. (2008). Economic and Cultural Influences on the Theatrical Consumption of Foreign Films in Singapore. Journal of Media Economics, 21(1), 1–27. A random sample of one to two weeks’ worth of television programs is a common practice in empirical analysis in the field of media economics, e.g., Jiri, Nekvapil and Marek, Nekula. (2006). On Language Management in Multinational Companies in the Czech Republic. Current Issues in Language Planning, 7(2–3), 307–327. The reason why we can only give intervals but not exact weights here is that the source of some programs is not known when counting the hours of Channel 8 programs. This chapter assumes “non-Singaporean” and “Singaporean” sources for “unknown source” programs to calculate the proportion of imported program hours, which results in two values. However, based on the experience of capturing the data in this chapter, it is more likely that the programs with “unknown” origin are local programs in Singapore, and therefore the lower limit of this range is more likely to be taken. In addition to the author, the author’s master’s degree students, Liu, Sili, Ge, Yali, and Lyu, Lan, participated in the collection and collation of TV program data. They entered, classified and counted the duration of the raw data of TV programs. After the initial collation, the results were checked twice by the author, and then returned to the relevant students for corrections after problems were found. All in all, the data collation went through several feedbacks and corrections to ensure data completeness and accuracy. The query of the original data was also supported and assisted by the staff of the ­National Library of Taiwan, Hong Kong and Macau Newspapers and Periodicals Reading Room. The search and entry of the original data as well as the search and confirmation of the source involved a lot of tedious and time-consuming work, and I would like express my thanks to the above-mentioned people who participated in this work. Regarding the definition of prime time, this chapter draws on the reference Jiri, Nekvapil and Marek, Nekula. (2006). On Language Management in Multinational Companies in the Czech Republic. Current Issues in Language Planning, 7(2–3), 307–327. See CBN Weekly 2010 Smart Creativity Rankings, https://www.yicai.com/news/626201. html, accessed on April 17, 2023. Wang, Sichen. (2014). Zhejiang Satellite TV - the Chinese Dream Show Report JianYi Industry Problems and Measures of Chinese TV Amusement Programs [D]. Lanzhou University. Wang Ling Xi. Taiwan Artiste Westward to Find New [EB/OL]. People’s Daily, ­December 14, 2015, http://tw.people.com.cn/GB/n1/2015/1214/c14657-27923857. html, accessed on August, 2016. Chen, Feibao. (2014). Contemporary Taiwan Media Industry. Beijing: Jiuzhou Press. Ren, Zhengting and Yu, Yi. (2012). Difficulties of Taiwan Variety Shows Under Ratings. Youth Reporter, 10Z, 2. Chen, Ruoyu. (2015). China TV Rating Yearbook 2015. Beijing: Communication University of China Press.

7

The Rise and Fall of the China’s Hong Kong Film Industry and Its Implications for China’s Mainland

By analyzing the causes of the rise and fall of Hong Kong film industry, this chapter aims to verify the findings of cultural trade theory on the factors influencing the competitiveness of an economy’s cultural trade on the one hand and to point out the implications for the development strategies of the film industry and the cultural industry in China’s mainland on the other hand. Hong Kong films were once brilliant in the 1980s and 1990s. At the most prosperous stage, Hong Kong film output ranked third in the world, second only to India and the United States. In 1992, the total film box office in Hong Kong reached 1.5 billion HKD, of which 80 percent was Hong Kong films, four times of the box office of Hollywood films that had been exported worldwide. Not only that, but Hong Kong films also have a significant overseas box office and a strong influence in East Asian economies such as Taiwan region, China’s mainland and South Korea. Before 1993, almost all of the most popular Chinese films in Taiwan region were Hong Kong films, and the few local commercial films in Taiwan region were often made with Hong Kong actors and had a strong Hong Kong style. But after 1993, Hong Kong film industry suddenly began to decline and never returned. In 1992, when Hong Kong films were at their peak, they grossed 1.276 billion HKD locally, but by 2002, that figure had dropped to 118 million HKD.1 According to the Hong Kong Film Industry Association and the Hong Kong Chamber of Cinemas in 2017, all of the top ten films released in Hong Kong were Hollywood blockbusters, with Beauty and the Beast in first place, grossing 71.66 HKD million, and Kingsman: The Golden Circle in tenth place, grossing 37.5 HKD million, while the best Hong Kong film was Love in The Buff (Zhi Ming Yu Chun Jiao) in 18th place, grossing 30.7 million HKD. The total box office of the top ten films in Hong Kong in 2017 was 499 million HKD, down 21.1 percent from 633 million HKD in 2016. The highest number of Hong Kong films released in Hong Kong reached 153 in 1993 but has been declining since then, with 60 films released in 2017, down by more than half from 1993. Various explanations have been given for the decline of Hong Kong cinema, such as the withdrawal of Taiwan funding in the 1990s.2 The identity crisis of filmmakers before the 1997 handover led to a widespread sense of “money grabbing”, which in turn led to a vicious proliferation of commercialization and a decline in film quality; the brain drain; and the industrial system of Hong Kong films.3 DOI: 10.4324/9781003424796-7

The Rise and Fall of the China’s Hong Kong Film Industry  115 All of these explain the rise and fall of Hong Kong film industry to a certain extent. However, because many of these factors are not included in a unified analysis framework, they are not conducive to being applied to the film industries of other countries and regions. This chapter attempts to integrate the rise and fall of Hong Kong’s film industry into the framework of cultural trade theory. In an economic sense, the factors influencing the competitiveness of cultural industries and trade in any economy can be summarized into three aspects: supply conditions, demand conditions and trade costs. Li Huailiang summarizes the influencing factors of international cultural trade as domestic market size, cultural differences and cultural distance, technological conditions, economic development level and policies.4 In this chapter, the above factors are further divided into three categories: supply conditions, demand conditions and trade costs for the purpose of this study. The local market size is the demand condition, the technological conditions, the level of economic development and the policy are the supply conditions, cultural difference, cultural distance and some policies also affect trade costs. 7.1  Advantageous Supply Conditions Offset the Demand Disadvantages: Hong Kong Films Go to Glory 7.1.1  Demand Conditions Cannot Support Hong Kong as a Chinese Language Film Center

In terms of demand conditions, even before the 1990s, Hong Kong did not have the advantageous conditions for the development of a film industry, because compared with Taiwan region, Singapore, China’s mainland and South Korea, which are considered to be the same “Confucian cultural circle”. Hong Kong’s economic output was only higher than that of Singapore and ranked second to last. The home market effect in cultural trade theory suggests that for film production with obvious economies of scale, the large size of the local market can support film exports. So based on the factor of local market size, the film industry and trade should not be led by Hong Kong, but by China’s mainland and Taiwan region, which have larger economic size than Hong Kong. 7.1.2  Favorable Supply Conditions Were the Main Reasons for the Prosperity of the Hong Kong Film Industry Before the Mid-1990s

The prosperity of the Hong Kong film industry in those years can be explained almost entirely by favorable supply and trade cost conditions, which offset the shortcomings in demand conditions. 7.1.2.1  A Freer Economic System

Hong Kong had a free economy, which was the most distinctive feature that set it apart from other Chinese-speaking economies at that time. Hong Kong has always been known for its free economy. The Heritage Foundation of the U.S. and the

116  The Rise and Fall of the China’s Hong Kong Film Industry Fraser Institute of Canada have consistently ranked Hong Kong as the world’s number one free economy in their reports on free economic systems published since the mid-1990s, and its distinguishing feature is also reflected in the government’s management of the film industry. The government, on the one hand, has never set quotas for imported films, including Hollywood films, and on the other hand has almost never given any preferential policies to the local film industry and has rarely imposed censorship restrictions on film content. This laissez-faire system was very different from that of other East Asian economies at the time. For example, in the 1970s and 1980s, Taiwan films were subject to restrictions imposed by the Taiwan Information Office. In an article titled The ­Dilemma of Taiwan’s Film Industry published in 1982, the author pointed out that the first cause of Taiwan’s film industry’s difficulties was that the Taiwan Information Office had stifled the creative energy of the film industry due to the strict standards of censorship.5 This led many Taiwan filmmakers to go to Hong Kong to make films, and Taiwan’s commercial films gradually took on the characteristics of Hong Kong films.6 In South Korea, during the military governments of Park Chung-hee and Kim Doo-hwan from 1961 to 1987, the country’s media production was strictly controlled and restricted political freedom combined with strict film censorship hindered Korean film production.7 The film industry in China’s mainland was also in a period characterized by a planned economy, and there was basically no development of commercial films. The liberal economic system put Hong Kong films in a fierce competition with Hollywood films from the very beginning. In this environment of competition, Hong Kong filmmakers showed a strong ability to survive and even produced world-class commercial genre films. Jackie Chan, a Hong Kong filmmaker who later became an international star and won the Academy Award for Lifetime Achievement, has repeatedly said in interviews that the reason why he “works hard to make movies” is that “if I don’t work hard, there is no way to compete with Hollywood”.8 The freedom of creation and the fierce competition have prompted Hong Kong filmmakers to focus on market research and to make films that are more suitable for Hong Kong audiences than any foreign films can satisfy, in response to the collective emotional needs of Hong Kong people. Hong Kong cinema focuses on entertainment and stimulation of the senses, and entertainment films are the mainstream, with strong commercialism and weak ideology and artistry. In 1992, the most glorious year for Hong Kong films, for example, there were 40 comedies, 33 tertiary films (including pornography, violence and foul language films), 14 romantic films, 11 police films, nine ghost films, eight gangster films, seven legendary films and other realistic films, documentary films, kung fu films, martial arts films, romance films and literary films.9 Such a commercial-oriented content format of Hong Kong films, on the one hand, has given people the impression that they are “bottomless entertainment” and “hollow in thought”, but on the other hand, they have also produced a unique Hong Kong style, and some of them have even grown into world-class commercial films. For example, Jackie Chan, Jet Li, Michelle Yeoh, John Woo and other Hong Kong actors and directors who later entered the stage of world-class commercial films all came from Hong Kong action, martial

The Rise and Fall of the China’s Hong Kong Film Industry  117 arts and police films. It is worth noting that despite this environment of commercial film growth, Hong Kong also produced such world-renowned art film directors and actors as Wong Kar-wai, Ann Hui, Guo Chen and Maggie Cheung. 7.1.2.2 Hong Kong’s Free Economic System Has Attracted Film Talents and Capital

Before World War II, there were two centers of Chinese films, Shanghai and Hong Kong, and Shanghai was more important than Hong Kong in gathering a large number of film talents. However, between 1937 and 1949, Shanghai’s cultural elites, such as Guo Moruo, Mao Dun, Xia Yan, Cai Chusheng, Situ Huimin, Zhu Shilin, Zhang Mian, Zhang Junxiang, Shi Dongshan and Wang Weiyi, went south to Hong Kong in large numbers three times, which had a profound impact on Hong Kong culture. In film, it promoted the standard of Cantonese films and pioneered the production of Standard Chinese (Putonghua) films in Hong Kong, where only English and Cantonese were spoken.10 Early influential directors in the Hong Kong film industry, such as Li Han-Hsiang, Chu Yuan and Chang Che, all came to Hong Kong from China’s mainland or Taiwan region. In the late 1970s and early 1980s, a new wave of films was launched in Hong Kong, and some of the directors who later made a significant impact on Hong Kong films, including Tsui Hark, Ann Hui, Yen Ho, Fang Yuping and Zhang Guoming, had received professional training in film abroad and had made their debut in the television industry or had worked in the film industry for many years.11 In the late 1990s, when Hong Kong films encountered difficulties, some Japanese actors began to be introduced into Hong Kong films. For example, the Japanese actress Takako Tokiwa in 2000s A Fighter’s Blues (A Hu) and Norika Fujiwara in China Strike Force (Lei Ting Zhan Jing). In addition to talents, a large amount of foreign capital was also attracted to the Hong Kong film industry. In the 1980s and 1990s, a large amount of investment in Hong Kong films came from Taiwan region. In the 2000s, American capital was also involved in Hong Kong films, for example, the 2000 film Time and Tide was invested by Columbia (Asia). 7.1.2.3  Technical Conditions Didn’t Pose Great Challenges to Hong Kong Films

First of all, digital technology has not yet been fully developed, intellectual property protection has not yet encountered too many challenges, and the video business has not yet had much impact on the cinema box office. According to statistics, by 1991, Hong Kong people spent 200 million HKD on the video market, which did not have a great impact on cinema box office; people did not have much demand for stunning visual effects in cinemas, and the distinction between cinemas and video discs was not obvious enough. The computerized visual effects of Hollywood films at that time had not yet left Hong Kong films too far behind. For example, the top ten foreign language films in Hong Kong in 1991, from the first to the tenth, were Ghost, The Terminator, Home Alone, Kindergarten Cop, The Yen Family (Japan), Backdraft, The Silence of the Lambs and Predator 2 and Mannequin: On the Move.

118  The Rise and Fall of the China’s Hong Kong Film Industry Except for The Terminator, which is the second-largest film (100 million USD), none of these films are so-called “blockbusters” with computer to create stunning visual effects. If you look at the foreign language films that were successful before 1993, they all have this characteristic. 7.1.2.4  Higher Levels of Economic Development and Lifestyles Are of Interest

Studies have shown that relatively wealthy economies have the means to produce more local products12; moreover, according to Maslow’s hierarchy of needs theory,13 only after income levels reach a certain level, do spiritual and entertainment needs rise to become primary needs. Although the total economic volume of Hong Kong has not been as large as those of China’s mainland, Taiwan region, and South Korea, which are in the same cultural circle, its GDP per capita level has been higher than those economies. On the one hand, this may mean that Hong Kong audiences are more advanced in their taste for movies, thus pushing Hong Kong films that first satisfy Hong Kong audiences to be more cutting-edge; on the other hand, it may also lead audiences in other economies with lower income levels to aspire to the life of Hong Kong people as reflected in Hong Kong films.When discussing the reasons for the decline of Hong Kong films, the famous Hong Kong director Peter Chan (Chen Kexin) also mentioned, “Nowadays, Asians no longer follow Hong Kong films to observe Hong Kong people’s lives”.14 7.1.3  Trade Cost Factors Protect Hong Kong Films from American Film Competitions

In terms of trade cost conditions, cultural distance and policies of neighboring economies are favorable to Hong Kong films, and in fact, provide a certain degree of protection for Hong Kong films against Hollywood films, compensating for the disadvantage of a small local market in Hong Kong. In terms of cultural affiliation, Hong Kong is still a part of the East Asian cultural circle influenced by Confucianism, and there is still a large cultural distance between Hong Kong and the United States, the world’s leading film industry center. The economies of China, Singapore, South Korea and Japan are generally considered to be parts of the Confucian cultural sphere, while the economies of the United States, the United Kingdom, Australia, South Africa, Canada and New Zealand are considered to be parts of the Anglo cultural sphere.15 There are still obvious differences between the two cultures. According to Hofstede’s cultural distance formula, the cultural distance between China’s Hong Kong and the United States is 2.98,16 ranking 26th from far to near among all 80 sample economies, while the cultural distances between Australia, New Zealand and the United Kingdom and the United States are 0.03, 0.21 and 0.24, respectively.17 The cultural distance between China’s Hong Kong and China’s mainland is only 0.32, and the cultural distance between Taiwan region and China’s mainland is 1.04. In short, there is still a certain distance between the Confucian cultural circle to which Hong Kong belongs and the largest center of the global film industry, the United State. This allows Hong Kong films

The Rise and Fall of the China’s Hong Kong Film Industry  119 to have their own room for survival, and American films will encounter certain cultural discounts when entering the markets of Hong Kong and other Confucian cultural circles. On the one hand, Taiwan region’s different policies toward Hong Kong and American films provided some protection for Hong Kong films in the Taiwan market, allowing Hong Kong films to capture the Taiwan market and compensate for the lack of local market size. Between 1949 and 1989, according to Taiwan’s film policy, Hong Kong films were considered part of local films and could be introduced to Taiwan region without any quantity limit,18 while there were restrictions on the number of copies of foreign films such as American films. On the other hand, Taiwan’s local films were still largely used for political propaganda purposes and were subject to strict film censorship. In 1956, the Taiwanese authorities drafted the Taiwan Film Industry Assistance Program to develop the film industry through concessions, subsidies and tax breaks. The subsidies became a source of funding for the production of Hong Kong films. The private production companies gradually strengthened their partnership with the Hong Kong film industry, allowing Hong Kong films to gradually dominate the Taiwanese film market with the advantage of the original industrial system. In other words, before the 1990s in ­Taiwan region, Hong Kong films were largely subsidized by Taiwan region and were neither subject to censorship restrictions in terms of content, nor quota restrictions in terms of imports, which makes Hong Kong films receive even more favorable treatment in Taiwan region than Taiwan local films and American films. In fact, it has a certain protective effect on Hong Kong films. According to statistics, from July 1990 to June 1991, a total of 248 Standard Chinese (Putonghua) films were examined and licensed by the Taiwan Film Office, of which only 41 were produced in Taiwan region, while the remaining 207 were all made in Hong Kong. From 1989 to 1991, Taiwan’s production plummeted from 109 films to 33, leaving the film market short of films. Taiwan needed 220 to 250 Standard Chinese (Putonghua) films each year to meet the needs of the province’s more than 400 cinemas. Obviously, in 1991, only 15 percent of these films were available, and the rest had to rely on imported Hong Kong films. Since Hong Kong films were ­exported to Taiwan region without restrictions and even with preferential treatment, both Hong Kong and Taiwan became potential markets for Hong Kong films, thus compensating for the small local market and supporting the gradual increase in investment in Hong Kong films, but at the same time laying a hidden peril for the decline of Hong Kong films. 7.2  Disadvantageous Demand Conditions: Hong Kong Films in Decline 7.2.1  Favorable Supply Conditions Gradually Disappeared

The analysis in the previous section shows that Hong Kong films were once glorious because they had favorable supply conditions, which compensated for their deficiencies in terms of demand conditions. After the mid-1990s, these conditions

120  The Rise and Fall of the China’s Hong Kong Film Industry began to change significantly, which led to the decline of Hong Kong films, as the small size of the local market became apparent. 7.2.1.1 Local Industries in Overseas Markets Developed Rapidly and the Protection Effect on Hong Kong Films Disappeared

The China’s Taiwan authorities have been relaxing their policy on the importation of American films since 1990, as reflected in the increasing number of copies allowed for each foreign film: from 8 to 12 in 1990, to 50 in 1997 and to 58 in 1999. By 1999, the top ten best-selling foreign films in Taiwan grossed 942 million TWD, 13.61 times more than the gross of top ten best-selling Chinese films (seven of which were Hong Kong films), which was only 6.92 million TWD. In 2002, Taiwan began to import unlimited copies of foreign films and lift the restriction on the number of halls for showing foreign films, resulting in unprecedented competition for Hong Kong films, which originally had a “monopoly” on the Taiwanese market. In other words, all the relative preferential treatment that Hong Kong films had received in Taiwan region was eliminated. This instantly deprived Hong Kong films of the Taiwanese market. In South Korea, another important overseas market, the Film Industry Act of 1994 reclassified the film industry from a service industry to a quasi-manufacturing industry and enabled the local film industry to enjoy the tax benefits reserved for the manufacturing industry. After the Asian financial crisis in 1998, South Korea made the film industry an important pillar industry. In 1999, the South Korean film Swiri beat the Hollywood blockbuster Titanic at the domestic box office, indicating that the South Korean film industry began to take off; Thailand also produced a film like Nang Nak that beat Titanic19 at the domestic box office. The development of the local film industry in East Asian countries has greatly reduced the export market for Hong Kong films, thus highlighting the problem of the small capacity of their local markets. 7.2.1.2 Hollywood Films Have Shortened the Cultural Distance to East Asian Markets

First, the rapid development of Hollywood film technology after the 1990s has shortened the cultural distance through stunning visual effects. 1993s Jurassic Park considered a milestone in Hollywood film special effects, grossed 900 million USD worldwide and is still ranked 24th on the global box office history list; another milestone was 1997s Titanic, which grossed 2.1 billion USD at the box ­office and is still only No. 2 behind Avatar. According to boxofficejoyo.com, the top 100 films in the global box office ranking have all been made since 1993, except for E.T. the Extra-Terrestrial at No. 65 and Star Wars at No. 70, which were produced in 1982 and 1977, respectively. E.T. the Extra-Terrestrial (1982) and Star Wars (1977) are also the two films with the lowest share of box office outside the United States among the 100, at 45 percent and 40 percent, respectively. Almost all of the other films had a share of over 50 percent at the overseas box office.

The Rise and Fall of the China’s Hong Kong Film Industry  121 Second, the participation of Hong Kong filmmakers in American film production has also shortened the cultural distance, as some outstanding filmmakers from Hong Kong have been incorporated into the Hollywood film production system, such as Jackie Chan, Jet Li, Michelle Yeoh, John Woo, Wong Kar-wai, etc. This has further shortened the cultural distance that American films have suffered in East Asian countries. 7.2.1.3 Development of Digital Technologies Has Reduced the Importance of Theaters, Further Reducing the Size of the Box Office Market and Placing Higher Demands on the Amount of Investment in Cinema Films

The emergence of video disc technology has, on the one hand, provided a lowercost alternative to cinema, and on the other hand, posed new challenges for intellectual property protection. As mentioned above, Hong Kong spent 200 million HKD on video tapes and discs in 1991; that figure rose to 400 million HKD in 1992 and further to 950 million HKD in 1993. The development of digital technology has made it possible for people to watch movies on small screens at lower cost. On the one hand, in order not to be replaced by small screens, theaters have to show big movies with big production and big investment with stunning visual effects, thus raising the investment requirement for cinema movies and highlighting the limitations of the small scale of the local movie market in Hong Kong. On the other hand, the development of digital technology has brought new problems of intellectual property protection, and the rampant piracy of optical discs at the end of 1990s and early 2000s has also become a factor against Hong Kong films. 7.2.1.4 Asian Financial Crisis Has Directly Reduced the Potential Market for Hong Kong Films

According to IMF data, the year-on-year GDP growth rates of Hong Kong, South Korea, Malaysia and Singapore in 1998 were −5.88 percent, −5.47 percent, −7.36 percent and −2.25 percent, respectively. The economies of these major markets for Hong Kong films all experienced negative growth, which had a negative impact on the Hong Kong film market. 7.2.2  Weak Demand Conditions: Hong Kong Films Are in Decline

As the favorable supply conditions gradually disappeared, the small size of Hong Kong’s local market finally became visible, with the following consequences. 7.2.2.1 The Small Size of the Local Market Required the Intervention of Overseas Capital, Which in Turn Required Hong Kong Filmmakers to Respond to Overseas Market Demand, and This Took Time

The success of Hong Kong films in overseas markets stems from the commercial film-making skills that Hong Kong filmmakers have forged over the years in Hong

122  The Rise and Fall of the China’s Hong Kong Film Industry Kong’s very liberal film market environment, and Hong Kong filmmakers know how to respond to the needs of local audiences. However, as Hong Kong films have gradually become more popular in overseas markets, the involvement of overseas capital has made it necessary for Hong Kong filmmakers to take into account the needs of overseas markets, and this has taken time for filmmakers to adapt. As the famous Hong Kong director Peter Chen said, “When this port wants this and that port wants that, the result is that Hong Kong films become incoherent and formulaic products”. In other words, in the past, Hong Kong films only needed to satisfy the tastes of Hong Kong audiences, but later on, the involvement of capital from different overseas markets has made the content of Hong Kong films more complex, resulting in the need to adjust the original content strengths of Hong Kong films over time. 7.2.2.2 The Local Market Is Too Small to Provide Higher Pay and a Bigger Platform for Film Talents, Leading to an Exodus of Talents

Between 1997 and 1998, actors and directors who were already very successful in Hong Kong and gradually became international filmmakers, such as John Woo, Stanley Tong, Tsui Hark, Ronny Yu, Wong Chi Keung, Chow Yun Fat, Michelle Yeoh, Sammo Hung, Jet Li, Jackie Chan and so on. In other words, Hong Kong filmmakers are not in decline but are so successful that a small market like Hong Kong can no longer support their paychecks. For example, Jackie Chan’s biggest investment in Hong Kong was the 1995 film Thunderbolt, which amounted to 200 million HKD, but converted into only 26 million USD, while according to information on imdb.com, Jackie Chan’s investment in the Hollywood film Rush Hour rose to 33 million USD, Shanghai Noon to 55 million USD and Rush Hour 2 to 90 million USD. The investment was 60 million USD for The Tuxedo, 50 million USD for Shanghai Knights and 110 million USD for Around the World in 80 Days. This kind of investment is obviously impossible to afford in Hong Kong. Jet Li’s Hong Kong movie Once Upon a Time in China and America in 1997 invested 12 million USD, which is already a very high investment in Hong Kong movies. But when it comes to Hollywood, he invested 25 million USD in 2000 for Romeo Must Die, 49 million USD in 2001 for The One and 30 million USD in 2003 for Cradle 2 the Grave. In the first half of the 1990s, the top ten box office of Hong Kong movies were basically occupied by movie actors such as Jackie Chan, Stephen Chow, Chow Yun Fat and Jet Li, but by the beginning of the twenty-first century, almost all of these actors, except for Stephen Chow, had gone international, and the influence of Hong Kong movies had declined. 7.2.3  “Pan-Asianization”, “International”, “Special Effect-oriented” and “Mainlandization”, “Hong Kong-Style Films” Is Gradually Weakening

When Hong Kong filmmakers realized the limitations of the small size of the local market, the natural response was to expand the scope of the target market, and their

The Rise and Fall of the China’s Hong Kong Film Industry  123 strategy was to close the cultural distance by increasing technical and financial investment and adding actors with more appeal to the target market. As a result, Hong Kong films have become “pan-Asian”, “international”, “stunt-oriented” and “mainlandization”. By “Pan-Asianization”, Hong Kong films are no longer confined to Hong Kong filmmakers but are also working with filmmakers from other East Asian countries such as Korea and Japan in an attempt to open up a wider market. For example, in 1999, Japanese actors Takako Tokiwa (Moonlight Express), Hen Nakamura (GenX Cops) and Mitsuko Ishida (Fascination Amour); and Singaporean actress Fan Wenfang joined Hong Kong films to attract new markets.20 In addition, the films Jan Dara, Eye and Three: Going Home are also examples of “Pan-Asianization”.21 Internationalization refers to the fact that some Hong Kong film directors and actors began to make films in the United States, such as John Woo, Tsui Hark, Yu Yantai, Wong Chi Keung, Stanley Tong and other directors, while actors included Chow Yun Fat, Michelle Yeoh, Sammo Hung, Jet Li, Jackie Chan and others. These filmmakers from Hong Kong have since played a role in the international film industry. In addition, international investment has also started to get involved in Hong Kong films.22 For example, in 2000, Time and Tide was a film invested by Columbia (Asia), and so were So Close and The Touch in 2002. “Special effect-oriented” refers to the introduction of the large-scale computerized special effects in Hong Kong films to compete with Hollywood films and to try to enter more markets. Examples of this kind of film include The Storm Riders, A Man Called Hero, New Legend of the Zu Mountain, Shaolin Soccer and so on. The biggest impact on Hong Kong films is the “mainlandization”, that is, more and more Hong Kong filmmakers have started to “go north” to enter the China’s mainland market. Especially after China’s accession to WTO and the adoption of CEPA in 2003, Hong Kong films were considered as domestic local films in China’s mainland. The “compensatory” and “blowout” growth of China’s mainland’s film market has led to great changes to the pattern of “Confucian cultural circle” and even the world film market. In 1994, when the film market in China’s mainland first began to introduce American blockbusters, the box office in China’s mainland and Hong Kong was 300 million RMB23 and 1.5 billion HKD, respectively, the latter being more than five times that of the former, while in 2017, ­according to mtime.com, the box office in China’s mainland and Hong Kong were 7.9 billion USD and 237 million USD, respectively, the latter being only 3 percent of the former. This drastic change in the market landscape will inevitably lead to the “mainlandization” of Hong Kong films. In fact, as early as 2002, the famous Hong Kong director Derek Tung-Shing Yee said, “In the past, Hong Kong’s co-productions with the mainland were dominated by the content style of Hong Kong, but now the situation is reversed, with many Hong Kong companies co-producing films with the mainland, dominated by the mainland style”.24 Under the above trend, the influence of “Hong Kong-style films” has gradually weakened, and even the concept of “Hong Kong-style films” has gradually disappeared.

124  The Rise and Fall of the China’s Hong Kong Film Industry 7.3  Implications for Film Industry in China’s Mainland 7.3.1  A Brief Summary of This Chapter

By incorporating the rise and fall of the Hong Kong film industry into the framework of cultural trade theory, this chapter can draw the following conclusions. First, the Hong Kong film industry originally did not have the demand conditions to influence the entire Confucian cultural circle. But before the 1990s, compared with China’s mainland, Taiwan region and South Korea, which belonged to the same cultural circle, the Hong Kong film industry had very favorable supply conditions, which coupled with trade cost conditions, offset the unfavorable ­demand conditions and contributed to the glory of Hong Kong films. Second, given the preferential treatment given to Hong Kong films under ­Taiwan’s film policy, the glory of Hong Kong films was not achieved in a fully competitive environment, and it can even be said that it was achieved under certain protective conditions. Third, after the 1990s, as the advantages of the Hong Kong film industry in terms of supply and trade costs gradually weakened, its disadvantage in terms of demand—the small size of the local market—came to the fore, and eventually led to the decline of Hong Kong films. 7.3.2  Further Review on the Case of Hong Kong Film Industry: Implications for the Film Industry in China’s Mainland 7.3.2.1  Is the Decline of Hong Kong Film a Failure of Hong Kong Filmmakers?

The rise and fall of the Hong Kong film industry prove a basic theory in the field of film and cultural trade: local market size and trade costs are the most important determinants of a country’s cultural trade competitiveness and play an important role in determining the vitality of a country’s culture. Due to the significant economies of scale in film production, the film industry of a small country can only be export competitive if there are high trade costs, which in the current era of globalization are mainly reflected in cultural distance and protective trade policies. Otherwise, even if a small country succeeds in the short term, after a certain period of time, factors of production will move to larger markets due to insufficient demand. When trade costs fall to a certain level, the cultural patterns supported by the small market will become part of the larger market and even disappear.25 Jackie Chan’s experience illustrates this point very clearly: when Jackie Chan’s film Thunderbolt cost 200 million HKD, the market for Hong Kong films could no longer support his further progress, and Jackie Chan naturally went to Hollywood and became an international actor. And when Stephen Chow’s comedies are less accessible to the English-speaking market due to their dependence on language, he went to the larger market in China’s mainland. In other words, in this era of globalization, the decline of Hong Kong films is not a failure of Hong Kong filmmakers, but rather that they are so successful that

The Rise and Fall of the China’s Hong Kong Film Industry  125 the market for “Hong Kong-style” films is too small to retain them. In fact, in their quest for a larger market, Hong Kong filmmakers have demonstrated a great ability to adapt. A large number of Hong Kong filmmakers are currently working on domestic films in the market of China’s mainland, including Peter Chen’s American dreams in China (Zhong Guo He Huo Ren) and Dearest (Qin Ai De), which are considered to be even more mainland style than mainland directors, and so is Hark Tsui’s The Taking of Tiger Mountain (Zhi Qu Wei Hu Shan), which is considered to be a film that has successfully responded to the mainland market demand. John Woo and Jackie Chan have also succeeded in gaining a foothold in the American market. It is also worth noting that the changing status of Hong Kong film market is likely to give it a new function and position. With the change in the comparison between the Hong Kong and mainland film markets, Hong Kong market has changed from being the “mainstream market for Chinese films” to a “niche market”, which has led to changes in the overall Chinese film landscape. For example, some media commentaries say that Hong Kong has become “a good platform for directors who are unable to go north to practice”.26 Hong Kong’s still free creative environment may make it a testing ground for innovative commercial genre films and even art films. The combination of Hong Kong’s creative environment and the huge market size of the mainland will create a synergy. Gradually, Hong Kong will provide the creativity and the mainland will provide the market to support the technology, and together they will produce high-quality Chinese films with both creativity and technology. 7.3.2.2  Implications for the Film Industry in China’s Mainland

China’s mainland is a large market, which is its biggest difference with Hong Kong. The box office in China’s mainland is now the second largest in the world, after North America, and in 2017, it grossed 7.9 billion USD, accounting for 19.46 percent of the global box office. If China’s economy can continue to grow at a moderate pace for another decade,27 China’s economic output will surpass that of the United States,28 and China’s box office is expected to surpass that of the United States to become the number one film market by then. This gives China’s film industry the greatest advantage in terms of demand, and it is also a decisive advantage. The second major advantage of China’s mainland is cultural distance and cultural differences. Some scholars argue that one of the outstanding features of Chinese culture is its ability to be eclectic while maintaining its own cultural identity.29 If we agree with this point, then it would be another great advantage of Chinese films. The two advantages mentioned above will determine China’s ability to absorb the most advantageous resources from around the world to produce films for the Chinese market, including Chinese cultural elements, in a globalized world. This is evidenced by the increasing “mainlandization” of Hong Kong films and

126  The Rise and Fall of the China’s Hong Kong Film Industry the frequent inclusion of Chinese cultural elements in Hollywood blockbusters in ­recent years.30 Favorable demand conditions need to be complemented by improved supply conditions. The booming film industry in Hong Kong of China showed the importance of favorable supply conditions, and the government can do much about it. First, it should maintain the improved intellectual property protection system and prevent the resurgence of piracy; second, it should provide a more conducive environment for the creation of film content, where possible; third, it should create favorable conditions and an environment to attract the best global film talents to make Chinese films, while strengthening the training of talents; fourth, it should assist Chinese companies in opening up distribution channels for Chinese films to the world through foreign investment and other means; and fifth, we should create a healthy competitive environment so that film practitioners can improve the quality of their films and realize the importance of exporting films and then strive to enter the global market. For example, it is only in the past year or two that the China’s mainland film market has slowed down in growth that Chinese films have felt the pressure to develop export markets and started to act.31 Favorable demand conditions in China’s mainland film market provide the ­Chinese film industry and trade liberalization policies with a great deal of flexibility. First, the liberalization of the film market does not necessarily lead to a total collapse of the domestic film industry; at present, Hollywood’s most appealing blockbusters have largely entered the China’s mainland market, and instead of causing a total collapse of the domestic film industry, they have had a significant competitive effect, generating new box office highs for domestic films.32 In addition, as Hollywood films become more and more inseparable from China’s mainland, it is the Hollywood films that add Chinese cultural elements to become a vehicle for the spread of Chinese culture to the world.33 Besides, if one is concerned about the risks of fully opening the film market, one can continue to open the market gradually and study the situation while doing so. At the same time, the focus of protection should be on Chinese cultural elements, such as giving priority to those with Chinese cultural elements for market access. In short, as long as China’s economy maintains healthy growth, the favorable demand conditions in the Chinese film market are a strong guarantee for the development of the film industry. Notes 1 Hai, Tian. (2003). Hong Kong Film Market Lingering in a Trough. Chinese Film Yearbook 2003, Chinese Film Yearbook Press, p. 450. 2 Curtin, M. (2007). Playing to the World’s Biggest Audience: The Globalization of Chinese Film and TV. Univ of California Press, p. 47. 3 Zhang, Yan. (2003). Hong Kong Film Industry: Urgent Need to Save. Journal of Beijing Normal University: Social Science Edition, 1, 7. 4 Li, Huailiang. (2016). Research on the Influencing Factors of International Cultural Trade. International Trade, 12, 6. 5 Song, Zhiming. (1982). The Dilemma of Taiwan’s Film Industry. China Film Yearbook 1983. Beijing: China Film Yearbook Press, pp. 773–774.

The Rise and Fall of the China’s Hong Kong Film Industry  127 6 For the evolution of Taiwan’s film policy, see Chen, Yanjun. (2013). The Rise and Fall of Taiwan’s Genre Cinema from the Evolution of Taiwan’s Film Policy. Journal of the Beijing Film Academy. 7 Li, Huailiang. (2016). Research on the Factors that Influencing International Cultrue Trade. Intertrade, 12, 29–34. 8 See Cheng, Xuechao. (2012, 29 August). Jackie Chan: How Can I Compete with Hollywood If I Don’t Try My Best? Guangzhou Daily, B2. 9 See China Film Yearbook 1993. 10 Lee, Yizhuang. (1994). Hong Kong Film and Social change in Hong Kong. Film Art, 2, 9. 11 See Yu, Zhonglian. (1993). A Review of New Hong Kong Cinema. China Film Yearbook. 12 Li, Huailiang. (2016). Research on the Factors that Influencing International Culture Trade. Intertrade, 12, 29–34. 13 For a more detailed introduction to Maslow’s Hierarchy of needs, see Kurtz, D. L. and Boone, L. E. (2006). Principles of Marketing 2006. Thomson South-Western, pp. 167–168. 14 See “Those who know the hard way have already retreated, the tomorrow of Hong Kong cinema is in the Mainland”, http://ent.qq.eom/a/20080425/000103.htm, accessed 4 July 2017. 15 Li, Huailiang.(2016). Research on the Factors that Influencing International Culture Trade. Intertrade, 12, 29–34. 16 Franke, R. H., Hofstede, G., and Bond, M. H. (1991). Cultural Roots of Economic Performance: A Research Note A. Strategic Management Journal, 12(S1), 165–173. 17 Luo, Libin. (2017). Import of TV Program Formats and Chinese Model Introduction and Chinese Export of TV Program–A Study on Home market effect. Cultural Industry Research, 2, 14. 18 Chen, Yanjun. (2013). The Rise and fall of Taiwan Genre Film from the Evolution of Taiwan film Policy. Journal of Beijing Film Academy. 19 See Li, Zhuotao. (2000). Asian Orientation and Post-1997 Consciousness, China Film Yearbook 2000. Beijing: China Film Yearbook Press. 20 See Li, Zhuotao. (2000). Asian Orientation and Post-1997 Consciousness. China Film Yearbook. 21 See Dai, Ping. (2003). A New Drive to Break Through Adversity: A New Legend of Hong Kong Film Screening. China Film Yearbook. 22 See Li, Liangmin. (2000). Hong Kong Film Industry Is Moving Towards Industrialization. China Film Yearbook. 23 Luo, Libin. (2016). The Role of Opening Up to the Development of Chinese Film ­Industry and A Study on the Strategy of Further Opening Up. Cultural Industry Research, 1, 12. 24 See Dai, Ping. (2003). A New Drive to Break Through Adversity: A New Legend of Hong Kong Film Screening. China Film Yearbook. 25 See Rauch, James E. and Vitor, Trindade. (2009). Neckties in the Tropics: A Model of International Trade and Cultural Diversity. Canadian Journal of Economics, 42, 809–843. 26 See “2016 Hong Kong film market operation analysis: box office down 1.97 percent for the first time”, China Intelligence, http://www.askci.com/news/ dxf/20170216/17241090758.shtml, accessed July 5, 2017. 27 See Liu, Shijin: China’s economy can still grow at a medium growth rate of 5 percent-6 percent for about 10 years,China Finance, cited from ce.com, January 16, 2020, http:// www.ce.cn/xwzx/gnsz/gdxw/202001/16/t20200116_34136715.shtml accessed April 18, 2023, 28 China’s economy will overtake the U.S. as the world’s No. 1 economy by exchange rate within the next decade or even less, according to PwC’s latest forecast, see PwC: China

128  The Rise and Fall of the China’s Hong Kong Film Industry

29 30 31 32 33

may overtake the U.S. in economic volume in the next 10 years, Securities Times.com, May 18, 2017, reprinted in Sina Finance http://finance.sina.com.cn/stock/t/2017-05-18/ doc-ifyfkqwe0159574.shtml, accessed July 5, 2017. Keane, M. (2009). Creative Industries in China: Four Perspectives on Social Transformation. International Journal of Cultural Policy, 15(4), 431–443. Luo, Libin. (2017). Import of TV Program Formats and Chinese Model Introduction and Chinese Export of TV Program–A Study on Home market effect. Cultural Industry Research, 2, 14. See Wang, Fei. Fatal Countdown: Reset Goes Overseas. Beijing Entertainment News, June 30, 2016, reposted in Sohu Entertainment, http://www.sohu.eom/a/153136240_148767, accessed July 5, 2017. Luo, Libin. (2016). The Role of Opening Up to the Development of Chinese Film ­Industry and A Study on the Strategy of Further Opening Up. Cultural Industry Research, 1, 12. Luo, Libin. (2017). Import of TV Program Formats and Chinese Model Introduction and Chinese Export of TV Program–A Study on Home market effect. Cultural Industry Research, 2, 14.

8

A Forecast on Film Box Office in China’s Mainland—on Strategies of China’s Mainland Film Industry

This chapter uses econometric methods to analyze the factors influencing total size of film box office in China’s mainland and forecast the development trend in the next few years, focusing on the fact that the China’s mainland is about to become the world’s largest film market and that China is growing into a cultural industry power, which has important implications for China’s developing strategies of foreign cultural trade. The total size of a country’s domestic box office is crucial to the development of a country’s film industry. The economy of scale effect of film production is obvious, and the domestic market size is crucial for Chinese films to enhance their own and even Chinese culture’s international influence through the home market effect1; the local market size has a strong positive relationship with the market share of a country’s domestic films2; for filmmaking investors, other things being equal, total market size determines the investment size and risk estimation. For governments, an accurate understanding of domestic film box office potential can help determine film industry development strategies. Almost all the current literatures on determinants of box office focus on individual movies; Xia Niya and Pu Yongjian is one of the few on total national movie box office, but it has some limitations.3 For example, most of the samples in the crosscountry data it uses are developed countries with relatively mature industries and the data is about earlier years, which makes it difficult to explain the rapid growth of the film market in China’s mainland in recent years from both national specificity and time perspectives; the amount of data is also not large enough, which makes it easy to bias the results; and the lack of forecasts to shed light on the development strategies of the film industry is also a limitation. There are many predictions by practitioners. For example, Wang Jianlin, chairman of Wanda Group, predicted that China’s movie box office will increase to 30 billion USD4 within five years, and Jiang Zhiqiang, president of Edko Film Ltd., predicted that “the market size of Chinese movies will be 300 billion RMB5 in the next five to eight years”. These forecasts are mainly based on the growth rate of China’s movie box office or the number of screens in the past few years, which is very rapid, so these forecasts are very optimistic. The analysis in this chapter shows that starting from 2016, the total film box office in China’s mainland is unlikely to DOI: 10.4324/9781003424796-8

130  Strategies of China’s Mainland Film Industry maintain its previous high growth rate and will enter a new phase of medium-tohigh growth. In this chapter, we first theoretically explain the importance of total film box ­office size to the film industry, then analyze the determinants of total film box office using city panel data, then make forecasts on future total film box office in China’s mainland using three methods: time-series data, trend extrapolation and box office index, and finally elaborate new trends and policy recommendations. 8.1  Importance of Total Box Office to the Film Industry The importance of total box office size to the film industry is theoretically clarified for the research in this chapter to be more meaningful. 8.1.1  Local Market Size Is Vital for Local Film Productions

First, on the supply side, with substantial economies of scale, film productions are oriented toward “maximizing the size of target audience”, which is reinforced by the “second sale” nature of commercial films, so that commercial film production is generally demand-oriented6; second, on the demand side, there is a “cultural discount” for film consumption,and audiences prefer films produced locally or with local cultural elements.7 Local market size fundamentally determines the survival environment of local films. 8.1.2  In the Era of Economic Globalization, the Size of a Country’s Box Office Has a Direct Impact on the International Communication of Its Culture Through Films

In the era of globalization, the international mobility of film production factors is stronger, and commercial films targeting global audiences will be influenced by the cultural elements of countries with larger box office size, and the size of the box office directly affects the international diffusion power of national culture. For example, the movie The Great Wall directed by Zhang Yimou invested more than 135 million USD, and the team behind it came from 37 different countries.8 Factors of production are highly mobile internationally, which country’s factors of production to use depends on demand-side preferences. The film is based on a Chinese story because the Chinese film market is large enough; at the same time, the Chinese story is not written by Chinese people because “it is not all for Chinese people, but for the world”.9 We can distinguish between the concept of “big country of films” and the concept of “small film country of films”. If the local film market is large enough to influence the cultural elements of commercial films targeting the global market toward its own culture, the country can be called a “big country of films”; on the contrary, it is a small film country of films. This concept is necessary to analyze the impact of a country’s local film market on the international influence of its culture.

Strategies of China’s Mainland Film Industry  131 8.1.3  The Total Box Office Size Determines the Potential of Individual Films

The overall box office size is an important support for individual film box office and has become an important basis for film investment decisions, the latter often considered as a measure of film quality.10 For example, Wolf Warrior 2 became the No. 1 single market box office in 2017 and the second in history, not only because of the good quality of the film itself but also because of the overall size of the Chinese film market. As the second-largest film market in the world, it is easy to understand why Wolf Warrior 2, the Chinese market box office champion, earns the second largest single market box office in the world. If War Wolf 2 were released 20 years ago, it would be barely possible to achieve the box office like it does today, and it would have been difficult for anyone to take the risks of investing that big in the movie. 8.1.4  The Size and Growth Rate of the Local Market Is the Most Important Determinant of a Country’s Film Export Potential

Due to the economy of scale effect of film production as well as cultural discount, a large local market size helps to enhance the amount and quality of investment in national films, bring into play the home market effect and increase the export possibility; secondly, during the rapid growth period of the national film market, export will not become the primary goal of national films; only when the market enters a mature period with slowing growth rate will national films feel the importance and motivation to export and promote export. 8.1.5  Film Box Office Growth Rate Determines Business Model Innovation

Box office is the main source of revenue in the initial stage of the film market, and a slowdown in box office growth will force new business models to expand revenue. Box office revenue of Hollywood movies only accounts for about 30 percent of total revenue, while the rest is mainly brand licensing and derivatives revenue. If the growth of total size of Chinese movie box office starts to slow down, the demand for movie brand licensing will start to form, and the new potential revenue source will, in turn, enhance the investment amount, quality and international influence of movies, forming a virtuous circle. 8.1.6  Box Office Scale Determines Film Genre Diversity

Films and other cultural industries have dual attributes, culture requires diversity, and industrial requires large scale to acquire economies of scale. If the market size is fixed, the two requirements are contradictory. The more the diversity, the smaller the size of each diversified style; if the audience size of each style is increased, the diversity that the market can accommodate decreases. The most fundamental solution to this contradiction is to increase the size of the market.11

132  Strategies of China’s Mainland Film Industry 8.2 An Econometric Analysis on the Determinants of Total Box Office in China’s Mainland Film Market Our analysis is based on the most basic demand-supply framework in economics, which has strong explanatory power for reality, is simple and easy to use for forecasting. 8.2.1  Variables Under Consideration: Total Economic Size and Number of Theaters 8.2.1.1  Total Economic Size

Total economic size represents an economy’s total revenue and has a direct impact on the total box office of a country or region on the demand side. Figure 8.1 shows the relationship between GDP share and box office share in the world total in the top 20 film markets in 2017, which are significantly and positively correlated. 8.2.1.2  Number of Screens Or Cinemas

The number of screens and theaters is the most direct supply-side factor affecting movie box office, as they are the direct channels through which audiences consume movies. Since 2007, the number of theaters and screens in China has increased rapidly, and many industry insiders consider this to be the most important factor driving the rapid growth of movie box office in China’s mainland in the past few years. From 2013 to 2017, the number of screens in China’s mainland grew from 18,195 to more than 50,000, surpassing the United States to become the world’s No. 1. Some insiders think this is a “compensatory” increase, and the box office

Figure 8.1  Share of GDP and box office in selected countries and regions in 2017. Source: Calculated by the author.

Strategies of China’s Mainland Film Industry  133 growth driven by this is unsustainable. Between 2011 and 2015, the average annual growth rates of Chinese movie screens and box office were 35.85 percent and 35.45 percent, respectively, almost synchronized. Therefore, the number of cinemas or screens becomes one of the most important factors we focus on. The econometric analysis in this paper is based on the following regression. LBit =∝0 + ∝1 lcinit + ∝2 lgdpit +

∑β γ

i it

+ εit

i

LBit refers to the log of movie box office in city i in year t, while lcinit and lgdpit refer to the log of the number of theaters (or screens) and GDP in city i in year

t, respectively, and they are the key variables to be examined.

∑β γ

i it

refers to

i

several control variables, including the log of GDP per capita (lpgdp), population density (dens), population density of municipal districts (lxdens), average ticket price (pt), etc. 8.2.2  Data Description

This chapter uses panel data from the top 60 Chinese box office rankings in 2011 and the top 100 cities during 2012–2016, with box office, number of theaters and average ticket prices from Endata.com.com and other data from the China City Statistical Yearbook12 for the corresponding years. A description of the sample data is given in Table 8.1. Table 8.1  Description of Sample Data Variables

Sample size

Average value

Standard deviation

Minimum value

Maximum value

Movie Box Office Number of cinemas Number of Screens GDP GDP per capita Population density of the city Population density in urban areas General urban universities in Number of students

548

27,508.19

46,967.42

1,382.62

591,029.7

548

31.77372

31.62532

2

248

448

162.3996

181.3539

9

1,096

548 548 548

4.70e+07 66,721.72 622.5354

4.23e+07 29,112.14 379.6806

7,100,000 17,873 79.86

2.75e+08 167,411 2,648.11

548

1,303.761

996.0736

254.35

8,248.04

348

223,213

234,131.5

9,428

1,043,221

Data source: Endata.com.com and China City Statistical Yearbook, various issues

134  Strategies of China’s Mainland Film Industry Observation reveals that the number of cinemas and screens in the sample cities has increased year by year, but the growth of the average attendance has slowed down or even decreased. From 2011 to 2016, the number of cinemas in the sample cities increased from 1,313 to 4,871 year by year, and the number of screens increased from 7,045 to 20,480. However, in terms of average attendance, it rose in all sample cities from 2011 to 2012, remained stable between 2012 and 2015, but declined in most cities in 2016 (see Figure 8. 2). This indicates that the growth in the number of theaters and screens has a pulling effect on box office, but the pulling effect starts to decline from 2016. 8.2.3  Regression Analysis

We performed pooled, fixed-effects and random-effects regressions, respectively, and Hausman’s test found fixed effects to be more efficient, so all fixed-effects estimates are reported (see Table 8.2). To avoid cross-sectional heteroskedasticity, cross-sectional clustering standard errors were used. Stepwise substitution was used to estimate the number of theaters, the number of screens and control variables separately, and to estimate both cases with and without year-fixed effects, and a total of 19 estimates are reported in Table 8.2, with the following findings:

Figure 8.2  Average attendance in the sample cities (2010–2016). Source: The author.

Strategies of China’s Mainland Film Industry  135 Table 8.2 Results of Regression Analysis (Dependent Variable: Logarithm of Movie Box Office) Variables

Model 1

Model 2

Model 3

lcin 0.895*** 0.894*** 0.886*** pt 0.00823*** 0.00823*** 0.00825*** lgdp 0.726** 0.727** 0.727** dens 0.000130 lxdens −0.157*** ldens lcloth Constant −6.135 −6.227 −5.024 With or No No No without Year Fixed Effect

Variables

Model 7

Model 8

Model 9

Model 4

Model 5

Model 6

0.237*** 0.235*** 0.00814*** 0.00813*** 0.0455 0.0463

0.233*** 0.00813*** 0.0484 −0.0591

0.0524 7.174** Yes

6.836*** Yes

7.550*** Yes

Model 10

Model 11

Model 12

lcin 0.763*** 0.762*** 0.752*** 0.229*** 0.227*** 0.224*** pt 0.00820*** 0.00821*** 0.00822*** 0.00813*** 0.00813*** 0.00813*** lgdp 0.229 0.230 0.225 −0.0496 −0.0488 −0.0497 lpgdp 0.991*** 0.989*** 0.999*** 0.256** 0.256** 0.265** ldens 0.143 0.0526 lxdens −0.166*** −0.0651 lcloth Constant −7.989** −8.885** −6.829* 6.061*** 5.721*** 6.436*** With or No No No Yes Yes Yes without Year Fixed Effect Variables Model 13

Model 14

Model 15

Model 16

Model 17

Model 18

Model 19

0.643*** 0.00824*** 0.497 1.351***

0.912*** 0.0100*** 0.125 0.162**

17.24*** No

0.962 Yes

lcin lcloth pt lgdp lpgdp ldens lxdens Constant With or without year fixed effect

0.641*** 0.00824** 0.499 1.350*** 0.109 17.93*** No

0.631*** 0.0959** 0.0956** 0.0914* 0.00825*** 0.00807*** 0.00807*** 0.00807*** 0.499 −0.0139 −0.0126 −0.0145 1.360*** 0.299** 0.297** 0.306** 0.172 −0.0995* −0.0660 −16.63*** 5.194*** 4.114* 5.615*** No Yes Yes Yes

Source: The author. Note: *, **, *** represent 10%, 5%, and 1% significance levels respectively

136  Strategies of China’s Mainland Film Industry 8.2.3.1  Total Box Office in China’s Mainland in Recent Years Has Been Mainly Driven By the Increase in Theater Construction and the Number of Screens, But the Pull Effect Is Gradually Weakening

The number of theaters has a very robust and significant positive effect in all regression models, and the estimated results for the number of screens are similar. This is consistent with our intuitive judgment and simple data observations. In order to test the difference between the pulling effect by the number of cinemas in different years, we remove the insignificant variables and add the interaction term between the number of cinemas and the year,13 as shown in Table 8.3. From 2014, the cross term is significantly negative and the absolute value of the coefficient is getting larger, indicating that the pulling effect of new cinemas on box office decreases year by year. This is also consistent with our brief observation, most notably in 2016, when the number of cinemas and screens increased by 23.71 percent and 30.2 percent year-on-year, respectively, but box office grew by only 3.17 percent. According to the latest data, the total number of movie screens in China reached 50,000 in 2017, up another 19 percent compared with 2016, but the box office was 51.894 billion RMB as of December 31, 2017, up 14.25 percent14 compared with 45.423 billion RMB in the same period of 2016, still lower than the growth rate of screens, and this growth rate is achieved in 2017 when there are such “breakout” movies as Wolf Warrior 2 (Zhan Lang 2).15 To further verify, we intercepted the sub-sample data of 2015 and 2016 for regression and found that the effect of theater number is no longer significant, but the effect of GDP is significantly positive, even with the inclusion of year-fixed effects (see Table 8.4). Table 8.3 Regression Results After the Interaction Variable of Number of Theaters and Year corr(u_i, Xb) = 0.2355

lbo

Coef.

lcin pt lgdp lpgdp t2lcin t3lcin t4lcin t5lcin t6lcin Year Fixed Effect Sigma_u Sigma_e rho

0.1871168 0.0080955 0.0004166 0.2603437 0.0322258 −0.0331193 −0.0547789 −0.0731825 −0.1207322 Yes

F(14,99) = 296.95 Prob > F = 0.0000 (Std. Err.   adjusted for Robust Std. t Err. 0.0531691 0.0006026 0.0929977 0.1142065 0.0269982 0.0249455 0.0267361 0.0309744 0.0324837

100 clusters P > |t|

3.52 13.43 0.00 2.28 1.19 −1.33 −2.05 −2.36 −3.72

0.001 0.000 0.996 0.025 0.235 0.187 0.043 0.020 0.000

0.80292219 0.11365715 0.98035598  (fraction of variance due to u-i)

Source: The author.

in id)

[95% Conf. Interval] 0.0816177 0.0068998 −0.1841111 0.0337334 −0.0213445 −0.0826166 −0.1078291 −0.1346425 −0.1851868

0.2926159 0.0092911 0.1849443 0.4869541 0.0857961 0.0163779 −0.0017287 0117226 −0.0562775

Strategies of China’s Mainland Film Industry  137 Table 8.4  Regression Results Using Data from 2015 to 2016 corr(u_i, Xb) = 0.6073

F(6,88) = 201.33 Prob > F = 0.0000

lbo

Coef.

Std. Err.

T

P > |t|

[95% Conf.

Interval ]

lcin lgdp lpgdp dens pt year 2016 _cons Sigma_u Sigma_e rho

0.0681511 0.2429043 0.1839656 0.0002926 0.0080087

0.0814191 0.0804475 0.0870497 0.0001689 0.0002414

0.84 3.02 2.11 1.73 33.17

0.405 0.003 0.037 0.087 0.00

−0.0936522 0.0830317 0.0109725 −0.0000432 0.0075289

0.2299544 0.4027768 0.3569586 0.0006283 0.0084885

−0.0364125 −0.2620099

0.0616264 6.409226

0.0126069 0.0246665 0.51 0.611 3.073608 1.678476 1.83 0.70 0.63618775 0.06667726 0.98913473  (fraction of variance due to u-i)

Source: The author Note: F test that all u_i=0: F(99,88)=37.78 Prob > F = 0.0000.

8.2.3.2  The Effect of GDP Is Not Robust But Is More Significant in the Later Stages

Before the inclusion of year-fixed effects and GDP per capita variables, GDP possesses a significant positive effect on box office. However, after adding year-fixed effects as well as GDP per capita, the effect of GDP starts to be insignificant. This is also consistent with the prejudgment: China’s mainland box office in recent years is more driven by the construction of cinemas to release potential demand; in other words, purely from the demand side, given China’s total GDP, the Chinese movie box office should have been what it is today, and the previous low box office was due to supply-side factors such as theater construction and market openness. The high growth rate in recent years is due to the improvement of the supply-side factors mentioned above, resulting in the release of potential demand. Therefore, it is not surprising that demand-side factors such as GDP cannot explain the change in movie box office well.16 In contrast, the effect of GDP starts to be significantly positive in the sub-regressions using 2015 to 2016 data (see Table 8.4), indicating that the effect of GDP starts to increase in the last two years. 8.3  Total Box Office Forecast: China’s Mainland Film Market Enters a New Phase of Medium-to-High Growth The city data econometric model used above can help us determine the factors influencing movie box office, but it is not suitable for predicting the national situation. In the following sections, we will use multiple methods to make forecasts in order to make more accurate judgments. 8.3.1  Time Series

Firstly, a time-series model was built using monthly data from Endata.com.com for 69 months from January 2012 to September 2017. First of all, by analyzing the

138  Strategies of China’s Mainland Film Industry data time trend and using Stata14 to perform Augmented Dickey-Fuller test (ADF) unit root test, the lag period has been reduced from 10 periods to 5 periods, and we found that the P value of the statistic Z(t) is between 0.6840 and 0.8151, which indicates that the data is non-stationary, and then we performed ADF test after the first order difference, so that the lag period is ten periods, and we found that the P value of Z(t) value is 0.0001, indicating equilibrium. The autocorrelation and partial autocorrelation coefficients were calculated for the Differentiated data, and it was found that the autocorrelation coefficients trailed and the partial autocorrelation coefficients truncated, and the AR model should be used. Based on the observation of the partial autocorrelation plot, we first determined that the lag period was 12 periods. However, in the AR(12) model, the coefficients after six lags are no longer significant. Therefore, we finally use the AR (5) model to estimate and predict, i.e., this part of the regression prediction model is 5

∆BO t =

∑∆BO

t −1 + ε t

i =1

∆BOt is the first-order differential of the box office in year t. The estimation results are shown in Table 8.5, and the variables with five lags are highly significant. The model was used to forecast the China’s mainland film box office through ­December 2019, and a graph was made to compare the predicted values with the existing actual values (see Figure 8.3). Accordingly, China’s mainland film box office from 2017 to 2019 is calculated to be 50.4 billion RMB, 58.2 billion RMB and 64.6 billion RMB, respectively.

Table 8.5  Estimation Results of the AR(5) Model ARIMA regression Sample: 2012m2—2017m9 Log likelihood = −242.4755

Number of obs = 68 Wald chi2(12) = 74.23 Prob >chi2= 0.0000

dbo

P > |z|

dbo_cons ARMA ar L1. L2. L3. L4. L5. /sigma

Coef.

OPG Std. Err.

0.4658998 0.2933598 −9632191 −0.7904917 −0.7596595 −0.6493937 −0.4746908 8.413014

0.1301295 0.1443106 0.2152126 0.2163248 0.1027005 0.642111

Z

[95% Conf. Interval ]

1.59

0.112

−0.1090749 1.040875

−7.40 −5.48 −3.53 −3.00 −4.62 13.10

0.000 0.000 0.000 0.003 0.000 0.000

−1.218268 −1.073335 −1.181469 −1.073383 −0.6759802 7.154499

−0.7081699 −0.5076481 −0.3378505 −0.2254048 −0.2734015 9.671528

Source: The author. Note: The text of the variance against zero is sided, and the two-side confidence interval is truncated at zero.

Strategies of China’s Mainland Film Industry  139

Figure 8.3 Actual and Predicted China’s mainland Film Box Office from January 2012 to December 2020 (predicted values after October 2017). 8.3.2  A Forecast for a Longer Term Based on Demand-Supply Framework

The time series is monthly data, which makes it difficult to make longer-term forecasts. The following forecast is based on the factors derived from the previous analysis of urban panel data. 8.3.2.1 Extrapolation Based on the Average Growth Rate of the Previous Five Years Mainly Driven by Cinema Construction

Between 2011 and 2016, China’s mainland film box office grew at an average annual rate of 28.27 percent. If we extrapolate with this same growth rate, China’s mainland film box office will reach 56.6 billion RMB in 2017 and up to 427.5 billion RMB by 2025. According to previous analysis, this forecast has limited reference value because although box office has been driven mainly by theater construction in the past five years, this role is becoming weaker in the future; however, we still give a 10 percent weight to this forecast result considering that Chinese films may improve quality under fiercer competition and the market may open up further, and these supply-side factors outside of theaters may also play a role. 8.3.2.2  Forecast Based on GDP Level

We believe that the level of GDP will be a more important determinant of China’s mainland film box office in the future. First, the impact of GDP starts to be very significant in the regression with data from 2015 to 2016; second, we have reasons to believe that China’s mainland film

140  Strategies of China’s Mainland Film Industry box office has transitioned from the past stage of relying on theater construction to release potential demand to a stage of relying more on new demand growth. To illustrate in more detail, we design the following indicators to test the potential of a country’s movie market demand. I i = 100 ∗ ( BOi / BOw ) / (GDPi / GDPw )

Ii is an index of country i’s box office, i.e., an indexation of the ratio between ­country i’s box office share and GDP share of the world. BOi and GDPi represent country i’s box office and GDP, respectively, and BOw and GDPw represent ­total global film box office and global GDP, respectively. Table 8.6 shows that for the box office index, North America is stable between 102 and 122; while China is highly variable. It was only 16 in 2004, indicating that China’s box office was far below the potential level at that time, but it has been rising since then, exceeding 100 to 123 in 2015 and 119 in 2016. Further calculating the box office indexes of the top 20 countries and regions in the world box office rankings, it is found that China’s box office index has started to be in the middle to upper range in 2017, but there is still room to rise compared with countries such as South Korea (see Table 8.7).

Table 8.6  China and North America’s Box Office and GDP Share of the World (2004–2017) Year

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

China’s China’s GDPChina Box share of the share of the Office Index world box world (2) (Ic) office (1)

0.7% 1.1% 1.3% 1.6% 2.2% 3.1% 4.8% 6.2% 7.8% 9.8% 13.2% 18.5% 17.8% 19.5%

4.5% 4.9% 5.4% 6.2% 7.2% 8.5% 9.2% 10.3% 11.5% 12.5% 13.4% 15% 14.9% 15.4%

16 22 24 27 31 36 52 61 68 78 99 123 119 126

North North American American GDP share box office (including share (including the United States and US and (Canada) (3) Canada) (4) 36.9% 38.1% 35.8% 36% 34.9% 36.1% 33.5% 31.3% 31.1% 30.4% 28.6% 29% 29.5% 27.3%

Source: https://www.boxofficemojo.com/ Note: Due to data availability issues, the final sample size did not reach 20.

30.5% 30.2% 29.6% 27.6% 25.7% 26.4% 25.3% 23.8% 24.2% 24.3% 24.5% 26.5% 26.5% 26.5%

North American Box Office Index (Ia)

121 126 121 130 136 137 133 132 129 125 116 109 111 102

Strategies of China’s Mainland Film Industry  141 Table 8.7 Box Office Index of the Top 20 Countries and Regions in the World in Terms of Total Domestic Box Office, 2013–2017 Country

2013

2014

2015

2017

Australia Brazil China France Germany India Italy Japan South Korea Malaysia Mexico Netherlands Russia Spain Sweden Switzerland Turkey United Kingdom United States Average

154 78 80 122 74 167 80 100 229 132 153 74 134 110 74 62 78 134 139 114.4

149 71 98 137 72 179 80 89 245 – 150 74 128 110 75 – 81 122 128 116.9

142 76 118 112 75 146 74 80 211 – 153 77 117 97 – 57 54 129 119 108.1

133 85 126 113 63 120 70 80 204 – 152 70 123 104 – – 45 119 110 107.8

Data source: Authors’ calculations are based on data from the MPAA report and data from UNCTAD.

As a comprehensive judgment, we believe that between 2004 and 2017, the increase in the number of theaters and screens rapidly released the potential film demand that China already had, resulting in high box office growth; however, the Chinese film box office index has reached 126 in 2017, and the original demand has been released to a considerable extent. In the future, the box office will rise at a rate closer to the GDP growth rate. We predict China’s real GDP growth at an average annual rate of 6.5 percent in the future and give it a 90 percent weighting. The combined forecast is for China’s film box office to reach RMB 115 billion RMB by 2025. We project North American box office by extrapolating with the average growth rate of it over the past five years and convert the Chinese film box office projections to USD at an exchange rate of 1 USD equals 6.5 RMB. In this way, we can make comparisons between North America and China. According to our forecast, Chinese movie box office is going to reach 13.8 billion USD in 2023, surpassing North America’s 13.3 billion USD and becoming the world’s top movie market (see Table 8.8). According to both the time series and the supply-demand analysis methods, the average annual growth rate of the Chinese box office from 2017 to 2025 is 12.46 percent and 9.78 percent, respectively, compared with the average annual growth rate of 28.27 percent from 2011 to 2016, which means that the Chinese box office will shift from high growth to medium-high growth.

83 582 119

76 504 117

Data source: The author.

516 749 539

485 566 495

(1)  Box office index (billion RMB) (2)  Trend extrapolation method (billion RMB) (3)  Comprehensive judgment I (billion RMB) [(1)*0.9+ (2)*0.1] (4) Converted to U.S. dollars (billion USD) (At $1 =(6.5 RMB) (5)  Time series forecasting (billion people) (RMB) (6) North American film box office forecast (billion USD) (trend) (extrapolation)

2018

2017

Year

Table 8.8  China and North America Film Box Office Forecast

646 122

91

550 960 591

2019

– 125

100

585 1,232 650

2020

– 127

111

623 1,580 719

2021

– 130

123

937 2,027 800

2022

– 133

138

1,086 2,600 896

2023

– 136

156

1,269 3,335 1,011

2024

– 139

177

1,497 4,278 1,150

2025

142  Strategies of China’s Mainland Film Industry

Strategies of China’s Mainland Film Industry  143 8.4 New trends and Policy Recommendations for the Medium-toHigh Growth Stage 8.4.1  New Trends

First is the increase of market competition and the rise of concentration. A slowdown in growth will lead to mergers and acquisitions among producers. Second, production will decline and quality will rise. When market growth slows down, market demand will shift from availability to quality, and companies will generally feel the pressure to improve quality, forcing film quality to rise. Third, new sources of film revenue will receive greater attention, including exports and commercial licensing of brands and images. Fourth, Chinese film companies will go international and participate in the production of films targeting foreign or global markets, including non-Chinese-language films. To varying degrees, these trends are already occurring. 8.4.2  Policy Recommendations: Supply-Side Reform of the Film Industry in the New Stage

Report of the 19th National Congress of the Communist Party of China points out that “China’s economy has shifted from a stage of high-speed growth to a stage of high-quality development”, and that “quality must come first and efficiency must be given priority”.17 This chapter argues that the same trend is emerging in the Chinese film industry. Supply-side reform must be strengthened to further drive demand through quality changes. Therefore, the Film Industry Promotion Law, which came into effect in March 2017, is very timely and provides protection for the supply-side structural reform of the film industry.18 Even so, there is still work to be done to reform of the supply side of the film industry, and in light of the new trends described above, we propose the followings. 8.4.2.1 Further Open Up the Film Market to Attract Superior Global Resources to Produce High-Quality Films for the Chinese Market

The Chinese film market is large enough to attract global film talents and capital to enter; at the same time, with the slowdown in growth, there is a need for global quality resources to improve the quality of Chinese films and create new demand with quality supply. 8.4.2.2 Create an Environment to Foster the Perfect Development of the Film Commercial Licensing Market and Promote the Development of the Derivatives Industry

The current slowdown in China’s film market is an opportunity period when demand for brand image licensing begins to take shape, and the most critical factor for the development of the brand commercial licensing market is intellectual property protection19; we should continue to improve relevant legislation and enforcement,

144  Strategies of China’s Mainland Film Industry and actively cultivate the Chinese brand image licensing market; encourage manufacturing enterprises in related fields—such as textile and toy manufacturing—to combine brand cultivation with the movie industry to achieve industrial upgrading; expand the opening of the market in related fields, absorb the advanced experience of foreign commercial licensing, and promote the rapid improvement of the domestic movie image licensing market. 8.4.2.3  Provide Favorable Conditions for the Export of Domestic Films

Firstly, a fairer and fiercer competition environment should be formed to promote the production of domestic films with Chinese characteristics that can truly compete with Hollywood films; secondly, domestic films should be encouraged to participate in film festivals abroad, and translation of Chinese films should be financed to better meet the needs of foreign markets; thirdly, cooperation agreements should be signed with the governments of relevant countries to open the way for Chinese films to go international. 8.4.2.4  Cautiously Push Forward the Construction of Cinemas

At present, China has more than 50,000 screens, which is already the first in the world and is widening the gap with the United States; this chapter shows that cinema construction has a very limited effect on box office, and any further significant increase in cinemas is likely to lead to losses. We should guard against the risk of cinema investment and guide it scientifically. Notes 1 The “home market effect” was proposed by Helpman and Krugman (1985), which refers to the tendency of heterogeneous industries to concentrate in larger markets when there are increasing returns to scale and if there are transportation costs. A larger domestic market can serve as a basis for exports. This “ home market effect” is quite common in practice. The film trade is consistent with the key assumptions of the “home market effect” theory. Film production has obvious “economies of scale”, and although “transportation costs” in film trade are often negligible, there is another important trade cost, namely “cultural discount”. 2 Zou, Yuze. (2004). A Brief History of Korean Film Quota System: 1945–2003. Beijing: Peking University. 3 Xia, Niya and Pu, Yongjian. (2012). Analysis of Economic Characteristics of Film ­Industry and Influencing Factors of Domestic Box Office Based on Multi-Country Panel Data. Exploration of Economic Problems, 6, 9. 4 2016 Chinese movie box office was 6.6 billion USD. 5 Approximately 45 billion USD at the current exchange rate. 6 Hesmondhalgh, D. (2013). The Cultural Industries. New York, NY: Sage Publications. 7 Hoskins, C. and Mirus, R. (1988). Reasons for the US Dominance of the International Trade In Television Programmes. Media, Culture & Society, 10(4), 499–515. 8 See “Zhang Yimou appears in Shanghai to explain four doubts about The Great Wall”, Yangtse Evening Posts, December 11, 2016.

Strategies of China’s Mainland Film Industry  145 9 See “Zhang Yimou appears in Shanghai to explain four doubts about The Great Wall”, originally published in Yangtse Evening Posts, December 11, 2016, reproduced in http:// ent.163.com/16/1211/09/C80CNBPJ000380D0.html, accessed September 2, 2017. 10 It is a common practice in academia to use the amount of investment as a proxy for cultural product quality. 11 Luo, Libin. (2016). The Role of Opening Up to the Development of Chinese Film Industry and A study on the Strategy of Further Opening Up. Cultural Industry Research, 1, 12. 12 This is an unbalanced data set, and data selection relies heavily on data availability. 13 2012 to 2016 interaction items are t2lcin,t3lcin,t4lcin,t5lcin,t6lcin. 14 Box office data from Maoyan Box Office Pro, both years’ data do not include theater service fees. 15 See Sina report: China’s total number of movie screens reached 49,000, ranking first in the world. 16 This will be discussed in more detail in the next section of this paper. 17 See Xi Jinping: Deciding to build a moderately prosperous society across the board and seizing the great victory of socialism with Chinese characteristics in the new era – ­Report at the 19th National Congress of the Communist Party of China, http://wenhui. whb.cn/zhuzhan/yis/20171027/65030.html?timestamp=1509403578789, accessed October 31, 2017. 18 The authors would like to thank the anonymous reviewers for their comments on the Film Industry Promotion Law. 19 Lai, Song. (2016). Understanding Brand Licensing Model Interview with Allan Feldman, CEO of LMCA Brand Licensing Agency. Textile and Garment Weekly, 22, 49.

9

Opportunities, Challenges and Strategies for the Development of Foreign Cultural Trade in China

This chapter analyzes the opportunities, challenges and strategies that China is currently facing in developing foreign cultural trade. It is worth emphasizing that most of what follows in this chapter is supported by the previous chapters in this book and can also be called a summary and key findings of this book. 9.1  Opportunities and Challenges for the Development of Foreign Cultural Trade in China 9.1.1  Opportunities for the Development of Foreign Cultural Trade in China 9.1.1.1  Huge Domestic Market

Chinese domestic cultural market is huge, laying the most crucial home market foundation for the development of cultural trade exports, and promoting Chinese culture elements to become an important input element of the world’s cultural products.1 China is firmly established as the world’s second-largest economy and has maintained its momentum, with GDP per capita exceeding 8,800 USD in 2017. According to the requirement of “completing the building of a moderately prosperous society in all respect”,2 the GDP per capita will exceed 10,000 USD in 2020. In terms of the cultural product market, China currently ranks first in the world in book publishing, first in TV series production and broadcasting, first in the number of movie screens, and world second in the movie market.3 The income elasticity of cultural and entertainment products is high, and the increase in income per capita will lead to an increase in their share of expenditure. It is expected that during the 13th Five-Year Plan period, the average annual growth of residents’ cultural consumption expenditure will be more than 16 percent.4 The production of cultural products has obvious economies of scale, and the large market brings large investment, which improves the quality of Chinese cultural products and the competitiveness of exports. For example, the movie Wolf Warriors 2 (Zhan Lang 2) became the No. 1 global box office in a single market in 2017 and No. 2 in history, the most important influence factor of which lies in the overall expansion of the Chinese film market. As the second-largest film market in the world, it makes sense that the box office champion of the Chinese market becomes the second-largest DOI: 10.4324/9781003424796-9

Development of Foreign Cultural Trade in China  147 single-market box office in the world. In fact, in recent years, with the expansion of the total size of the film box office in China, many Chinese movies have entered the top 100 in the global movie box office rankings, and the single market box office results are even among the top, with Wolf Warrior 2 (Zhan Lang 2) being just one of the most outstanding representatives. The Chinese cultural market has become an important part of the global cultural market and in some areas is even challenging the global mainstream market position, which makes Chinese cultural elements an important part of global cultural products and promotes the rapid increase of Chinese cultural influence. For example, in recent years, the Chinese movie box office has maintained the world’s first in terms of growth rate and the second largest in terms of total size, and in 2017, the movie box office in China’s mainland accounted for as much as 19 percent of the global box office, attracting the Hollywood blockbuster, which takes global market as their target market, increasingly add Chinese elements and release them around the world. The Chinese cultural elements are also being spread to the world. In addition, foreign studios are also producing Chinese-language films for the Chinese market, such as “A Dreaming Man (Jia Ru Wang Zi Shui Zhao Le)”, which was released in December 2017 and is the first Chinese-language romance film invested by the U.S. Disney Company. 9.1.1.2  Development in the Area of Internet

The Internet provides new platforms for cultural trade and to a certain extent, changes the market structure of China’s cultural industry, promoting the quality and international competitiveness of Chinese cultural products.5 China is now one of the leading countries in the global digital economy. In the coming years, China’s Internet sector will continue to grow at a high rate.6 According to the Digital Universe Study by IDC (International Data Corporation), China is expected to generate 21 percent of the world’s data by 2020, 46.7 percent of which will involve entertainment.7 The development of Internet+culture is of great significance. First, it provides new channels for cultural products to reach consumers and creates a trend of “disintermediation”.8 This will greatly reduce cultural market transaction costs and ­facilitate the expansion of the cultural market, which will play an important role in creating a more rapid home market effect for Chinese cultural products to drive exports, with Chinese digitization in the cultural and entertainment industry being significantly higher than that of Europe and the United States and leading the world.9 Second, the Internet has enabled some live performance cultural products, which were originally limited by venue constraints, to break through space constraints and increase their replicability, production and distribution efficiency, which has also broken down barriers to exporting cultural products. Cultural products in cyberspace have the very typical characteristics of significant economies of scale, significant economies of scope and particularly significant long-tail effects,10 which further promote the expansion of their market scope and platform scope, and eventually break through national borders and expand to the world, while the development of the Chinese Internet sector brings opportunities for the trade of

148  Development of Foreign Cultural Trade in China Chinese cultural products; finally and perhaps more importantly, the rise of technology has brought about important changes in the competitive landscape of in some areas that were either under-competitive or had a single ownership structure, allowing the market to play an increased role in resource allocation. A typical case is the web series Day and Night (Bai Ye Zhui Xiong), which was purchased by Netflix and screened in more than 190 countries and regions,11 for the important reason that the emergence of video sites has increased the competitiveness and openness of China’s TV drama industry to the outside world. According to incomplete statistics,12 as of April 3, 2018, the number of American dramas on Tencent Video and Youku Video are 527 and 1,050, respectively, Korean dramas are 167 and 922, British dramas are 195 and 190, Thai dramas are 21 and 215, and Japanese dramas are 167 and 575. Video sites have made it possible for domestic dramas to gradually start in fact to be in an environment where they can compete with overseas dramas simultaneously, which should be an important reason why in just a few years, domestic dramas like Day and Night (Bai Ye Zhui Xiong) have emerged that can be shown in 190 countries and regions. The Internet is making the demand-side costs of cultural products lower, and cultural consumption in the mobile Internet world can be achieved through a cell phone. Taking video programs as an example, if the change from live performance to TV media is the change from point to linear communication, then TV media to Internet is the change from linear to mesh communication. First, geographical restrictions are largely reduced or even broken; second, time changes from linear to mesh. The characteristic of TV media is that at the same point of time, all viewers must watch the same program, and a program must be timed, while in the Internet era, viewers can watch the program through the on-demand mode, and the time distribution has changed from linear to mesh distribution. In the TV era, people have to have a relatively long time to watch the series in its entirety, while in the Internet age, people can watch it in fragments. This has led to a significant expansion of the audience size in the Internet age. According to the Statistical Report on the Development of China’s Internet, as of June 30, 2018, the number of Chinese Internet users reached 802 million, of which 788 million people use cell phones to access the Internet, with a ratio of 98.25 percent, while the average weekly online time of Internet users is 27.7 hours, of which 74.1 percent are watching short videos.13 Although most cultural services are “experience” services and time is a “hard constraint”14 for the development of such services, the Internet can indeed help people break up and reallocate their time, so as to maximize the efficiency of using the most scarce resource. The Internet has greatly reduced the cost of producing, providing and consuming cultural products, which is the fundamental reason for the rapid growth and increasing diversity of cultural products in the Internet domain. 9.1.1.3 Deepened Global Division of Labor and Specialization in Cultural Industries

Deepened global division of labor and specialization in cultural industries helps China drive cultural trade exports through deeper integration into globalization.

Development of Foreign Cultural Trade in China  149 The division of labor and specialization is one of the fundamental drivers of economic development,15 and in recent years, the division of labor and specialization in the global cultural industry has deepened, and China is well positioned to take advantage of global advantageous resources. As a typical example, a prominent change in the television program sector since the twenty-first century has been the separation of formats from finished products to become individually copyrighted products and internationally tradable.16 This is a prominent manifestation of the deepening of the globalization of the cultural industry, and it also means that ­China’s TV program sector has much more room to introduce, digest, absorb, renovate and export. China has a unique advantage in this area, with a huge TV market.17 By importing formats with localized content, China can more easily improve the quality of its programs and export them through large markets that support high investments. Our research on international trade in TV formats illustrates this point. For example, since 2012, the number of hours and share of China’s mainland variety shows on air in Singapore has been increasing, and after 2015 it overtook the originally overwhelmingly dominant Taiwanese variety shows, a significant share of which were imported and localized from international formats, and even those that were not, almost all adapted from international formats. One of the major reasons why China’s mainland has been able to do this is the huge market for Chinese TV programs, which can generate a home market effect and lead to exports. 9.1.1.4  Stronger International Influence of the Chinese Language and Chinese Culture

First, economic factors are one of the most important factors affecting the international influence of a country’s language in today’s world.18 China’s position as the world’s top trading country requires an increase in the proportion of Chinese language use in international trade, as language is a tool to reduce trade costs; as China’s position in the global value chain extends to the middle and high end, Chinese firms have a greater voice in the choice of language for global trade; China has the second largest outbound investment flow in the world, increasing the number of jobs abroad that require Chinese language skills; the annual 120 million outbound trips and 260 billion USD in overseas purchases each year have made Chinese an increasingly important choice of business language for overseas businesses; the growth of the Chinese cultural industry has also attracted a group of foreigners to become practitioners of the Chinese cultural industry. In recent years, there have been at least ten TV programs with foreigners as the main guests. China’s growing share of the global film market has also encouraged foreign actors to speak Chinese in their films. For example, the movie Hollywood Adventures (Heng Chong Zhi Zhuang Hao Lai Wu) featured major Hollywood stars speaking Standard Chinese (Putonghua). In recent years, the box office share of films with Standard Chinese (Putonghua) as the first language has continued to increase in the global film charts. In the 2017 world box office charts listed on boxofficemojo.com, while the share of box office for films with English as the first language remains high at 90.98 percent, the share of box office for films with Standard Chinese (Putonghua) as the

150  Development of Foreign Cultural Trade in China first language has increased to 5.83 percent of the box office share, ranking second only to English. In summary, China’s economic rise is increasing the demand for the Chinese language worldwide and increasing its economic value. Chinese government has also made great achievements in recent years in promoting the international spread of Chinese language and Chinese culture. By the end of 2017, a total of 525 Confucius Institutes and 1,113 Confucius Classrooms had been established in 146 countries (regions), with 1.7 million face-to-face students of various types and 621,000 online-registered students. All in all, the international influence of the Chinese language is rapidly increasing against the backdrop of China’s economic rise and government promotion. At present, 20 countries, including Thailand, Armenia, Slovenia, Estonia and others, have incorporated Chinese language teaching into their national education systems. There is a mutually reinforcing effect between a country’s language and cultural industry, and language communication can implicitly spread culture. The famous French thinker and semiotician Roland Barthes said, “No matter from which aspect, culture cannot leave language”. American scholar Samuel Huntington also pointed out that “the main factors of any culture or civilization are language and religion”.19 Therefore, as the international influence of the Chinese language increases, so does Chinese cultural influence. 9.1.1.5  The Low Marginal Cost of Cultural Product

The low marginal cost of cultural products is conducive to differentiated pricing for different markets and promoting cultural product export. The production process of cultural product enjoys substantial economies of scale effect. For example, the total cost of producing a film for one viewer or 100 million viewers varies very little. This allows for discriminatory pricing of cultural products. If costs are recovered domestically, the export pricing of cultural products can even depend entirely on the income level per capita in the import market and the income elasticity of demand for the product itself, largely independent of cost. This feature has been used by Hollywood television programs in the process of capturing the global market, which has historically used a large number of packaging practices, i.e., Hollywood program marketers have packaged a large number of their past television productions and sold them to their customers with very low price. This was because the cost of the past television programs had become an unimportant factor at the time.20 Thus, even in countries and regions with low-income levels and small cultural consumption markets, cultural trade exports can still be achieved. Sometimes, the lower the income level of the country, the easier it is to enter because there are often no local cultural products of mature quality to compete with imports. 9.1.1.6  Outward Investment Made by Chinese Culture Enterprises

The outward investment of Chinese cultural enterprises helps Chinese cultural products to establish distribution and dissemination channels abroad. For example, after Wanda Group acquired AMC Cinemas in 2012, it became the world’s

Development of Foreign Cultural Trade in China  151 largest cinema operator and immediately facilitated the simultaneous release of the ­Chinese film 1942 in the United States and China; in the same year, AMC Cinemas released eight Chinese films, and in 2013, 17 films, setting a record for the number of Chinese films released in U.S. theaters. In January 2016, Wanda Group acquired Legendary Pictures, which has since been involved in the production of several major Hollywood films with Chinese cultural elements or Chinese actors, such as The Great Wall, Kong: Skull Island and Pacific Rim: Uprising. The “going out” of cultural capital has become an accelerator for Chinese cultural products and Chinese culture to go out. 9.1.1.7  Change of Development Stage of Chinese Cultural Product Market

Some of China’s cultural product markets have shifted from a stage of high growth to one of high-quality development, and the competitive pressure caused by the slowdown in the domestic market has made it a rational choice for cultural enterprises to explore international markets, which could enhance the micro-dynamics of cultural product exports. Take the movie industry as an example, the box office of China’s mainland movies has never grown by less than 27 percent year-on-year until 2014.21 Our research suggests that this high growth rate is compensatory. The global share of movie box office is roughly equal to the global share of GDP for all countries in the world. However, in 2004, China’s box office share was only 0.7 percent, much lower than its GDP share of 4.5 percent, indicating the huge potential of China’s box office at that time, and after 2004, the Chinese box office growth rate was indeed consistently higher than the GDP growth rate. By 2015, China’s box office and GDP share of the world were roughly equal at 18.5 percent and 14.9 percent, respectively. This is the most important reason why the growth rate of the Chinese film market started to decline after 2015. The drop in growth rate marks the transition from a high-growth stage to a high-quality development stage in the Chinese film market. During the domestic high growth period, enterprises will focus more on the domestic market and export will not become their main target. However, when the domestic growth phase is over, it is a rational choice for cultural enterprises to explore international market. Therefore, it can be expected that the Chinese film industry is now in a time of opportunity.22 9.1.2  Challenges to the Development of Cultural Trade in China 9.1.2.1  Possible Conflicts Between Commercial Cultural Products and Tradition Cultures in Different Countries

Countries are culturally diverse and may encounter conflicts between commercial cultural products and traditional culture in the process of economic growth and expansion of cultural markets. Commercial cultural products from abroad may be resented or even boycotted by domestic people. Culture and commerce are subtlety related, with culture requiring diversity and commerce requiring economies of scale, especially for cultural products, which have significant economic scale

152  Development of Foreign Cultural Trade in China effects in both production and consumption. There is always a contradiction and a need for reconciliation between economic development and traditional cultural heritage. The development of cultural trade essentially requires the use of commercialization to transform cultural factors as inputs into cultural products that can satisfy a larger population. This inevitably involves the trade-off and recombination of traditional and the modern, domestic and foreign cultural factors. Cultural conflicts may be due to deviations in understanding of traditional culture. 9.1.2.2  Cultural Distance Becomes a Barrier to Cultural Trade

Cultural distance makes people in other countries face a “cultural discount” when accepting Chinese cultural products. Using the “Geert Hofstede Cultural Dimensions” method, which is widely used in academia, we calculated the cultural distance between several countries and China and found that the cultural distance between China and Southeast Asian countries is relatively close, with an average of 1.21. However, the cultural distance between some countries and China is relatively long. For example, the cultural distance between countries in West Asia and the Middle East and China is as high as 2.93 on average.23 With other things being equal, the most likely recipients of Chinese cultural products would be Southeast Asian countries, while West Asian and Middle Eastern countries might have difficulty accepting Chinese culture. 9.2  China’s Strategy for Developing Foreign Cultural Trade 9.2.1  Absorbing Global Resources to Produce Cultural Products for Chinese Market So as to Generate the Home Market Effect to Support Cultural Product Exports

China has become, or is becoming, the growth center of the cultural market across Asia and even the world. Taking the film industry as an example, between 2006 and 2017, China’s incremental share of global incremental box office sales has remained high, especially after 2010 when it has remained above 20 percent, and as high as 240 percent in 2014 (see Table 9.1). Given the size and growth rate of China’s cultural market, China is currently one of the most capable countries in the world to absorb global resources and produce big-budget films, TV programs and other cultural products with the Chinese market as target market. The huge potential of the local market will support China’s cultural products to increase the amount and quality of investment to form export advantages. The example of Transformers 4, mentioned in Chapter 3 of this book, is the first example of an international Hollywood team incorporating Chinese cultural elements, which helped the movie, whose box office only ranked fifth in North America, to become a global box office champion that year. There are many other examples in this regard. For example, although the 2017 box office champion of the Chinese film market War Wolf 2 has China’s mainland as its main target market, the production team is international, the action director is from the team of Captain America 3, and its soundtrack team is from a top-notch Hollywood

Development of Foreign Cultural Trade in China  153 Table 9.1  China’s Film Box Office Share of Global Film Box Office from 2006 to 2016 Year

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

China’s film box Global film box office (1 billion office (1 billion USD) USD)

0.32 0.43 0.62 0.90 1.5 2.03 2.7 3.6 4.8 6.8 6.6 7.9

25.5 26.7 28.1 29.4 31.6 32.6 34.7 35.9 36.4 38.4 38.6 40.6

China’s film box office share of global film box office (%)

2.82 3.37 4.38 5.31 7.35 8.43 7.79 9.79 13.25 18.43 19.13 19.46

China’s yearon-year box office increment as a share of global box office increment (%) –

13.62 12.45 17.75 27.09 52.55 33.33 75 240 100 −100 65

Date Source: Global box office data and Chinese box office data after 2011 were obtained from the ­Motion Picture Association of America website (https://www.motionpictures.org/); data before 2011 were calculated by the author based on Chinese domestic box office data from the website of the ­National Bureau of Statistics of China and using the RMB/USD exchange rate for each year.

team. Another example is Zhang Yimou’s work The Great Wall. According to the director, there were 37 national flags on the set of the film, representing a total of more than 1,300 filmmakers from 37 countries. The reason why it was possible to dispatch such an international production team is that the size of the Chinese film market has taken up a significant share of the world. According to the International Film Database (imdb.com), The Great Wall has been released in more than 50 countries and regions worldwide, grossing 335 million USD worldwide, and has grossed 45,157,100 USD in North America, ranking third in the history of Chinese films at the North American box office. The movie The Great Wall contains a ­variety of Chinese cultural symbols such as the Great Wall, the Kongming Lantern, the Taotie and gunpowder, which have spread around the world as the movie has been shown worldwide. 9.2.2  Cooperating with Various Countries in Various Ways to Produce Cultural Products That Fit the Cultures of Both Countries

Due to the huge size of the cultural market, China has become a target market for competition for cultural products and production factors of the cultural industry, including cultural industry practitioners from various countries, even some artists who have some influence in their home markets. Therefore, bringing in artists from specific countries to produce cultural products and film and television programs will help their home countries pay attention to Chinese cultural products while meeting their needs to develop the Chinese market. Taking movies as an example,

154  Development of Foreign Cultural Trade in China besides the United States, there are some other countries in the world where the local movie industry is more developed, such as India, Pakistan, Turkey, South Korea and so on. Hollywood films have a relatively low market share in these countries, and these countries also need overseas markets for their films, and for them, the Chinese market is one of the fastest-growing overseas markets. China is co-producing with these countries, and even using internationally accepted models to produce cultural products that reflect the cultures of both countries. This deepens the countries’ understanding of each other’s cultures and enhances Chinese cultural exports. For example, Jackie Chan’s movie Kung Fu Yoga (Gong Fu Yu Jia) is set in India, and many Indian stars were invited to perform in the movie. Although the box office of the movie may not be as expected in India, it is good enough to be released in the Indian market, where it is difficult for foreign movies to enter, and achieve a box office result of about 4 million RMB. Another example is the Sino-French co-production Wolf Totem (Lang Tu Teng), directed by the famous French director Jean-Jacques Annaud, which is entirely a Chinese story. According to boxofficemojo.com, it was released in at least 20 countries and regions, with the highest box office revenue from at 110 million USD, but the second highest source of box office revenue was in France with 8,811,800 USD, where the popularity of the French director played an important role. It also achieved good box office results in Italy and Spain. 9.2.3  Making Full Use of New Opportunities in the Process of Globalization of Cultural Industries

For example, the aforementioned opportunities for international trade in TV formats. Domestic program production organizations can introduce internationally renowned TV formats for localization while cooperating with other countries in terms of content, to tap into foreign markets rapidly. For example, Hunan TV’s ­variety show I’m A Singer (Wo Shi Ge Shou), which adopts a format originally from South Korea, invited young Kazakh singer Dimash and Filipino singer KZ Tandingan to join the show in 2017 and 2018 respectively, which immediately made the show reverberate in Kazakhstan and the Philippines. The show was broadcast live in Kazakhstan. KZ Tandingan has also been frequently interviewed by Filipino media about the China’s TV Shows. In 2018, the participation of internationally acclaimed British singer Jessie J has made the show even more international, while also drawing certain attention from the British media.24 9.2.4  Emphasizing on the Integration of Technology and Traditional Cultural Products

First, technology can help circumvent cultural distance. One of the reasons why Hollywood movies can be sold worldwide is because the high technological investment in the movies led to stunning visual effects and can be marketed across language and cultural barriers worldwide; second, technology can make traditional art forms more attractive, such as more dazzling stage, more beautiful images, and increase the capital content of traditional art to improve its labor productivity

Development of Foreign Cultural Trade in China  155 and dissemination efficiency; third, technology can make traditional art forms with reproducibility, get rid of the “Baumol cost disease”, and scale up performing arts productions through video. For example, the British National Theatre launched NTLive project to broadcast famous British plays live, so that drama, a traditional stage art, can be spread rapidly around the world through modern network technology. China can also learn from this model, and even invite the NTLive team to participate in the video production of Chinese plays. 9.2.5  Enterprises Should Follow the Laws of the Mark When They Conduct Foreign Cultural Trade

First of all, the export priorities shall be arranged according to the cultural distance of different countries. Most cultural products shall first take countries and regions with shorter cultural distance such as Southeast Asia as the primary target market. For other countries and regions, efforts should be made to reduce cultural discounts, such as localized promotion and provision of local language translation. Secondly, the differentiated export price shall be determined according to the income and the demand level of importing countries. For some countries where the local cultural industry is not mature enough and the supply of cultural products is not enough, some Chinese cultural products can be sold at low or even zero prices, which can cultivate local people’s preference for Chinese cultural products and form a kind of consumption capital, thus conducive to the further development of the market for Chinese cultural products. Thirdly, we should strive to find “niche markets” in the global market. In the context of the oligopoly of the global media market, some apparently small markets are often overlooked by the cultural industry and media giants and may become potential markets for the export of Chinese cultural products and services. For example, China StarTimes Group (Si Da Shi Dai), which has been developing well in the African market in recent years, has focused on the previously neglected African minor languages market and achieved great success, making Chinese film and cultural products very popular in the region.25 9.2.6  Promote the Export of Cultural Products with the Spread of Language and Culture

Chinese cultural products in various forms, such as books, movies and dramas, can be made into Chinese language teaching programs and recommended to Confucius Institutes or universities in Beijing as teaching materials, textbooks or reference materials for international students. This can effectively reduce the price elasticity of such products in the countries concerned, develop cultural trade exports and spread Chinese culture with high efficiency. 9.2.7  The Government Can Provide Policy Coordination and Arrangements in Many Ways

The first is to sign Memorandum of Understanding (MOUs) with each parties to facilitate win-win cooperation. At present, Chinese films that have international

156  Development of Foreign Cultural Trade in China influence are co-productions, such as Wolf Totem (Lang Tu Teng) and Nightingale (Ye Ying). Since they are Chinese-language films made by French directors, they have generated good box office inv France and Europe (see Table 9.2). These works were initiated on the basis of film co-production agreements signed between the Chinese government and relevant countries. The second is to provide good services to encourage domestic cultural enterprises of all types to compete fairly and to strengthen their understanding of the importance of exporting in the competition. When domestic competition is fierce and leads to a decline in profit margins, enterprises will begin to take foreign markets into account and strive to produce cultural products and services that are suitable for both domestic and foreign markets. The third is to encourage the development of the “Internet + culture” industry. In China in the Digital Age: Building a Globally Competitive New Economy, published by McKinsey & Company, it is clearly stated that one of the key reasons China’s digital economy is developing so rapidly is that the Chinese government’s approach to digital enterprises and institutions is to test first and regulate them later, which now even become the active promoter of digital development. This regulatory ­attitude should be maintained. The fourth is to continue to organize various cultural industry exhibitions and promote outstanding cultural products through the Table 9.2  Box Office of the Film Wolf Totem (Lang Tu Teng) in Countries around the World Country

Distributor

China

CF

2015/2/18

France Italy Spain Germany Hong Kong, China Switzerland (francophone) America Belgium Portugal Austria Turkey Columbia Romania

Mars – Vertigo – EDKO

2015/2/25 2015/3/26 2015/4/10 2015/10/29 2015/4/2

–

2015/2/25

239,537

2015/3/22

Sony Cineart – Constantin Ozen Film Sony Independenta Film – Sony Sony – Sony –

2015/9/11 2015/2/25 2015/10/22 2015/10/30 2015/4/29 2015/11/22 –

210,591 198,456 93,728 55,315 35,486 18,761 15,503

2015/11/8 2015/4/19 2015/12/13 2016/1/17 2016/9/4 2015/11/22 2016/4/24

– 2015/9/11 2015/9/10 – 2015/9/17 2015/12/3

13,321 5,369 4,740 2,999 1,800 869

2015/12/13 2015/9/13 2015/9/20 2015/10/11 2015/9/20 2015/12/6

South Africa Ecuador Argentina Slovenia Chile Thailand

Data source: boxofficemojo.com

Date of premiere Box office (USD) Data until 110,460,000 8,811,832 3,473,496 1,531,645 394,554 269,068

2015/3/29 2015/4/5 2015/5/3 2015/5/24 2015/11/29 2015/5/24

Development of Foreign Cultural Trade in China  157 role of “expert committees”. Consideration can be given to setting up a special area for judging and promoting cultural products from relevant countries. Fifth, in addition to providing good services, we should supervise the cooperation projects and take the initiative to realize the market benefits under the premise of social benefits through cultural trade. Sixth, we should create a good and appropriate environment for intellectual property protection, so that the productive factors related to innovations can flow smoothly, encourage domestic enterprises to cooperate with foreign enterprises on intellectual property rights and promote the effective demand for intellectual property protection in society as a whole, so as to promote the continuous improvement of intellectual property protection in an orderly manner. The seventh is to expand the range of opening up in an orderly manner, allowing the world’s best resources to take advantage of China’s development opportunities and compete fairly for products produced in the rapidly growing Chinese cultural market. We will continue to promote the “going out” of cultural enterprises in an orderly manner, establish distribution and sale networks for cultural products in various countries and around the world and enhance the influence of Chinese cultural enterprises in the global cultural industry. Notes 1 Chapter 8 of this book takes the Chinese film market as an example, provides a more detailed analysis of the factors influencing the size of the Chinese film box office, and uses systematic data to forecast the growth prospects of the Chinese film box office, which we expect will officially overtake the United States by 2023 at the latest to become the world’s number one film market. 2 See Full Text of Hu’s Report at 18th Party Congress. China Daily Website. Retrieved December 6, 2022 from http://language.chinadaily.com.cn/news/2012-11/19/content_15941774.htm 3 See “Delegates to the 19th National Congress Focus on Cultural Construction and ­Development: A New Epic of Chinese Culture,” People’s CRI Online, https://news.cri. cn/20171020/e7901834-2e02-2201-1195-6e1e215f3119.html, accessed April 18, 2023. 4 Zhang, et al. (2016). China Cultural Industry Development Report (2015-2016). Social Science Academic Press, China, p. 106. 5 See McKinsey Global Institute, Digital China: Powering the Economy to Global Competitiveness, Internet Data Center website, http://www.199it.com/archives/660330. html, accessed June 1, 2018; Jiang Xiao, Juan. (2018). Service Economy in the Network Era: China Moves into a New Stage of Development. China Social Science Press, p. 398. 6 The sixth chapter of the 13th Five-Year Plan, “Expanding the Network Economic Space,” contains four chapters on information networks, pointing out the need to implement the strategy of strengthening the network, implement the “Internet+” action plan, and promote the deep and wide application of the Internet. “Action Plan”, promote the deep and wide application of the Internet, and drive changes in production models and organizational methods. 7 Tian, Xinling, et al. (2016). Exploring the Strategy of “Going Out” of Chinese Cultural and Creative Products under the Backdrop of “Internet+”-Based on the Theoretical ­Perspective of Value Chain. Journalism Lover, 3(3), 45–51. 8 See McKinsey Global Institute, Digital China: Powering the Economy to Global Competitiveness, Internet Data Center website, http://www.199it.com/archives/660330. html, accessed June 1, 2018.

158  Development of Foreign Cultural Trade in China 9 See McKinsey Global Institute, Digital China: Powering the Economy to Global Competitiveness, Internet Data Center website, http://www.199it.com/archives/660330. html, accessed June 1, 2018. 10 See Jiang Xiao, Juan. (2017). Resource Restructuring and Service Sector Growth in Highly Connected Societies. Economic Research Journal, 3. 11 Lin, Sen, “Why Day and Night Succeeded in Becoming the First ‘Overseas Web Drama’”, in People’s Daily Overseas Edition, February 8, 2018 12 Data source: collected by the author of this book. 13 See “Statistical Report on the Development Status of the Internet in China (July 2018),” State Internet Cyberspace Administration of China website, http://www.cac.gov. cn/2018-08/20/c_1123296882.htm, accessed October 18, 2018. 14 See Jiang, Xiaojuan. (2018). The Cyberspace Service Industry: Efficiency, Constraints, and Development Prospects – Taking the Sports and Culture Industry as an Example. Economic Research Journal, 4. 15 Yang, Xiaokai. (1998). Principles of Economics. China Social Science Press; Xuan, Xiaowei. (2017). Deepening Division of Labor, Social Structure and Modernization of National Governance. National Governance, No. 2. 16 Luo, Libin. (2016). International Trade in Television Formats: Motivations and Implications for the Global Television Program Industry, in Studies in Cultural Industries (14th series), Nanjing University Press, pp. 171–188. 17 Currently, China’s TV advertising market scale is the second largest in the world after the United States. 18 Wu, Yinghui. (2011). National hard power is a Determinant of Language International Communication – The Internationalization of the Five Working Languages of the United Nations: Implications for the International Communication of Chinese. Chinese Language Globalization Studies, 1, 1–14. 19 Sun, Qiang. (2012). The Strategic Path of Chinese International Communication to ­Enhance cultural soft Power. Nanjing Social Sciences, 4. 20 Havens, Timothy. (2006). Global Television Marketplace. London: British Film Institute. 21 Luo, Libin. (2017). Chinese Cultural Product Imports and Chinese Culture “Going Out”. Dongyue Tribune, 5, 93–102. 22 Luo, Libin, Let the film industry bloom with “high quality”, People’s Daily, February 22, 2018, p. 5; Luo, Libin. (2018). The Opening of China’s Film Market: History, Impact and Significance of Further Opening, in Liu Zhibiao and Chen Qifei (eds.), The Victory of Market-oriented Reform –Commemorating the 40th Anniversary of China’s Reform and Opening-up, Chinese Financial & Economic Publishing House, pp. 151–160. 23 Geert Hofstede Cultural Dimensions. Hofstede culture scores. http://www.geert-­ hofstede.com/, accessed May 20, 2016. Geert Hofstede Cultural Dimensions. Hofstede Culture Scores. 24 The Guardian, Metro and other mainstream media in the UK have reported on Jessie’s participation in a Chinese variety show. 25 See Wang, Yi and Liu, Fangmin. (2017). Sida Times: Sharing the Beauty of Digital TV with Africa. Invest Beijing, 4, 44–47.

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Index

Note: Bold page numbers refer to tables. Anglo cultural sphere 118 audience maximization 22–23 break-even point 22, 52 concentric circle model 19–20 Confucian cultural circle 115, 118–119, 123–124 consumption capital 24, 155 convexity 23 cooperative effect 40 corner solution 9 cross-sectional 134 cross-sectional clustering standard errors 134 crowding out effect 34 cultural discount(s) 8, 26, 50, 52, 74, 91, 94, 96–97, 99, 110, 119, 130–131, 152, 155 cultural identity 9, 11, 26, 125 cultural invasion 2, 71, 90

generalist culture 50 global value chain 81, 90, 149 group externality 9 hard power 74, 77 Helpman-Krugman trade model 8 heteroskedasticity 134 high quality effect of the same unit cost 94 industrial complex 93 institutional change 91 instrumental orientation 76 integrative orientation 76 intellectual property protection 117, 121, 126, 143, 157 labor productivity 4, 154 Least Offensive Principle 23, 52 long-tail effects 147 lowest common denominator 23

demand orientation 8, 13 demand side 2, 5, 51, 77, 130, 132, 137 demonstration effect 13, 36–38 disintermediation 147 division of labor and specialization 15, 148–149

marginal cost 15, 23, 78, 96, 150 marginal utility 24, 78 market development effect 13, 33–34 Maslow’s hierarchy of needs theory 118 mass culture 22 Matthew Effect 97 maximize audience size 22, 52

economies of scale 1, 4,7–9, 12–13, 18, 21–23, 25–26, 51–52, 65, 68, 92–94, 96, 115, 124, 130–131, 146–147, 150–151 exchange rate 6, 98, 141, 153

network externalities 1–2, 8–9, 12, 18, 21, 23–26, 51, 70, 86 new normal 10 niche art products 21 niche market 54, 58, 125, 155

first mover advantage 97 foreign direct investment 81–82, 86 free economy 115–116

on-demand mode 148 one-way flow 2, 95 opportunity costs 56

166 Index pan-Asian 123 polarization spectroscopy 38 positive addiction 24, 70 power distance 99 price discrimination 96 purchasing power parity 6 P value 138 random-effects regressions 134 regression analysis 96, 134, 135 resource allocation 148 the return to scale 9

secondary sales 22, 52 spectral color separation 38 stunt-oriented 123 supply side 4–5, 51, 56, 77, 130, 143 technology spillover effects 37 time series 137, 139, 141, 142 trade barriers 96–97 variety shows 3, 84, 92, 102–105, 105, 107–108, 109, 110, 149