Strategy sees a major role for Hollywood, Raymond Zhou reports from Shanghai.

When China loosened its film import quota earlier this year, the nation's film industry was instantly shrouded in doom and gloom. Wu Hehu, deputy manager of Shanghai United Circuit, said his cinema chain, "accounting for 10 percent of the nation's box office total", ranked the top 10 movies in the first half of 2012 and found only one Chinese film on the list, the cartoon franchise Pleasant Goat and Big Bad Wolf, which has released a new feature film every spring since 2009. The other nine movies were imports from Hollywood.

During the past decade, co-productions have been seen as a way out of this kind of dilemma, because they usually achieve better results at the box office than homegrown releases, said Gao Jun, general manager of Beijing Shengshi Huarui Film Investment & Management Co. "When you cannot change the world, you change yourself to suit the world. Co-productions are an effort in that direction."

These collaborations can be quite successful. They are a sign that Hollywood is starting to listen to China, Gao said.

"But co-productions cannot solve all of our problems. They rarely achieve all the things they were designed for, namely, success in both markets."

Some Hollywood-originated projects, such as the 2010 version of The Karate Kid — called The Kung Fu Dream in China — performed spectacularly well in the US market, but were mediocre in China, especially in terms of word-of-mouth publicity. Disney's Chinese remake of High School Musical, tailor-made for the market, failed to make a single ripple in the Chinese pond.

With domestic films caught between a rock and a hard place and co-productions unable to please everybody across the Pacific Ocean, Chinese investors are now venturing into uncharted territory by investing directly in Hollywood productions.

Clockwise: Actors Halle Berry and Keith David filming their new movie Cloud Atlas on the streets of Glasgow, Scotland on Sept 17, 2011. The publicity poster for The Expendables 2. The film, which will premiere on Aug 17, stars Sylvester Stallone and a slew of action stars, including Arnold Schwarzenegger and Jet Li. DMG Entertainment has backed a Bruce Willis film, Looper, which will be released on Sept 28, starring front-line actors and actresses from the US and China. Provided to China Daily

Hidden dragon

Dreams of Dragon Pictures, a Chinese company that entered the film industry as late as 2008, has made a few midbudget movies with middling results at best. But its next project is Cloud Atlas, a "tentpole" (the Hollywood equivalent of the Chinese concept of dapian, literally big picture) that will star Tom Hanks and Halle Berry.

Qiu Huashun, the company's chairman and CEO, revealed that the film was budgeted at $180 million when they stumbled into it a year and a half ago. "It is a huge crab, and for someone who has never tasted crabs, we did not even know how to go about eating it," said Qiu, using the Chinese analogy for experimenting with something unprecedented.

Qiu's company hired as many as six lawyers, two of them British, "one costing $1,000 an hour and the other $600 an hour". But the outlay was worth it, insisted Qiu, because the lawyers mapped out all the possible scenarios and negotiated the best terms to protect the Chinese investor.

First of all, the budget was scaled down to $105 million dollars. The Chinese company put in $3 million in exchange for the distribution rights on the Chinese mainland, and an additional $5 million for 5 percent of the global distribution rights. The fee for distribution is set at 30 percent, the same as that commanded by Warner Bros, "the highest in the industry", said Qiu.

Overall, Dragon Pictures' stake in the movie amounts to 9.3 percent, which it will hold legally for 15 years. According to Qiu, the producers, directors and the leading actors are participating as investors. They will take a combined 25 percent of the return and the other investors, such as Qiu's company, will split 75 percent until the entire investment is recouped and then both sides will split further returns fifty-fifty. "This has greatly guaranteed our interests," said Qiu.

Cloud Atlas, adapted from David Mitchell's 2004 novel of the same name and directed by Tom Tykwer, who made Run Lola Run and Perfume, and the Wachowski family partnership of The Matrix fame, is technically a German film, although it has English dialogue. The movie, distributed in North America by Warner Bros and in other territories by Focus Features, is scheduled for release later this year.

The only Chinese element visible so far in the pre-publicity material is the actress Zhou Xun, who plays Yoona-939. Zhou worked as a paid employee, not an equity participant. It is still uncertain whether the film will be classified as a co-production in China or as an import. In the case of co-production, it will not only skirt the quota, but also provide a larger return to the investors.

The Expendables 2 is a slightly different case. It features Jet Li as one of half a dozen aging action stars, a lineup very similar to a Chinese variety show that pulls together all the glittering names of yesteryear. The first film, released in 2010, grossed $103 million in the US and $171 million in the rest of the world. Zhang Zhao, CEO of Le Vision Pictures, revealed that his company is investing in the sequel, budgeted at $100 million, but declined to divulge how much it will invest or any other details of the deal.

As has been previously reported, Beijing-based DMG Entertainment will fund Iron Man 3, together with Walt Disney Co. However, the film will be considered a co-production because shooting will partly take place in China. The producers are looking to cast a 40-year-old Chinese actor in a minor role, but nothing has been finalized yet.

DMG has also backed a Bruce Willis film called Looper, which will be released later this year, and is launching a $300 million fund for similar projects.

Crouching tiger

There are also Chinese companies embarking on China-themed projects, but with an international cast and English dialogue. Tom DeSanto, producer of The Transformers series, is attached to a Chinese project entitled Gods, set in a mystical China thousands of years ago. The participants are touting it as the next Lord of the Rings, even though the script is still under development.

Hollywood movies imported into China through the quota system represent the cream of the crop in terms of earning power. These are the kind of projects Chinese investors are chasing, but they carry huge risks, especially for those who have never before been involved in such high stakes. As a matter of fact, Zhang Zhao of Le Vision, the participant in The Expendables 3, sees its function as mostly learning how to hitch up with Hollywood's operational side.

In a couple of years, it will be clear who has cracked the global film market with leveraged investment in Hollywood tentpoles and who has lost his pants. Meanwhile, Chinese money is chasing big projects and big stars with star-struck excitement and nouveau riche bravado.

Contact the writer at raymondzhou@chinadaily.com.cn