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24 Sep 2015

The First Film Law in China is Coming

The film legislation process was initiated in 1984, following preparation of the first draft of the Film Law. The legislation process recommenced in 2003 after formal implementation of the Regulations on the Administration of Movies on 1 February 2002. Since then, the box-office revenue from China’s films has jumped up to more than RMB 5 billion per month from less than RMB 1 billion per year. Clearly, the fast-growing film industry urgently needs a film law that adapts to the demands of the times, effectively promotes cultural values and encourages the healthy economic development of the film industry.

On 1 September 2015, the Executive Meeting of the State Council discussed and adopted the Law of the People's Republic of China for Promoting the Film Industry (Draft) (“Draft”) and decided to submit the Draft to the Standing Committee of the National People’s Congress for consideration. Although the content of the Draft has not been disclosed to date, an outline of the Draft may be concluded from the provisions of the Draft for Comments to the Law of the People's Republic of China for Promoting Film Industry (Draft for Comments) (“Draft for Comments”), which was promulgated on 15 December 2011.

1. To liberalize market access

The Draft for Comments proposes to loosen access restrictions on enterprises engaging in film production, investment and distribution. Taking film shooting as an example, currently, enterprises wishing to conduct film shooting businesses must first be attached to a “sponsor or supervisory authority recognized by the administrative department for radio, movies and television under the State Council”. Only after it has obtained the requisite license for film production and operation can the enterprise apply to the Industrial and Commercial Bureau for the incorporation of a film company. The Draft for Comments would remove such requirements, which means there would be no restrictions on capital investment in film production and related businesses. Furthermore, an enterprise which has a license for producing films only needs to file a screenplay or a script outline before it produces a film.

2. To allow limited market access for foreign investment

The Catalogue for the Guidance of Foreign Investment Industries (Revised in 2015) prohibits foreign enterprises from investing in film production companies, film distribution companies and cinema companies. In addition, it provides that foreign enterprises may only conduct film production business by cooperating with Chinese domestic companies. The Draft for Comments also provides that foreign enterprises cannot independently engage in film shooting business in China; however, it would allow foreign enterprises, fulfilling the following two conditions, to produce films in China in cooperation with Chinese domestic companies: (1) the domestic enterprise has lawfully shot films which were released to the public; and (2) the local or foreign enterprises have not violated any laws or administrative rules in the past 2 years.

In practice, there are already precedents where some foreign enterprises participated in the Chinese film industry. For example, some wholly foreign-owned enterprises have co-produced films, engaged in film distribution and been involved in part of the actual shooting. In the future, the laws for promoting the film industry are expected to provide further guidance for foreign enterprises engaging in the film shooting business.

3. To promote supportive and preferential policies

The Draft for Comments proposed to adopt public finance, taxation, land use and other supportive measures to encourage enterprises, individual businesses and individuals to engage in filming activities. In fact, since the publication of the Draft for Comments, the Chinese Government has already implemented a series of measures, including:

  1. Tax preferences: according to the Ministry of Finance regulations, the income of film production enterprises from selling film copies (including digital copies), transferring copyright, the income of film distribution enterprises from film distribution, and the income of film projection enterprises from film projections are exempt from value-added taxation during the period from 1 January 2014 to 31 December 2018.
  2. Capital support: the national and local governments will gradually increase investment in the film industry through special capital and funding in the cultural industry. The Ministry of Finance and the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT) recently issued Administrative Measures for the Collection and Use of National Special Funds for Development of Film Undertakings, which further standardized the management of the collection and use of special funds of the national film industry in support of this industry.
  3. Financial support: the Chinese Government not only encourages financial institutions, insurance agencies and guarantee agencies to support the film industry, it also allows other commercial organizations to assist the film industry. For example, in early 2015, the world’s largest film completion guarantee company (Film Finances, Inc., known as FFI) completed their market entry in China, such that the completion guarantee business, which is globally popular, is now potentially available for Chinese film projects. 

4. To strengthen market regulation

The Draft for Comments stipulates that cinemas must not conceal box-office income, and that cinemas affiliated with major cinema corporations must install computer ticketing systems in accordance with the national standards. In fact, the China Film Distribution and Projection Association and China Film Producers’ Association have been keen to enforce these measures. Specifically, they take various measures, such as issuing warnings, fines and suspending film support indefinitely, etc. SAPPRFT has also recently connected the ticketing systems of major theaters nationwide into a single network. In the future, market regulations concerning box offices will be strengthened further.

However, the Draft for Comments has not mentioned the film classification system, and the film censorship system has not been further refined either. It is generally expected in the industry that the relevant authorities will provide detailed rules in the formal promulgation of the law.

In conclusion, it is not known how the final version of the Law for Promoting Film Industry will differ from the Draft for Comments, but the promulgation of this law should provide legislation for China’s film industry that will greatly affect the development and management of the film market.

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