Why Hollywood’s China Syndrome Is Both Meltdown and Opportunity

Patrick Frater


It seems Hollywood’s “sequel-itis” has reached China’s box office too.

Despite the country’s dramatic overnight removal of COVID restrictions in December 2022 and film imports quickly restarting with the triumphant debut of “Avatar: The Way of Water,” Hollywood’s new normal in the Middle Kingdom bears little resemblance to its pre-pandemic status.

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During the three-year disruption of 2020-22, caused by the pandemic and soured U.S.-China diplomatic relations, few Hollywood films — and no Marvel titles — made their way onto Chinese screens.

But if Hollywood studios read the $240 million-grossing “Avatar 2” feeding frenzy as a sign that pent-up Chinese demand for their sequels and superheroes slate might continue throughout 2023, they were sorely disappointed.

In the world’s second-largest box office territory, with a cume to date of $7.3 billion, the market share for all imported films in China has crashed, standing at less than 15% at the beginning of December. Hollywood films’ share is just 12%, consultancy Artisan Gateway calculates.

This month, “Napoleon” and “Wonka” have continued the trend of dismal flops, with $5 million and $3 million opening weekends, respectively.

The slump is particularly disappointing given that the Chinese authorities that carefully control the film industry have this year made several moves designed to put Hollywood releasing back on the rails. Along with reopening the import spigot, they’ve reduced their blackout periods (seasons when only new Chinese titles get releases), sped up the approvals process to allow longer marketing lead times, and allowed release dates in China to be synchronized with those of U.S. and international outings.

To no avail. Chinese audiences have seemingly moved on from American franchises and Tom Cruise-style individualism.

“I grew up watching every possible Hollywood film,” says Yang Xianghua, president of movies at Chinese streaming giant iQiyi. “Now, not so much.”

The waning power of Hollywood’s franchises is not a problem unique to China. But the scale and proficiency of the local competition is.

The Chinese government has corralled billions of dollars into creating a technically adept production sector, and top directors are being pressured to deliver “main melody,” or patriotic, movies.

Within these guardrails, new genres have flourished, including formerly taboo sci-fi films (such as “The Wandering Earth II,” which this year earned $570 million) and crime stories with Chinese characteristics (“No More Bets,” which grossed $544 million). That said, the year’s biggest film is the $645 million-grossing costume drama “Full River Red,” by veteran director Zhang Yimou, albeit one stuffed with allegories for contemporary audiences.

“Many popular local films are adapted from true stories or from ordinary people’s lives, relatable to real life. Also, the recent rise of crime/suspense dramas feature unpredictable and clever storytelling that keep the audience guessing and interested. Story endings are hard to predict, sometimes a surprise, and become hot topics for people to discuss. Hollywood sequels have become predicable from beginning to the end,” says Artisan Gateway principal Rance Pow.

Infrastructure, too, increasingly favors Chinese content. Streamers have been weaned off imported content by intrusive vetting and censorship processes. And the government has directed the building of nearly 100,000 cinemas. As venues reach into smaller cities, so the audience interest in foreign stars and stories diminishes.

According to China’s latest annual film yearbook, many Chinese viewers consider local films to have improved in quality in recent years. At the same time, 25% think that imported films have run out of ideas.

“Chinese moviegoers are showing declining interest in works focused on superheroes. While these films historically performed well in Mainland China, only ‘Guardians of the Galaxy Vol. 3’ stood out this year,” said a spokesman for Chinese ticketing, data and distribution firm Maoyan.

Yet the more creative end of Hollywood’s spectrum still has plenty of potential.

“Chinese filmmakers have learned how to do big blockbusters with special effects, but they are still limited — only in part by censorship — when it comes to storytelling,” says Stanley Rosen, a professor of political science and international relations at USC. He points to the bright feminism of “Barbie” ($35 million box office in China) and the nuclear debate raised in “Oppenheimer” ($65 million) as examples of storytelling concepts that are still beyond what is open to Chinese filmmakers.

Still, American studios would be unwise to pander to Chinese audiences any time soon. U.S. Rep. Mike Gallagher’s Select Committee on the CCP proceedings seem determined to prevent Hollywood from amending scripts or otherwise appealing to Chinese political sensibilities. And so, the gap between U.S. output and Chinese audiences may persist.

But China may now be offering Hollywood another opening. Industry sources have told Variety that the import quota for revenue-sharing films — the system by which Chinese authorities control how many and which foreign films come into the country, currently set at 34 films per year — has quietly been dropped. Box office consultancy Gower Street Analytics calculates that the number may already have surpassed 37 this year.

The apparent thinking is that Hollywood is no longer a threat to the local film industry and that the removal of quotas would ease an ongoing trade dispute and further stimulate the Chinese box office.

“China has used quotas both as a sword and a shield. In the early days, they were a shield to keep the local industry protected so that they weren’t overwhelmed by the very popular Hollywood films, while still getting the benefit of those films to be able to build their cinemas. Now they’re not that concerned anymore about the competition,” says Jean Prewitt, president and CEO at the Independent Film & Television Alliance, which represents film companies outside the Hollywood system. She says that neither U.S. studios nor independents were aware of any change to the quota regime.

Even if the quotas don’t crumble, China still wants to boost box office revenue.

In recent months, it has begun testing a “segmented” or “branch distribution” system that introduces a modicum of market forces. It permits exhibitors and private sector distributors, rather than a state-owned enterprise, to be responsible for bringing in and releasing imported titles. So far, the system has only been tried for minor rereleases.

The Dec. 22 reissue of “La La Land” will be its highest-profile usage. And “Taylor Swift: The Eras Tour,” now set for a Dec. 31 outing, may be the first for a current title.

“They are desperate to bring in this non-studio title which will play premium large-format venues,” says one China-focused U.S. executive. “It seems that the Chinese government can still pull whatever lever it wants to engineer the desired marketplace result.”

And with China’s box office still below 2019 levels, there’s every reason to expect that behind-the-scenes levers will continue to be pulled. Some things don’t change.

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