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China keeps Hollywood firmly in handcuffs

BEIJING—Chinese seem to have a taste for American movies, judging by the way Hollywood films move off the shelves at small DVD shops across the nation.

Fat good it does Hollywood, though. The movies are all pirated.

"Piracy is out of control. It's running at 95 percent" of U.S. films sold in China, said Mike Ellis, the senior vice president of the Asia Pacific region for the Motion Picture Association, which promotes American films globally.

Hollywood's complaints about piracy and other obstacles are part of a chorus of gripes from U.S. industry—running the gamut from pharmaceuticals to software—over lopsided trade arrangements with China. Yet the difficulties that American movie studios face in China resonate with a restless Congress as the U.S. trade deficit with China increases.

China limits foreign films to 20 theatrical releases per year, imposes censorship and allows pirates nearly free rein.

The American film industry calls the situation "wildly unfair," and U.S. Cabinet members visiting China nearly always bring up the DVD piracy issue.

"We—just recently walking around Beijing—were offered a DVD of the new `Star Wars' at $1, and we had our choice of many, many movies," Commerce Secretary Carlos Gutierrez said earlier this month. He said such piracy was equivalent to counterfeiting money.

China's communist leaders don't readily admit it, but they appear to harbor lingering doubts about showing decadent capitalist entertainment in their movie houses. They also, however, want to protect China's own nascent film industry.

"We need some time for the Chinese film industry to develop. Otherwise the industry will be totally destroyed," said Lu Chuan, a prizewinning young director.

China's films are getting better, and their success abroad is exacerbating Hollywood's complaints. In the past year, Chinese-made movies such as Zhang Yimou's martial arts epic "House of Flying Daggers" as well as Stephen Chow's chop-socky comedy "Kung Fu Hustle" have done well in U.S. theaters. The overseas box-office receipts of Chinese-made movies have soared, doubling last year to $133 million, according to China eCapital, an investment bank.

That overshadows the $81 million combined box office for all 20 foreign films that were released in China last year (15 of them American-made), the bank said. The top foreign hits were "Lord of the Rings: The Return of the King," "Day After Tomorrow" and "Troy."

It's little wonder that movies earn poor ticket sales in China: Most theaters are in pitiful shape, with lumpy seats and odor problems.

China has only about 2,500 movie theaters for its 1.3 billion people, compared with about 30,000 movie theaters in the United States, with one-fifth the population.

Hoping to lure more Chinese moviegoers, Time Warner's Warner Bros. has entered into a joint venture to build modern theaters in affluent cities such as Shanghai and Nanjing.

Other movie executives say the strategy is likely to pay off.

"People will want to go to the movies if they can see them on a big screen with comfortable seats, and you can get food," said Dede Nickerson, a Beijing-based liaison for Miramax Films.

Whether they'll see the latest Hollywood blockbuster as they sink into their stadium seating at the local multiplex, drinking green tea, is another question.

While Chinese movies enjoy unfettered access to U.S. theaters, dependent only on commercial viability, Chinese law requires American studios to submit films to China Film, the monopolist distributor. Of the 20 foreign films that China accepts each year, on approval from censors, 12 to 15 are usually from Hollywood.

U.S. movie studios get a tiny portion of ticket revenue—somewhere from 13 percent to 17 percent—which Ellis called "one of the lowest rates in the world."

The hundreds of Hollywood films that don't make the cut each year usually show up in China anyway, appearing in ubiquitous DVD shops that offer pirated movies at a buck a pop.

"A lot of the very movies we can't get in here are here. You can find them all over the place," said Dan Glickman, a former Kansas congressman who heads the Motion Picture Association of America, a Washington-based lobby whose members include Walt Disney Co., Warner Bros., Columbia Pictures and Paramount Pictures.

While losses to Hollywood from piracy are hard to pin down, Glickman said they amounted to "close to $300 million" a year.

That's a tiny fraction of last year's $162 billion U.S. trade deficit with China, but Glickman said Hollywood had its eye on the growing ranks of affluent Chinese and their leisure-time pursuits.

"They are going to want good entertainment. They're going to want to go to the movies," Glickman said.

U.S. studios, struggling to get around the restrictions on theatrical releases, have turned to partnering with Chinese companies on Chinese-language movies. Sony's Columbia Pictures and Warner Bros. have entered into such co-production deals.

Seated on a plush sofa in his high-rise offices, Chairman Wang Zhongjun of Huayi Bros. Media Group noted that his company has co-produced six films with Columbia Pictures, all catering to the domestic market, and other American studios are coming a-courting.

"Paramount and Disney are looking for partners to move into the market. I've held general meetings with both," Wang said.

Under Chinese law, Chinese-language co-produced films don't fall under the quota system, so they can gain access to theaters more easily.

Moreover, Wang said government censors lately appeared to be softening their views, allowing more risque and politically sensitive scripts.

Major U.S. studios also are looking at China as a source of animated movies and are seeking joint projects that offer tie-ins with video games, other executives said.

Such projects might be derailed if the simmering piracy issue leads the Bush administration to take punitive action against China. Anger appears to be mounting.

That was clear in a hearing Feb. 3 in Washington of the U.S.-China Economic and Security Review Commission, a board that Congress set up in 2000.

"There is no other area, in my opinion, that demonstrates how completely the Chinese government has contempt for the rule of law and the United States as this area," Chairman C. Richard D'Amato said at the hearing. "It may well be that there's so much corruption and so much enrichment on the part of the Chinese leadership from this particular illegal behavior that we'll never be able to get them to move on it."

Some executives, though, said they saw signs that DVD pirates might think their days are numbered.

"Former pirates are contacting us to market products officially. I think that's a good sign," said Nickerson, the Miramax representative. "They are trying to go legit."

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(c) 2005, Knight Ridder/Tribune Information Services.

PHOTOS (from KRT Photo Service, 202-383-6099): CHINA-PIRACY

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