BEIJING/NEW YORK – The scene is changing fast in China's film industry, with box office takings and the number of films produced going up in leaps and bounds. By the end of last year, box office receipts hit 10.2 billion yuan ($1.53 billion), 64 percent up from 2009's. In 2009, too, China overtook Japan to become the world's third largest producer.

But imported films still take the bulk of the box office receipts, despite the fact that China allows a limited number of foreign films into the country a year. These include 20 through a special "revenue sharing" scheme with only two State-owned companies – China Film and Huaxia.

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The box office hit Avatar, for example, took in 1.3 billion yuan in China, which is about 20 percent of the total takings for the first half of 2010.

And the number of foreign films being screened in China is likely to be increased this year. Under a World Trade Organization ruling, foreign producers will, from March 19, be able to contract private film companies to distribute their films on the mainland. If the Chinese government allows this ruling to take effect, it is expected that more than just 20 foreign films will be brought to Chinese cinemas.

Under the revenue sharing scheme, foreign producers and the State-run China Film Croup Corporation take 43 percent of the box office takings, with most print and promotional costs borne by the overseas producers, Zhang Jingyu, project manager of Beijing Jiaxin Shidai Entertainment Company, said. This results in the foreign producers getting about 13 percent of the revenue.

Greg Frazier, executive vice-president of the Motion Picture Association of America, said China is a big and exciting market, with "huge growth potential".

"The box office for US movies has grown about a 100 percent in 2009 in China, so I would say that American movie companies are already making movies that Chinese audiences want to see."

On the other hand, WTO ruling is causing concern to some Chinese cultural industry experts. Xiao Huaide, director of the Institute of Cultural Studies at Peking University, said the revenue-sharing system protected the development of the Chinese film industry.

Xiao said the best situation would be for Chinese and foreign films have similar market shares, which would not only protect domestic movie development and industry reform, but also be an opportunity to learn from the developed international market.

"This must be a shock for Chinese movies," Xiao was quoted by Beijing Business Today as saying.

But others see this as an opportunity to reach world standards, rather than a threat. "Foreign movies have been seen by Chinese audiences in many other ways, except in cinemas," Chen Xiaowei, CEO of the Orange Sky Entertainment Group.

Chen said the biggest challenge to the Chinese movie industry is how to protect copyright, a concern shared by many foreign counterparts. In China, once a movie stops screening in theaters, the producers cannot get any more income from it; foreign companies can still profit from outlets such as DVDs, TV and online broadcasting rights or in some limited cases, theme parks.

"Foreign movies can make profit for decades, but Chinese films can only rely on a few weeks," Chen said, adding that Chinese films are good enough only to be popular for a short time, but don't turn into classics.

"So learning from a much more mature industry chain is more important than worrying that foreign companies taking a larger market share."

Foreign film companies are also worried that their copyright will continue to be violated once the WTO ruling takes effect.

Jacques deLisle, director of the East Asian Studies Center at the University of Pennsylvania, said the "broader and longer term implications", particularly for US-China relations, are complicated and "on balance, not very positive".

He said it is not clear the ruling will do much to affect piracy levels. Implementation of the WTO ruling should reduce the cost of legitimate imported US media products, but these will remain much more expensive than pirated versions.

"So, gains here remain dependent more on continued progress in Chinese anti-piracy efforts than on implementation of the WTO decision per se," he said.

But the country and industry are aware doing their best to fight the piracy problem. Earlier this year, the China Guanghua Foundation (CGF) – attached to the Central Committee of China Communist Youth League – was started to protect the cultural industry's rights.

The organization provides legal and financial support for all cultural enterprise in China, and arranges events to improve public awareness on copyright protection.

"The protection to all kinds of culture products is a way to boost the industry," said Zha Derong, its vice-secretary-general. "With the development of our service, we are willing to provide the same support to the foreign cultural companies who have business in China, too."

Zha believes the opening-up is part of a trend of market development, and it is unavoidable. "China should be confident to face more challenge," Zha said.

In publication, for example, the 7 trillion yuan industry should not be worried about threats by foreign publications.

Li Qian, marketing director of the Oriental Audio and Video Publishing House, said most Chinese readers are not familiar with foreign culture, and foreign publications do not have a strong share. Li, quoted by Copyright Weekly, said even with the opening-up, foreign publications are likely to enter China through local publishing houses and will have limited influence on the industry.

Another concern is the culture influence on China. The Walt Disney Company has signed an agreement for a second amusement park in China with Shanghai government, which means more younger Chinese will grow up with more Disney stories.

But cultural commentator Raymond Zhou believes learning about more Disney stories and characters would not mean children will have less exposure to Chinese stories.

"The Chinese culture usually values imitation more than creation," he said. "Keeping out foreign competition will only make our own products weak in the long term."

"To compete, we need to learn from all the best, and then we need to give free rein to our own creative force."