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Lights, Camera and Action in China
Matthews Asia
By Winnie Phua
December 21, 2012

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More than a decade ago, China reached a turning point in its film industry with the co-production of its first internationally acclaimed movie hit, “Crouching Tiger, Hidden Dragon.” The film, directed by Academy Award winning Taiwanese American director Ang Lee, raked in more than US$213 million globally, and became the highest grossing foreign language film in U.S. history. Pretty good for a movie made in China on a US$17 million budget.

And China has seen even more meaningful changes to its film industry since then, including technical advances and a rising middle class population of moviegoers to support it. Total ticket sales in China last year reached just over US$2 billion and that figure is growing at 40% annually, according to the State Administration of Radio, Film and Television of China. Compare that to the US$10 billion movie theater market in the U.S. and it is easy to see that this industry, still in its infancy, may present compelling future growth opportunities.

Interestingly, approximately half of the total box office receipts in China are generated by a fairly small number of imported foreign films. By audience ranking, foreign films still consistently dominate China’s top 10 film listings. While the country still limits the number of foreign films allowed for viewing domestically, it did raise that number last year from 20 films to 34 films per year to meet the growing interest in such films. In stark contrast, China itself produced about 600 feature films last year and ranked third globally in terms of film production. However, due to poor quality, only one-third of these films were released.

As China’s film industry improves, it should continue to become fertile ground for budding new talent and more international collaborations, particularly with Hollywood, which has long taken notice of the China market. Chinese directors such as Zhang Yimou have increasingly seen their works presented on a global stage and actors such as Jackie Chan and Zhang Ziyi have been also been featured more in Hollywood productions as their international appeal has risen.

To gear up for a more robust movie industry, China has plans to increase its total number of movie theater screens, from about 9,000 currently to 20,000 by 2015. Its film distribution business, now with more than 300 film distributors, also continues to evolve. There are several challenges facing the industry, however, and a possible price cap on tickets, under consideration since early 2012. Movie ticket costs vary considerably depending on the region in China, ranging anywhere from just over US$3 to about US$16. The average movie ticket cost of nearly US$6.50 in China is generally considered a bigger expense for most Chinese consumers who earn much less than their U.S. counterparts, who pay US$8 on average per ticket in the U.S.

Besides cost constraints, China’s filmmakers also must continue to manage the delicate balance between creativity and censorship as well as rampant piracy and an audience that is accustomed to paying little to nothing for content.

Companies that are able to successfully overcome today’s hurdles may come to develop the long-term vision, flexibility and adaptability needed to respond to such a quickly changing industry.


You should consider the investment objectives, risks, charges and expenses of the Matthews Asia Funds carefully before making an investment decision. This and other information about the Funds is contained in the prospectus, which may also be obtained by calling 800.789.ASIA (2742). Please read the prospectus carefully before you invest or send money as it explains the risks associated with investing in international and emerging markets. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. In addition, single-country and sector funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific industry, sector or geographic location. Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than large companies.

The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information.

Matthews Asia Funds are distributed in the United States by Foreside Funds Distributors LLC
Matthews Asia Funds are distributed in Latin America by HMC Partners

© 2012 Matthews International Capital Management, LLC. Matthews Asia® is a registered trademark of Matthews International Capital Management, LLC.



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