Postcard from Huallywood

One of the most notable features of China’s economy in recent years has been the gradual, but steady, migration toward services-led growth. In fact, in recent periods, consumption and services have become the largest parts of the Chinese economy (see recent Sinology). But how is that being accomplished at a micro level? On a recent trip to China’s Jiangsu province, I was able to witness firsthand, how a deserted iron and steel factory is being transformed into China’s premier site for movie production.

Two years ago, local government officials in Wuxi began converting the area, dubbed “Hua”-llywood, into what it hopes will be a world-class film studio. The word “hua” is symbolic of China; words such as “hua ren” refer to Chinese people and “hua yu” refer to the Mandarin Chinese language. The focus on digital film production is interesting, and underscores the fact that to succeed in consumer-facing industries, quality has to be a priority. Chinese box office revenues have been growing fast but have increasingly been dominated by imported films. Among several factors, deficient quality in production has been a drag on interest in domestically produced movies in China. Studios like Wuxi that offer more digital and higher-technology capabilities are trying to provide improved facilities to bridge the gap.

While Huallywood is still developing, college students and independent artists are arriving in Wuxi for publishing as well as pre- and post-production activities related to the movie industry. The experiment in Wuxi is reflective of other such efforts that may be underway in China. While it isn’t a foregone conclusion by any means, the long-term health of the Chinese economy depends on a successful transition toward more services, and consumption-led growth, such as the entertainment industry.

Sharat Shroff, CFA
Portfolio Manager
Matthews Asia

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. 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.

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