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China’s booming entertainment industry

The entertainment industry in China has grown to become one of the most exciting and promising opportunities for investment. Comprising of cinema, KTV, television, literature, art, fashion, internet and gaming, the sector has a great variety of possibilities. Performing at a much faster rate than the overall economy, the entertainment sector is thought to contribute at least 5 percent to China’s total GDP.

Why has the entertainment industry grown so quickly?

The fact that entertainment companies fare well in the stock market year after year has two major reasons. Firstly, as more and more people enter the middle class the amount of disposable income is increasing, allowing many people to spend their excess money on entertainment.

Secondly, the government has invested millions in the industry, a substantial 800 million RMB in 2014 alone. After the global economy was thrown into turmoil from 2008-2009, the policy makers who drew up China’s twelfth Five-year Plan sought out ways to diversify the economy away from the country’s heavy reliance on exports. The entertainment sector (also known as the “cultural industry”) was named as one of the “pillar” industries that the government would invest large amounts of money in.

The government is also cautiously allowing foreign investment as a source of funding for the media and entertainment sector, examples of this include partnerships with a Singapore Private Equity firm as well as the American multinational media powerhouse Time Warner.

China’s film industry

China’s film industry has set its sights on going global and competing with Hollywood, by exporting its movies to draw in audiences from around the world. In 2018, Chinese-made films grossed over an astonishing $8.7 billion, according to the Asian film consultancy Artisan Gateway. Not only will the film industry generate revenue, but it also provides a way for China to portray itself in the way it chooses and influence the way it is regarded throughout the world.

Major deals have already been completed, including that by Dalian Wanda Group, a Chinese entertainment giant and owner of the second biggest cinema chain in the U.S. They have recently bought a controlling stake in Legendary Pictures, the Hollywood studio that financed films like Jurassic World.

On the other side, Hollywood is also keen to gain a foothold in China by helping to finance films or co-produce them; take Dreamworks as an example. Producing major hits like Shrek, it has now set up Oriental Dreamworks in a joint venture with Shanghai Media Group.

However, Hollywood is somewhat limited in what it can achieve in China, as the government has an annual quota on how many foreign films can be imported each year; this figure currently stands at 34. Foreign producers wishing to produce or release their films in China are often required to alter or delete scenes for censorship reasons, and are only allowed to keep a small percentage of the box office revenues, usually less than 25%.

 

Queues in one of Chinese cinemas in Wuhan

Chinese box office does not seem to be struggling – photo of extensive queues at the multiplex cinema in Wuhan, central China

China’s gaming industry

Gaming is a multibillion-dollar industry in China.  The market for digital gaming is enormous with 620 million people in 2018 playing mobile, PC online, and console games in China alone. China’s gaming industry has generated a revenue of approximately $30 billion in 2018, over a quarter of the global income, which stands at around $115 billion, clearly showing that China is at the heart of the gaming market. However, 2018 has been the toughest year for the gaming market in China, as the government made a decision to ban all new video games for the entire year, in an attempt to prevent the society from spending so much time in their digital worlds. The ban has had the most adverse effects on the video game companies, with the likes of Tencent and NetEase losing their market shares by 25% and 35% respectively. Nonetheless, the industry managed to recover and is flourishing again.

Mobile gaming has seen a sharp increase in growth over the last few years as more Chinese gain access to mobile internet on smartphones or tablets. PC games which continue to prove popular are namely MMORPGs (massively multiplayer online role-playing games) and MOBAs (massive online battle arenas) such as World of Warcraft and League of Legends.

The ban on foreign consoles in China such as PlayStation and Xbox have recently been removed meaning these consoles are just beginning to enter the gaming market. E-sports tournaments have become a popular trend, acting as a driver for young gamers to play more in the hope of becoming professional gamers themselves.

Tencent, the largest video game company in the world is based in Shenzhen. Surprisingly, not many people outside of China are even aware of this supergiant, whose market capitalisation is as prominent as Facebook’s.  Known to collaborate with Activision, Blizzard, Ubisoft and Epic Games, the company is cementing itself as the most influential entertainment corporation. Tencent’s reach does not end on video games, and are in fact more recognised as the developers of WeChat.

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Focus on the entertainment sector in second tier China

Within second tier China, the Go West initiative has paved the way for entertainment and technology companies to set up. Pushing funding away from booming coastal cities, such as Shanghai, the initiative provides funds incentives for business development including interest free loans and tax breaks for firms setting up in inland China.

The initiative has been very successful, with small and big name Western companies flocking to these cities. Second tier China, have proved a highly popular alternative to Shanghai and Beijing, as companies are attracted by not only the tempting government investment policies but also the cheap labour costs and lower cost of living these cities have to offer.

The first decade of the Go West initiative has been seen as laying the foundation that will result in second tier China’s development boom, similar to what Shanghai experienced from 1992-2000, bringing them up to pace with the previously dominant first tier cities.

Case study: Chengdu

Chengdu boasts one of second tier China’s fastest developing entertainment industries. As a way of showcasing their progression in the entertainment industry and to attract yet more companies, Chengdu has run the International Chengdu Digital Entertainment Week for the last five years. The event is sponsored by the municipal government as well as top IT enterprises, and has attracted major IT enterprises including Lenovo, Intel and LG.

South Korea’s leading game developer, T3 Entertainment, has also launched its operations in Chengdu with the aim of being an incubator of popular games and promoting the online games industry in the area. Other companies include Walt Disney, which has signed contracts with Chengdu’s Wuhou district and the leading online sales company 360buy.com, which has set up in Southern Chengdu.

Entertainment is of course tightly interlinked with technology. Chengdu is already a hi-tech manufacturing hub with dedicated technology hubs such as the Tianfu Internet Centre and Software Park, which have a strong presence of internet gaming, mobile gaming and animation market, and is quickly progressing towards becoming a magnet for innovation and development of software.

The high tech zone has become one of China’s national software bases and is buzzing with major foreign companies such as Microsoft and Dell in addition to Chinese technology companies Lenovo and Taiwan electronics giant Foxconn. Almost half of the iPads sold worldwide are assembled in Chengdu, while computer giant Intel manufactures up to half of its chips in the city.

Image of Hi Tech zone in Chengdu

The emerging Hi Tech zone on the south of Chengdu

Conclusion

All in all, the entertainment industry is booming across China, and with the Go West initiative second tier cities have been able to take advantage of this lucrative market. China is now one of the biggest economies in the world and it is almost certain that the entertainment industry will continue to play a vital role in developing the country’s economy and shaping the way that China is regarded throughout the world.

 

If you have any questions in regard to The Entertainment Industry in China, please do not hesitate to contact Maxxelli Consulting at info@maxxelliconsutling.com

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