Culture industry: hoping for a hit

Raising funds to shoot films has long been something of a murky business, but new efforts to develop China's culture industry are set to increase the involvement of major Chinese banks.

Some have warned of the risks involved, and it's not the way films are produced overseas. "It's too risky for a bank to engage in a film's fundraising," a Hollywood producer, who is a veteran of the US film industry, told the Global Times on condition of anonymity.

The producer noted that in the US most productions are financed by production companies or wealthy individuals. "Banks don't want to expose themselves to film-making, because it's too speculative," the producer said.

However, Chinese banks have already started providing massive backing for the film industry.

Boost the culture industry

The Guangdong branch of China Construction Bank (CCB) unveiled a cooperation deal with Guangzhou Xian-Ying Investing Management Co on August 23. According to the agreement, the Guangdong branch of CCB, the country's second largest State-owned bank, will provide bank loans to film and TV production companies, with Xian-Ying working as the guarantor for the borrowers.

"The move is just the beginning, and what we are doing is responding to the authorities' call for fostering the development of the culture sector," Ma Yaping, deputy general manager of the small and medium-sized enterprise department at the CCB Guangdong branch, told the Global Times.

The culture sector covers numerous different areas, including film, music, performances and exhibitions as well as newer additions such as the Internet.

The 17th Central Committee of the CPC announced at its sixth plenary session last October that the government would encourage cultural development in order to increase China's soft power. According to Cai Wu, the minister of culture, the key factor is to increase investment, which means that financial agencies and governmental budgets must provide more support.

The CCB is not the only bank in the country backing the development of the culture industry.

Bank of Beijing announced on March 11 that it had approved loans of more than 30 billion yuan ($4.76 billion) by the end of 2011 for nearly 700 companies in Beijing that are involved in the culture sector.

China Development Bank said on March 8 that it had extended 120.4 billion yuan in loans to culture-related companies by the end of last year, and forecast that the bank's total loans to the culture sector will amount to 200 billion yuan between 2011 and 2015.

"The authorities' supportive policy is one reason behind the financial institutions' massive lending," Wan Ge, an industry analyst at ChinaVenture Investment Consulting Group, told the Global Times. Wan also noted that there is huge demand for cultural products, especially film and TV productions.

"The film and TV industry's development during recent years has been good, providing business opportunities for banks," said Wan.

Substantial risks

According to statistics released by the National Bureau of Statistics last September, the total output of the culture industry in China in 2010 reached more than 1.1 trillion yuan, accounting for 2.75 percent of the country's GDP.

The Ministry of Culture in February released a cultural development plan, which highlighted the country's goal to double the output of the culture industry by 2015.

Box office revenues have seen rapid growth, rising at an average rate of 30 percent every year since 2003, reaching 13.1 billion yuan in 2011. But a substantial portion is from overseas movies, rather than domestically produced films.

During the first half of this year, China's box office revenue reached 8 billion yuan, an increase of 41.7 percent year-on-year, partly due to the popularity of imported films such as the 3D version of Titanic.

"Granting loans to film and TV production companies is also highly risky," said Wan.

Wan said that unlike other industries that have tangible assets that can act as collateral, in the film industry it is difficult to assess the value of the projects. And if the production company fails to earn the money back via the box office, the bank would be unable to get its loans back, so they would become bad debts.

According to official statistics, China produced a total of 791 films in 2011. But only 20 of them gained box office revenue of more than 100 million yuan, and many of the films were not even screened.

Jane Li, a film industry insider, told the Global Times that capital chain problems "often" occur in film production.

"Film crews are sometimes dismissed if the producers fail to raise new money that they need," Li said, noting that in many cases, shooting and waiting for money are two standard aspects of film production.

Li also pointed out that due to the censorship of cultural products, some films never find an audience.

Director Ning Hao's No Man's Land failed to obtain a screening license from the Film Bureau under the State Administration of Radio, Film and Television this year after it failed to pass their censorship.

"People who would like to invest in films are risk lovers," said Wan, noting that the scale of venture capital (VC) and private equity (PE) financing for the culture industry is shrinking.

Cooling down?

According to a research report released by ChinaVenture on August 21, during the first half of this year the disclosed total amount of financing for the culture industry from VC and PE firms declined by 68 percent year-on-year to $78 million. Culture projects received $3.71 million on average, down by 65 percent, the report said.

"The main reason is the slowdown in the domestic economy," said Wan.

China's GDP growth slowed to a three-year low of 7.6 percent in the second quarter, and the economic outlook remains uncertain.

"We expect the scale of financing for culture-related projects from VC and PE firms will continue decreasing for the rest of the year," said Wan, adding that even though banks are willing to lend money to film companies, there is still doubt over whether the films they produce can be successful.

"The key issue in boosting the country's film sector is not the money it gets but the creativity of the films," she said.