Basic Regulations of Admittance, Examination and Approval for Foreign-invested Cinema and Cinema Lines

28 August 2012

In 2011, China’s total cinema box office take broke through Rmb13 billion (US$2.06 billion). The number of cinema screens has a sustained daily growth of eight screens, but the screens-owned per capita is apparently insufficient and the scope of and services provided by present movie-showing units are unable to meet the huge market demand. Such market growth potential and investment opportunity in the movie industry are attractive to overseas investors.

Admittance of foreign investment into the cinema industry. Cinema construction and operation are currently classified as Restricted Foreign-investment Industries. Chinese law restricts foreign investors from investing in such fields by raising requirements regarding the method of investment, the equity ratio, registered capital, duration of operation, etc. The present regulations can be summarized as follows: 1) limited to joint venture and Sino-foreign cooperation, where the controlling shares of the joint venture cinema shall be held by the Chinese side; 2) having registered capital of not less than Rmb6 million; and 3) the term of the joint venture and Sino-foreign cooperation shall not exceed 30 years.

In addition, due to the close relationship between Hong Kong and Macau and the mainland, investors who are natural or legal persons of Hong Kong and Macau, if they fulfill the requirements set out under Chinese law, and have been verified as “service providers,” can enjoy special investment policies, including breaking through the limitation of the Chinese side holding to construct, renovate and operate a cinema in the form of joint venture, Sino-foreign cooperation or by foreign sole investment.

Application for examination and approval procedures for foreign investment. When compared with other foreign investment projects, the examination and approval procedures involved in cinema are stricter and more complex with more authorities concerned; additionally, departments in charge are those at or above the provincial level. In general, project approval shall be first applied for through the provincial development and reform commission; if there are no fixed assets involved, some areas might not require project approval from development and reform commission).

Then, investors must put forward a set-up or M&A application to provincial commercial departments. After requesting the consent of the provincial administrative department of films, the provincial commercial department will issue a Certificate of Approval for Foreign Enterprises Investment which shall be filed with the Ministry of Commerce, the State Administration of Radio, Film and Television and the Ministry of Culture.

Approved applicants shall bring the Certificate of Approval for Foreign Enterprises Investment to the provincial industry and commerce administrative department for registration, and when the construction and renovation tasks are completed with the acceptance by the relevant departments obtained, the applicant shall provide the certificate of approval for enterprise establishment and the business license to the provincial administrative department of films to apply for the Movie Screening Business Permit. In practice, the handling sequence for business registration and application for Movie Screening Business Permit might differ in different areas.

Hong Kong or Macau investors, who enjoy special investment policies with the service providers identity, shall be required to first verify and examine the identity of service providers.

The concept of cinema-line and admittance of foreign investment. Being a product of China’s movie screening mechanism reform, the term “cinema line” refers to a business enterprise which uses capital or film supply as a link to unify brand, schedule, operation and management, and is constituted by several cinemas. Cinemas normally join a cinema-line by equity or agreement arrangement. The industrial policy on foreign investment classifies a cinema-line company in the industry category which prohibits foreign investment; the relevant regulations also clearly ban foreign merchants from setting up a cinema line company. Foreign investors, including those of Hong Kong and Macau, are therefore unable to invest directly in the cinemaline industry in China.

As the development of the cultural industry ushers in a new round of development, China has gradually relaxed its foreign investment policy in the cinema sector, especially through granting extra privileges to Hong Kong and Macau investors. At present, some foreign investors are able to enter the cinema-line industry indirectly by cooperation, domestic investment arrangements and so on. In the changing market environment, it is important to respond to policy changes quickly and accurately, to foresee and control the legal and policy risk during investment process and to design and implement a feasible plan. The abovementioned forms of investment involve more complex Chinese legal issues; we suggest that foreign investors who would like to enter China’s movie industry seek a long-term relationship with an experienced Chinese lawyer.

Run Ming Law Office

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Chaoyang District, Beijing,

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