China's booming movie industry is set for expansion when a second distribution company specializing in importing films is launched later this month.

The new company - Huaxia Film Distribution Company - will smash the decade-long monopoly of the China Film Group (CFG), a State-owned giant film-making and distribution company.

It is terrific news for large film companies overseas such as Warner Bros and Columbia Pictures. More of their products will be screened around the nation to 1.3 billion population, raising hopes of high returns.

Foreign films, especially films made by US moviemakers, are increasingly popular in China. Income generated from imported films accounts for more than half the country's annual revenue of 1 billion yuan (US$129 million).

Huaxia Film successfully registered itself last Tuesday with the State Administration of Industry and Commerce, a prerequisite for opening business in the market.

It is expected to be officially inaugurated this week or early next week in Beijing, the country's cultural hub where a large number of entertainment companies are based.

"This is why we chose Beijing rather than Shanghai as its base. We believe it can spur rapid development in the near future as the market potential is very promising," said Mao Yu, director of the information and distribution department of the Movie Management Bureau under the State Administration of Radio, Film and Television (SARFT).

He said the establishment of Huaxia Film is another milestone in the reform of the domestic film market following the establishment of 35 cinema circuits last year.

Cinema circuits refer to Western-style cinema franchises comprising a number of cinemas under one title that can operate in one or several regions of the country. The system was launched in the middle of last year as a way of reforming China's cinema system.

Liu Jianzhong, director of the SARFT's Movie Management Bureau, will head the new company as chairman but the general manager of the firm has still not been chosen despite a national recruitment programme.

Central regulators will also work out a detailed regulation allowing foreign companies to distribute domestic films.

The move will mark another breakthrough in opening up China's closely supervised film market, which has been reserved for State-owned companies in the past.

Mao said that some Hong Kong-based companies have already filed documents seeking approval.

"There will be some breakthroughs in this area very soon," said Mao, adding trial programmes are to be kicked off in Beijing.

"Overseas companies are already greatly encouraged by potential returns from China's promising film market."

With a registered capital of 60 million yuan (US$7.24 million), Huaxia Film will be backed financially by 19 institutional investors.

The largest shareholder is China Broadcasting Networks (CBN), which will take a 20 per cent stake.

CBN was founded in late 2001 and is the nation's largest media conglomerate. Its members include China's largest media institutions, including China Central Television, China National Radio, CFG and China Radio International.

Huaxia Film's major rival CFG will also take a 10 per cent stake by investing 6 million yuan (US$724,000).

Other stakeholders are leading Chinese film studios such as Shanghai Film Studio and Changchun Film Studio. They will each take a 10 per cent stake in the company.

But there are no private investors in the company in spite of the stated policy of the Chinese Government when it reformed the domestic film market three years ago.

SARFT teamed up with the Ministry of Culture in the middle of 2000 to devise a regulation urging rapid reform of China's film sectors.

The regulation states film distribution companies should accelerate shareholding reforms by inviting private investors to take stakes.

"We are considering plans to bring in some private investment in the next stage of the firm's development," said Gu Guoqing, planning director of the Movie Management Bureau.

Mao said they are even considering a public flotation on capital markets in the long run.

Huaxia will begin competing with CFG on the domestic film distribution market this month, but import rights will still be reserved for CFG's Film Importing Company, China's only company specializing in film importing.

"These two players will bid for distribution rights in a fair way," said Gu, adding the watchdog will take strict measures to ensure the healthy growth of the market.

He said the two companies will compete for the rights to distribute imported films via bidding, consulting and allocations from watchdogs.

"And the results in distributing domestic films is also an important benchmark when assessing foreign film distribution," said Mao.

CFG distributed 50 imported foreign films last year. Around 20-30 foreign firms will be released by Huaxia Film annually in the future.

The Movie Management Bureau is currently working out a set of detailed rules governing the allocation of imported films between these two firms.

"If there is ill-fated competition between CFG and Huaxia Film, we will reserve the right to make a final judgment," said Gu.

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