By GUO Guiying Tang lingxiao Elaine Wang King&WoodMallesons’ Antitrust & International Trade Group
On June 19, 2014, seven departments including the Ministry of Finance, National Development and Reform Committee, People’s bank of China, State Administration of Radio Film and Television jointly announced “The Notice of Economic Policies Supporting the Development of Film Industry” (“Notice”). Comparing with earlier policies, the recent policies have provided support in taxation, financing, and land use with full consideration of each step along the movie production chain. The main points of the “Notice” include:
a. One hundred million dollars to support boutique movies: According to the “Notice”, not only would the government enhance the use and management of film related funding, it will also increase the support towards boutique movies. The Central Ministry of Finance will continue to arrange specific funding for boutique movies to foster its production. Each year, one hundred million dollars will be granted to support 5 to 10 influential movies which have passed individual reviews.
b. Support the application of high technologies with movie production and development of high tech hubs. Arrange specific funding for film development within the cultural sector with 5 elements: i. Develop the application for high technologies within movie production. ii. Support Chinese film industry to go abroad. iii, Support major film industry projects and high tech hub development. iv. Fund major films with strong markets. v. Enhance web development for movies with professional focus.
c. Fiscal policies to support the film industry. It’s difficult for film industry to obtain bank loans due to its lack of physical assets. The Notice encouraged banking and financial sector to develop new loan products for the film industry. At the same time, “The Notice” will support the banking and financial institutions according to development stages and fiscal needs of the film industry. It will effectively connect mortgage and loan business with clearing business, international business and investment banking. It will also combine banking with retail, asset management and middle businesses. It will encourage banks, investment funds and insurance industry to provide multiple financial platforms for the film industry.
“The Notice” did not mention the heated discussion around “completion guarantee” as a popular financial tool in Hollywood. Completion guarantee still has its obstacles in its application in China. If it is possible to integrate insurance business into film development policies and enable insurance industry to become an effective pillar of the film industry, then it will further foster the development of young directors and Chinese film industry.
d. Preferential tax policies on the film industry. From January 1, 2014 to the end of 2018, no Value Added Tax shall be levied on the income generated from the sale of film copies (including digital copies), the transfer of copyrights, the distribution of films and the showing of films in rural areas. The general tax payer who provides film projection services could apply simplified method when calculating the Value Added Tax according to the current policies.
e. Encouragement of the builds of cinemas. Multiple methods including Land use policies have been applied in encouraging the builds of cinemas.
The current policies took full consideration of all stages of the film production chain from production to final showing. The Korean government’s success in protecting its domestic film industry can be a good example for China. For instance, directors have more freedom when producing the films since the film censorship is replaced by film rating system. The Korean government implements the Screen Quota system, demanding that cinemas and TV stations should show or broadcast domestic films for at least certain amounts of time. Finally, it is worth mentioning that “The Notice” indicates it will enhance management and seeks to resolve new issues promptly.