Xi Jinping film deals: Search for a Walt Disney of China?

When China's Vice President Xi Jinping departed Los Angeles Friday, he left Hollywood a happier place, having presided over two deals to allow more Hollywood films into China and establish a joint venture studio between DreamWorks Animation and two Chinese media entities to create movies for the Chinese market. [Editor's note: This sentence was changed to clarify Mr. Xi's role in the deals.]

The twin agreements will give US movie studios increased access to a huge market. China had agreed to allow 14 3-D and large-format films (IMAX) in each year on top of the 20 let in under a previous long-standing annual cap. In addition, foreign film companies will now be allowed to recoup 25 percent of the returns on those 34 imports as opposed to the old limit of 13.5 percent to 17.5 percent.

The joint venture may be the more intriguing of the two deals, because it builds on animation – an American strength and a medium that China is eager to exploit, for political as well as commercial reasons.

After the success of DreamWorks Animation's "Kung Fu Panda 2" last year – it grossed $95 million in China, more than in the United States – the studio hopes to tap into the nation's huge and underserved market and then re-export the films. For China, animation is a test balloon in the nation's growing media relationship with the world. Without the sex, gore and contemporary politics Beijing's censors deplore, animation is family-oriented and easily redubbed, making it safe and both importable and exportable, and thus likely to lead the charge in a trans-Pacific race for soft power – one that Hollywood's currently leading. 

"Family entertainment is naturally less subject to censorship and DreamWorks Animation, especially, knows how to entertain in a way that won't offend its Chinese partners," says Elliot Tong, producer and head of international business at the Tianjin North Film Studio, maker of China's most expensive cartoon feature to date, "Legend of a Rabbit."

While it's far too early to anoint a Walt Disney or Pixar of China, its animators are gaining ground with state protection and a little friendly Hollywood aid. In 2011, China produced more than 100 animated feature films, two dozen of which made it into theaters where they grossed 300 million yuan ($47 million), nearly twice the pot of gold cartoons reaped in 2010. Estimates point to more than half a million Chinese studying animation and about 20,000 professionals already making a living at it in specially designated animation zones, such as the one in Tianjin, that enjoy government subsidies. Disney has partnered with Creative Power Entertaining of Guangdong, another such zone in south China, to help overseas promotion of its TV cartoon hit, "Pleasant Goat and Big Big Wolf," which is the most popular animated offering on state-run TV.

Overall movie ticket sales have doubled here over the last two years to just over $2 billion in 2011.

Plenty of obstacles remain, however, before Chinese animators are ready to take on the world. For one, they haven't produced a blockbuster. The 3-D feature "Legend of a Rabbit" cost $12 million to make but grossed only $2.4 million in a limited release last July. One of DreamWorks's new partners, the Shanghai Media Group (SMG), is pushing a wide release of a 3-D version of the 1961 cartoon feature "The Monkey King – Uproar in Heaven," despite poor reviews.

Nowadays, SMG has little credibility in cartoon production, industry observers say. It is known instead for live action films with approved messages but thin profits such as director Jia Zhangke's acclaimed "Still Life," about the Three Gorges Dam, or actor Jackie Chan's epic "1911" about the fall of the Qing dynasty. However, Mr. Tong says he's not surprised DreamWorks has partnered with SMG, whose distribution channels are what helped "Pleasant Goat and Big Big Wolf" become such a widespread hit. 

"Two parties to a deal don't have to be equal in every area. It's clear that DreamWorks has the creative edge, but SMG has the distribution network already paved," Tong says. "What's more, they're internationalists." For his part, Tong recently sold "Legend of a Rabbit" to a North American distributor at the Berlin International Film Festival and has a sequel in the works for 2013.

Whereas Japan has long been known for its animation – from the late-1960s anime TV series "Speed Racer" to Hayao Miyazaki's "Spirited Away," the first anime film to win an Academy Award – China's animation is virtually unknown overseas. There were no independent animators, only those working for state media until 1992, when five Peking University scholars set up the nation's first independent animation group. Interest is picking up. 

"We're getting more applications, but we still have to train them in-house," says Wu Hanqing, chief executive officer of the company, Vasoon. "China still just doesn't have the animators."

Once DreamWorks Animation sets up shop in Shanghai – as Oriental DreamWorks – many of China's animators wonder: Will they employ us or destroy us? 

For many foreign filmmakers eyeing China, their greatest interest is in the chance to co-produce Chinese-themed films (employing local cast and crew) and getting an even greater share of the box office and a guaranteed release. But there's a drawback: They give up creative control as Chinese regulators retain the right of final cut. DreamWorks's other partners are China Media Capital (an equity fund backed by SMG, the state-owned China Development Bank, and an information-technology fund set up by entrepreneur Edward Tian) and Shanghai Alliance Investment (an investment arm of Shanghai's municipal government). 

DreamWorks is following a path other Hollywood studios have explored with mixed results. Whereas Sony, Disney, and Fox have co-produced films in China as one-offs, some with independent studios, and Fox and Disney continue to do so (with a few modest successes, though none in animation), it is Warner Bros.' joint venture with the state-run China Film Group that the DreamWorks-SMG deal most resembles at first glance. That entity, created in 2005, is now all but defunct and produced no animation that made a splash. It had but one live action film, the caper "Crazy Stone," that had substantial success in China. 

"Government subsidies will never drive market development, because they're disconnected from the quality of one's work," says Ms. Wu of Vasoon, the independent animation company. "The government's made the right noises, but its animation propaganda hasn't changed." 

Last year, Vasoon debuted its own $7 million feature, the anime-esque adventure "Kuiba," – about a boy discovering his powers to fight evil – without subsidies. Though "Kuiba" grossed less than $1 million in the brief release allotted it by wary exhibitors, Wu is encouraged by the film's 30 million unique Internet downloads. The company now has cut it for television and developed related comics, T-shirts, and toys. It's also developing a sequel due later this year.

"With international studios arriving, China's industry will speed up," she says. "We're doing what DreamWorks does, only with fewer people." [Editor's note: This paragraph was changed because Wu clarified her statement after this article was translated back into Chinese.]