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Digital Hollywood: China, Hollywood relationship strained but still valuable

The days of major Chinese investment in the U.S. film business are gone, and restrictions on U.S. participation in China are as stringent as ever, entertainment investment experts said during a Digital Hollywood panel.

"If I want to go to China because there’s money there, that's the wrong attitude. You just have to want to be there," Bennett Pozil, a corporate banking executive vice president at East West Bank, said during a panel discussion at the event focused on digital entertainment.

Pozil has built a film and entertainment investment team in China over the past seven years. The work has centered on building trust, developing communications and expanding relationships. He and other panelists agreed: A significant amount of cultural and social groundwork goes into a successful strategy.

The Chinese film business has exploded over the past two decades, with the country going from a negligible number of theater screens in 2001 to over 50,000 screens in 2016, more than the U.S. While the entertainment boom is clear, today the opportunities are not as prolific as they were years ago. Cultural challenges abound and local investment laws limit the amount of foreign participation in the industry, leading one audience member to ask what incentive there is to invest in the Chinese film market in the first place.

While the market may be difficult to break into, it is still young, and the industry still offers a level playing field for entrepreneurs of all stripes, Larry Namer, founder and CEO of China-focused production company Metan Global and founder of E! (US), said in response to the question. It is still largely an open and collaborative market, even considering the many hurdles U.S. companies must overcome to be successful, panelists agreed. However, creating a successful film or entertainment business in China requires years of dedication.

The less bullish tone on Chinese film investment comes after years of money flow between the two countries, with major changes occurring in the last year and a half. While U.S. participants try to navigate China's increasingly closed film industry, Chinese investment in U.S. film has also suffered.

"The days of the big corporate deals … are now a thing of the past," Robb Klein, entertainment, advertising and technology chair with law firm Sheppard Mullin, said during the panel.

After big deals between massive conglomerates like Dalian Wanda Group Corp. Ltd. and Hollywood, the Chinese government tightened its restrictions on such foreign investments. Deals are now increasingly contingent on proof of offshore finances and, for films entering China, on passing censorship approvals ahead of time.

However, while the big blockbuster deals are challenged, Klein said smaller opportunities are still available for U.S. investors willing to put in the time and energy to build a presence in China.

Lianne Hu, president and CEO of Chinese production company Hus Entertainment, agreed. She is currently working on a project featuring major U.S. talent but largely crewed by local workers. In doing so, a film that would usually cost about $40 million in the U.S. only cost about $15 million in China, she said.

"The production value of shooting in China is tremendous," she said.