The Awakening Giant

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I have been asked a good many questions over the years about my experiences living and producing animated films in China. In response, I often reply that explaining China is analogous to the old saying about the three blind men trying to describe an elephant. Each man touches a different part of the elephant and so their descriptions are extremely varied.

A great deal has changed since I first went to China in 1985. I believe to try to understand what is presently happening in the animation and television industries in China, you must begin by looking at the larger picture, the country itself. China is a country of 1.5 billion people living under a political system that can be highly schizophrenic and at times, paranoid and xenophobic. `A mystery wrapped up in an enigma,' to paraphrase another old saying. The growth of the animation and broadcast industries in China is reflective of the overall changes that have occurred in the economy specifically, and throughout Chinese society in general. These changes are still on going and are basically driven by China's desire to become one of the leaders in a global economy. More simply put, China wants their slice of the pie and they realized that to do so, they needed to modify their political philosophy to accommodate their economic goals. Remember, the Chinese have only been Communists for fifty years, while they have been pragmatists for well over two thousand years.

Deng Xaioping and the Open Door
Arguably no individual was more influential in China's change of direction than Deng Xaioping. He emerged from great disfavor during the Cultural Revolution to become China's Paramount Leader and most energetic and influential adversary for economic and social change. Somehow he walked the very thin line of advocating the development of an open, market based economy, while still upholding the basic tenets of a socialistic society. Not an easy task. Under Deng's leadership China's economic policies began to shift noticeably in the early Eighties. Special Economic Zones (SEZ) opened in Shenzhen and Zhouhai in Southern China and others followed around the country. These zones were established to provide foreign investors specific areas to build factories and plants and establish headquarters for service based joint-venture businesses. Tax incentives were offered along with beefed-up infrastructures and relaxed customs regulations, all meant to entice foreign investment and new technology into China.

Early Animation Production in China
When I arrived in China in 1985 I had few expectations of finding a studio able to handle the production I was producing. At that point in time Asia already had a number of successful studios spread throughout Taiwan, Japan, Korea and beginning in the Philippines. My client however had specific reasons for wanting to place the work in China. The financial group backing the film had other ventures in China and were seeking ways to use their potential RMB (non-convertible) profits to produce a product that could be exported and sold for hard currency outside of the country. In other words, the film had to be produced in China.

At that point in time there were really only two animation studios to be considered. Shanghai Animation Studio and Jade Animation in Shenzhen. Shanghai Animation was a state-owned and managed studio which produced films for the home market. The company had been in existence for a number of years and had a number of talented artists but they were not familiar with western animation techniques or timing. Also, being the quintessential state-owned company, the bureaucracy was so thick you could cut it with a knife. The other studio, Jade Animation, was a new joint-venture company located roughly 60 miles from Hong Kong in the new Special Economic Zone in the city of Shenzhen. Jade was owned and operated by a large broadcast group in Hong Kong (TVB). It had been established to produce animation for TVB and provide ink and paint services for numerous Japanese studios. Neither of these studios felt right for the project I was to produce. Jade was primarily an ink and paint service lacking animators, while Shanghai Animation was too entrenched in the bureaucracy of a state-owned company.

As things turned out, we ended up producing our project at a start-up studio located in Guangzhou (Canton). The studio was a joint venture between Shanghai Animation which supplied the artists, The Pearl River film company which supplied the facility and a Hong Kong partner who supplied the money.

In the ensuing fourteen months I experienced more ups and downs than I can recount. The majority of artists were young and away from home for the first time, while trying to learn new techniques and meet a set of requirements with which they were not familiar. Looking back now at that experience, I am surprised that we were able to accomplish what we did. The film was finished after much delay and sold to The Disney Channel, BBC and a number of other distributors. Sadly, the effort all but destroyed the studio. The operation was a success but the patient died. After the completion of the film the Hong Kong partner withdrew its financial support, citing heavy losses on the project. The remaining Chinese partners then asked if we wished to take the place of the departed Hong Kong partner in the joint venture. After giving due consideration to this offer, we decided that we would be better served to start fresh and build a new studio from the ground up.

In late 1987 Pacific Rim Animation received a license to open for business within the Shenzhen Special Economic Zone. Obtaining the license as a wholly owned foreign company was another story unto itself. To this day I am not absolutely sure how we did it, but I do know that the process rivaled any grand opera in the machinations that were undertaken to accomplish it. To my knowledge this was the first, and to this day, the only license granted to any company in the film business to operate in China without a local partner.

In the following seven years Pacific Rim Animation produced over 500 half-hour animated shows, worked on three feature films and several television/video special projects. At one point the studio employed nearly eight hundred people and was the largest studio in China. I believe the company played a seminal role in the development of the animation industry in China; although those who followed probably learned more from my mistakes than they did from anything else. Within three years a number of joint venture studios began to appear on the scene and the growth of animation production in China was well underway.

The Current Status
Today the animation industry is well established in China. Five or six large studios dominate, but there are perhaps as many as 80 small studios spread throughout the mainland. Many of these are subsidiaries of broadcast groups or other media companies. The industry has more or less centered itself in and around Shanghai with studios spread widely over a several hundred mile radius of the city. In the small town of Suzhou there are two of the largest studios, Wang Films Shouzhou and Hong Ying (Red Eagle), plus a number of small office branch studios of other companies. Both Wang Films and Hong Ying are Taiwanese and have auxiliary studios in Shanghai, as well as operations outside of China. Wang Films, possibly the most established of all Asian studios, operates in Taiwan, Thailand and Indonesia as well as China. Shanghai itself has a number of studios including the patriarch Shanghai Animation and Shanghai Morning Sun, another Taiwanese venture. Shanghai Animation has now opened an auxiliary studio created to compete for overseas production. Hong Kong Animation Services is yet another producer of animation in the area and employs a group of satellite studios set up in cities surrounding Shanghai. In the southern city of Shenzhen, the industry is still very well represented by two other large studios, Jade Animation and Colorland Animation. Both of these companies are Hong Kong joint ventures and compete with several smaller studios which are either state supported (Oriental Hong Ye - CCTV) or Japanese operated satellite operations (Rising Sun Animation), working exclusively for parent studios in Japan.

The major change I see within the industry in China over the past fourteen years is the increase of talented artists, directors and production staff available to the studios. In the beginning, like any new industry, there wasn't any staff available who didn't require a good deal of training. The mediocre quality of work in those early years reflected more the animator's lack of experience than anything else. As in Taiwan, Korea, Japan and the Philippines before, Chinese animation has matured and grown with time. Studios have learned what their clients expect and have now had the time to both train and polish their staff so as to deliver what is expected. Management has also matured and technology has been embraced to help the studios produce large volumes of work within demanding time frames. Nearly all of the large studios offer digital ink and paint services which remedies many past problems caused by sub-standard film laboratories and poor camera equipment.

In summation animation production in China is alive and doing very well. The cost factor is still favorable for labor when compared to Korea, Taiwan and certainly Japan. The number of animators has grown substantially over the years and with the largest population in the world today, it seems that the talent pool will continue to grow to fill any foreseeable needs of the industry.

If there is a downside I would only say that the animators in China must become more integrated with the product they are producing. The system of paying artists in China is similar to the systems used throughout Asia in television animation. Animators, background and layout artists are given nominal salaries but really make their living on a piece rate or footage system. In other words, the more they produce the more they earn. This system is effective but has some built-in problems. If artists feel no connection to the work they are doing and derive no pride or enjoyment from their efforts, they will naturally produce at the lowest and fastest possible level of acceptance. While this is unfortunate, consider if you were asked to make a film in a language you couldn't understand, had no idea what the story was about, and never saw your work fit into the final product after you were finished. Further consider that for most of your life you had little or no knowledge of the humor, history or art of the culture for which the film was intended. Unlike Japan, Taiwan, Korea or the Philippines, China has only recently been exposed to our culture. I believe however that this problem is solving itself as young artists continue to come into the industry, and as long as China keeps its window open to the world.

Television and Cable Industries in China
If the animation production business in China has grown and matured, the broadcast side of the business has shot off like a rocket. New broadcast groups are forming daily and Chinese television, once a wasteland of tractor repair programs and Communist Party talking heads, is reinventing itself feverishly.

During my early years in China I often watched CCTV (Central Television) for a lark. If I had understood Mandarin (all CCTV is broadcast in Mandarin), I could have learned a great deal about how to cure swine diseases, increase the yield of my rice crop, better serve the Communist Party or decrease the rodent infestation in my city or town. If I wished to be entertained I might get lucky and see some ballroom dancing, acrobats or watch a lady in a People's Liberation Army uniform sing an uplifting song about a hero of the revolution. I was often glued to the set.

The Chinese television system was simple. You had CCTV broadcast throughout the country on one and then later, two stations. Secondly, you had provincial television stations which, if possible, were even more bland and unexciting, broadcasting local programs and controlled by provincial government agencies. The key word here is controlled. In a country where no one was quite sure from day to day what was permissible, risk-taking was not a trait to be encouraged. All local broadcasters took their cue from CCTV, and Central Television walked and talked nothing but the straight and narrow party line.

Today, hundreds of television stations now compete with one another across China. CCTV now has 12 stations in its network and last year reported revenues of 2.8 billion RMB (divide by seven for dollars). Shanghai Television has its own Sesame Street show for kids, in Chinese. Chinese broadcasters are showing up at NATPE, MIP, Annecy and other television markets around the world appearing ready to do business. Chinese agencies are even inviting outside industry trade delegations to visit and help promote the growth of the industry within China. What's going on? What happened to all those great shows on tractor repair and where's the guy who used to urge me to stay on the socialist path? Well, I think they're still around somewhere but they've been lost in the explosion of programming that is sweeping across this huge and ravenous country.

Before I attempt to explain why I believe this has happened, let me first touch on the new broadcast groups themselves. First and still the leader, is the official broadcast arm of the Chinese Communist Party, our old friend CCTV. Central Television is the BBC of China. It is operated by the Central Government and has by far the largest footprint within China. Now expanded to 12 stations, it generates revenues from advertisers while continuing to receive government funding. Being the official government television broadcast group, it has the advantage of producing more original programs than the other network groups with the Bureau of Radio and Television Broadcasting doubling CCTV's budget for new programming from last year. Next, as far as size, is probably the City Wireless Network which pieces together over 200 stations throughout China. This group consists of many provincial and city broadcast stations and has grown a great deal in a short amount of time. Possibly the most aggressive and popular broadcaster in China is Shanghai Television. A second broadcaster in the same area is Oriental Television, also based in Shanghai. Both of these groups are also government controlled but operate with greater entrepreneurial freedom. Following the Shanghai groups are Beijing Television and Guangdong Television which have strong local followings in their regions.

The Almighty Dollar
All right, you may ask, but how do all these broadcasters work? Well, to start with, they are all somehow attached to the government on some level. Either they are part of the Central Government like CCTV, or they operate under the auspices of provincial, city or town broadcast bureaus. How tightly they are controlled depends on where they are and to whom they answer. Their funding comes in the form of government subsidies and more and more from advertising revenues. In a way, these groups are not unlike the PBS Network here in America. They are supported by government subsidies, instead of corporate grants and public endowments, but they all look to secondary advertising revenues to grow and prosper.

Returning to a point I made earlier in this article, to understand how any of this works requires that you first understand the compromises China has made in its political philosophy in order to achieve its economic goals. The Chinese explain the return of Hong Kong with a slogan: One country, two systems. What that means is that it's permissible to adopt capitalistic ways of doing business as long as the result is deemed to be for the long term good of the country and the party. Hypocritical? Confusing? You bet, but that's the way it is.

Looking at a few more numbers should shed some light on what is happening in the Chinese broadcast industry. Begin with this, China has a population of over 1.5 billion people and within that society nearly forty percent of the households now have televisions. Further consider that now the Chinese economy is growing by leaps and bounds, many of the people in those households have money to spend on products and services that advertisers want them to use or buy. Bingo! The very same thing that grew the television industry in the U.S. in the Fifties and Sixties is now happening in China; over 1.5 billion potential consumers sitting in front of television sets waiting to be entertained, informed and sold a better bar of soap.

Remember the old barter system where producers, advertisers or their advertising agencies would finance a program and give it away to stations in exchange for air time they would use to advertise their product? It is now a common practice in China. In exchange for the rights to broadcast a program you can split three minutes per half-hour with the station and sell your Golden Ox face cream, Great Wall beer or Flying Pigeon bicycle. Stations and network groups all over China are in a frenzy, swapping programming and advertisers, with the same intensity as commodity traders on Wall Street. Does this sound like Capitalism?

And where do all these advertising dollars (RMB) come from? A good deal comes from you and me. A recent article in the International Herald Tribune estimated that our trade deficit with China will surpass Japan's next year. The late Deng Xaioping would be delighted.

Chinese Business Philosophy
Returning to television, what's all this mean to foreign companies who desire access to sell their programs and their products in this ever expanding market? For the most part, I think this will be a very long and very difficult journey for the large majority trying to establish themselves in China. I believe many will try because the potential is so great, but I fear most will not achieve great success in the near future. My views are based upon my personal experiences in China, and my understanding of the society and culture. I have seen too many business ventures start with high expectations and smiles all around, only to die slowly in an ocean of frustration. I know that many large broadcast groups, both American and European, are negotiating for broadcast, satellite and cable deals within China at this time. I wish them success, but I will be truly surprised if they receive any substantial concessions from Chinese broadcasters or media groups.

I believe the Chinese side knows exactly what cards they hold and the huge potential of their own market. China will solicit help from the outside in order to build their industry, both in technology and financing, but forget about them giving away the farm. Remember, no matter how you view these broadcast groups, they are still under the control directly or indirectly of the Chinese government. They might appear eager to deal but they will always have a very specific agenda which is a mix of culture and politics. In China there is no win-win business philosophy. There has to be a winner and a loser. For a number of years in Hong Kong, there was an advertising campaign of television spots to promote a very expensive brand of French cognac. Though it was a series of commercials made over the years, they all conveyed the same theme. A Hong Kong or Chinese business man was closing a deal with a foreigner. The foreigner was always depicted as brash, loud and not very bright. In contrast, the Chinese business man was always cool and patient. The deal was negotiated and the foreigner gloated, thinking he had got the better part of the deal. Of course there was always the closing tag, where the Chinese business man disclosed his hidden agenda. His foreign adversary was always left stunned and embarrassed upon learning how he had been bested. The Chinese man then celebrated his victory with a glass of cognac and a smug smile into the camera. Doing business in China is difficult. The Chinese may at times walk like a duck and quack like a duck, but you've never met a duck as shrewd and patient as this one.

I want to add that despite the doubts I've expressed above, I would not exchange the ten years or so I spent living in China for anything. I have a great respect and admiration for the people of China and have numerous friends within the country. I believe my remarks are pragmatic and realistic and are based upon my belief that the Chinese are too intelligent and savvy to give away anything without receiving something greater in return. Remember the trade deficit. I also wonder if Western television product will travel as well in China as it has throughout the rest of the world. This is not to say that companies in other industries like McDonald's and Coca-Cola have not done well and that others will not succeed, but I can't help but believe that any major inroads by foreign groups into Chinese broadcasting will be a long time coming, and not easily won without paying a heavy price. The pot of gold is definitely there and it can't be ignored, but staking a claim will take perhaps more patience and perseverance than we possess.

Looking Back
So much has changed since I first traveled to China: the country has modern hotels, the economy is booming, you can eat and dance at the Hard Rock Café or grab a Big Mac if you're tired of noodles and dim sum. Animators no longer work for 50 dollars a week and you don't see any Mao jackets being worn on the streets. I almost want to say, "What a shame." China has changed and so have I. I continue to work on projects in China and still travel there quite often, but at times I miss the old, crazy days of building a studio and working with people who were so eager to learn, not only about animation but about different people and cultures. I retain very positive memories of those early years and I am very glad to have been there at the beginning.

Milt Vallas is an animation executive with over 30 years experience in the industry. He was president of Pacific Rim Productions and oversaw the operations of Pacific Rim Animation Studios in China and Manila for seven years. He currently is a consultant to a number of clients and specializes in the development, financing and production of animated projects. His company, Media Vision is located in Studio City, California.