No sooner was March over, the China Puppet Theatre publicized its posters advertising its upcoming shows in May in office areas around downtown Beijing. The shows will debut during the May Holiday long weekend with ticket prices ranging from 80 Yuan to 380 Yuan. The posters state in block letters: “Three Days Only; Get Your Ticket Now While Available.” The poster depicts a few color flash figures gazing at people rushing in and out of elevators, waving and smiling.

Indifferent as these people looking at the poster seem, they are hardly unfamiliar with those figures; a bit foolish-looking, yet happy and friendly “Pleasant Goats” and “Big Big Wolves.” During the previous lunar New Year, Pleasant Goat and Big Big Wolf generated 90 million Yuan in box office revenue compared with its small investment of 6 million Yuan. The derivative film was adapted from the popular cartoon series, which has expanded with increasing popularity compared with its previous works, which have accumulated over the past four years to its largest level in the Spring Festival 2009. Based on its past success, another derivative product of the Pleasant Goat and Big Big Wolf, a puppet show titled Pleasant Goat and Big Big Wolf - Memory Thief, has naturally found its way into a puppet theatre and has begun its promotional efforts two months before its premiere.

The producer of the series, Guangdong Creative Power Entertaining Co., Ltd., has been another fortune’s favorite since China began to shore up the development of its homegrown animation and cartoon industry. Since the policies have provided great, favorable treatments of original animated works and the producers thereof, a number of opportunity-sensitive investors and business entrepreneurs have made a prompt response and joined the legions of animation producers and operators

New policy guidelines aroused concern

“For instance, animation and cartoon companies in Hubei started their business around 1999,” said Zhang Lin, general secretary of the Hubei Animation and Cartoon Industry Union, adding that “at that time there was only one such company, which entered the segment as a start-up business. Up until now there have been 50 to 60 animation and cartoon enterprises, mostly founded around 2006-2007.”

This boom is attributed to a number of stimulus policies adopted by the government to promote the development of the domestic animation industry. On April 20, 2004, the State Administration of Radio, Film and Television (SARFT) released the Several Opinions on the Development of China’s Animation and Cartoon Industry, ordering television stations at different levels to cap their broadcasts of imported animations to 40% of the total number shown. On September 13, 2005, the SARFT released another circular, prohibiting any broadcast, in columns of whatsoever nature under the pretext of introducing imported animations, of uncensored imported animations.

The Measures on Management of Certification of Animation and Cartoon Enterprises (Provisional) (the Measures), which became effective on January 1, 2009, has provided new preferential policies for these animation enterprises. Now, an enterprise may apply for certification as an “animation enterprise” if certain conditions are met, or a “key animation enterprise” if further requirements are met.  Accordingly, products that meet the requirements for independent development may be reported as “animation products,” or “key animation products” if further requirements are met. Any enterprise that has obtained the above certification may receive preferential treatment, including tax exemptions from local governments in accordance with the Circular on Several Opinions of Promoting Development of China’s Animation and Cartoon Industry.

What were the reactions to these policies? Are its criteria appropriate? According to a poll jointly conducted by this Magazine and the Hubei Animation and Cartoon Industry Union，half of those polled said that it is relatively hard to meet the two certification criteria in the Measures, namely, “the income from originally developed animation and cartoon products accounts for more than 50% of the total primary income” and “the investment in research and development of animation and cartoon products accounts for 8% of the total revenue of the business.” However, almost 100% of those surveyed said that if the criteria applied to their own business, they would not meet some of the requirements currently, but they expressed their confidence in meeting the criteria in the near future.

Surely, there are different opinions. Chief Designer Ma Guilin with the Xiamen Huaxiang Animation Comic Co., Ltd. ,said, “Whatever the criteria are, we are in the animation business because all of our revenues are generated from the sales of animation and cartoon products. However, in light of the certified types of enterprises, we are not qualified as such. We are an operational institution of cartoon products, an agency of animation and cartoon magazines. Therefore, we don’t fall into any enterprise type as stipulated in the Measures. We are not a key animation and cartoon enterprise as stipulated in the Measures either, because the volume of our exports is nill.”

He added “I believe that based on the criteria of the cultural products with their own IP rights and the volume of IP rights, not many enterprises may qualify as key animation enterprises, particularly for cartoon-related enterprises.”

Zhang Lin disagreed, saying that the criteria to certify an animation enterprise or product are not the most important issue. “I think, a policy under discussion shall not consider guidance on the basis of result, but guidance on the basis of process. Anyway, the development of an enterprise depends on the invisible hand of the market. If the policy guides on the basis of result, then enterprises might try all means, fair or foul, to get results and advantages.”

Will enterprises respond to this emphasis on originality?

In addition to qualifications for animation enterprises, the Measures also emphasize original products. Originally developed and manufactured animation and cartoon products refer to those originally created, researched and developed, designed, manufactured, produced, and staged into products (excluding derivative products) as stipulated in Article 5 of the Measures. Products that are made from simple repackaging, simple imitation, or simple outsourcing and are devoid of IP rights or core competitiveness are excluded.

All of the enterprises polled think that this will deliver a blow to outsourcing and OEM (Original Equipment Manufacturer) services. As for the facilitating effect on the development of original products, opinions differ from enterprise to enterprise. Some think original animation and cartoons will be greatly promoted, while others think that original animation and cartoons will be somewhat accelerated at most.

The majority of Chinese animation enterprises are in the initial stages of development, depending on OEM services to survive. Animation OEM services from Japan and the United States have helped some enterprises in China to survive and grow. However, with the rise of domestic labor costs and the impact of the financial crisis, animation enterprises are receiving fewer OEM orders. Zhang Lin estimated that only 20% to 30% of animation enterprises engage primarily in OEM services and the rest, 50% to 60%, are original producers.  However, since the majority of them are small and medium-sized enterprises, they are not financially stable.

Many enterprises share the understanding that “original creation is the road to development.” This road, however, tends to be bumpy. “The majority of small and medium-sized enterprises have difficulties surviving and have to maintain operations through training and receiving orders,” Zhang Lin said. “But they only manage to stay operational based on the above. OEM services do not need capital. By contrast, the production of original works, first of all, needs to manage the difficulties with capital.”

Ma Guilin put it more straightforwardly, “Those enterprises who live on OEM and training have been struggling in the market for years. They earn their living from the market and their customers, not from government policies.”

Is it possible for enterprises to produce a successful original brand first, and then draw on the successful story of the Pleasant Goat and Big Big Wolf?

“Impossible. Without capital injection, the filming of an animation cannot be completed. This belongs to a labor-intensive and knowledge-intensive industry,” said Zhang Lin. “The Measures are helpful to animation enterprises, but not that helpful. The ultimate reason why it is difficult for these enterprises to survive is a lack of capital. The history of some large companies in China explains everything, just like China’s Internet sector, whose growth is impossible without the participation of venture capital.”

Among some well-operated animation enterprises in China, Sunchime Cartoon Group, the producer of 3000 Whys of the Blue Cat, was established by Wenzhou businessmen, nicknamed “the Chinese Israelis.” While the board’s chairman of the Zhejiang Zhongnan Group Animation Video Co., Ltd. came from the real estate sector, he had no financial difficulties. All of this seems to have verified Zhang Lin’s opinions.

Different conditions, different reactions

On March 30, 2009, Premier Wen Jiabao reiterated efforts to shore up the development of China’s animation and cartoon industry during his visit to the Animation and Cartoon Industry Base in Wuhan. He visited the Jiang Toon Animation Co., Ltd. (Jiang Toon) which, as mentioned by Zhang Lin, is the only enterprise to first engage in the animation and cartoon sector in the city. Ten years ago, this enterprise started its business through OEM, but now the enterprise has started down the road of originality.

“We plan to apply. Jiang Toon Animation shall be identified as a key animation enterprise in accordance with the Measures.” Zhao Liang, director of Office of Jiang Toon, made the above remark in a confident manner in response to a question of whether the company had “any plans to apply for an animation enterprise.” He also said that “the Measures will better the overall climate of the animation and cartoon sector, and will accordingly promote the development of small and medium-sized animation enterprises.”

However, he did not deny the fact that the animation and cartoon industry was “a sector intensive in capital, talent, and technology, with a long investment-return period. An enterprise will not grow bigger depending only on itself.” As for OEM, he said that OEM and originality have their respective roles. “OEM may bring direct cash-flow for the enterprise to ensure a demand for cash. However, any enterprise that intends to grow bigger and stronger needs to be accelerated by original brands.”

As for supportive policies, Jiang Toon is in great need of support for its production of original, long animation and cartoon works. On the contrary, Ma Guilin, who specializes in animation and cartoon works, said smartly, “fair competition is fine. A mentality able to respond to the entertaining properties of cultural products in a more open manner is also necessary. Favorable tax policies and support funds are not the most effective way.”

Zhang Lin, who represented small and medium-sized enterprises, emphasized the importance of a capital chain. “It is important to encourage government and private to investment in the sector. In so doing, companies with a team and projects will grow fast. The previous practice of judging animation development by the number of programs must be discontinued, because the practice just saw the results, but overlooked the process.”

He thought that “support from state policies must be considered in four aspects, namely, capital, industry chain, contents, and transmissions. As for capital, policies may encourage venture capital investment or encourage investment from traditional manufacturers.  As for industry chain, China may learn from Japan and differentiate between producers, distributors, operators, and derivative companies.  As for contents, policies must increase purchases from TV stations and encourage more animation and cartoon productions.  As for transmission, China may purchase originally produced animation and allow them to be broadcast by foreign TV stations for free.”

(Translated by Wang Hongjun)