China to Create $800 Million Tax-Free Entertainment, Culture Hub in Beijing

China Hollywood Studio - P 2013

China Hollywood Studio - P 2013

The tax-free "culture zone" will include TV and film facilities and is modeled after the "special economic zones" that made the country a manufacturing superpower.

A state-backed Chinese media conglomerate is planning to create a new $800 million, tax-free arts and entertainment hub in Beijing in the hope of giving the country’s gradually growing culture industries a jolt.

The so-called “Beijing Freeport of Culture” is the creation of Beijing Gehua Cultural Development Group, a company owned by the Beijing municipal government. Located next to Beijing Capital Airport, the culture zone will include film and television production facilities, fine arts storage and offices for companies involved in a range of creative businesses from luxury goods to software design, according to a Wall Street Journal report.

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Gehua’s ambition is to plant the seeds for a culture-industry hotbed in the Chinese capital that boasts elements of Hollywood, Silicon Valley and New York's Chelsea District all in one commercial compound, the Journal said. The company hopes to attract upward of 50 companies -- half of them foreign, half domestic -- to do $8 billion (50 billion yuan) worth of business at the Freeport by 2016.

Such specially designated tax-free economic zones were integral to China’s opening to global capitalism in the 1980s and ’90s, when demarcated business districts were set up in the Southern city of Shenzhen and the Pudong section of Shanghai to foster the country’s then-nascent manufacturing sector. But this will be the first time China is attempting to implement the tax-free, infrastructure investment model of "economic zones" to facilitate growth in the less predictable arts and culture sector.

Boosting cultural influence abroad has been a key policy initiative of the Chinese government for years as the country looks to bring its “soft power” more in line with its newfound economic might.

China’s film market surpassed Japan last year to become the world’s second largest with box-office sales of $2.7 billion. But foreign films, largely led by Hollywood blockbusters, accounted for more than 50 percent of the annual revenue haul for the first time in 2012. Chinese domestic films have made a stronger showing in recent months -- road comedy Lost in Thailand and Stephen Chow’s Journey to the West both pulled in more than $200 million domestically -- but exports continue to founder internationally. After setting an all-time domestic box-office record of $202.6 million in China, Lost in Thailand earned just $57,000 during its limited run in North America.

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Gehua, which is closely linked to China’s culture ministry, is hoping the new economic zone will lure creative talent from abroad into the Chinese capital and create the conditions conducive to stronger cultural exports for the international market.

"The government and our group had the idea to export culture to the world," Wang Yudong, general manager of Gehua, told the Journal at the company's headquarters in Beijing. "Already, there's a government policy for free-trade areas. We're just applying it to culture."

But Gehua’s ambitions have generated some skepticism in Beijing.

Ji Tao, a researcher with the Auction Research Institute of Central University of Finance and Economy in Beijing, told the Journal he thinks it's foolish to assume creative industries will sprout the same way low-cost manufacturing did in China's special economic zones in the ’90s.

"This is a new concept made up out of nothing," Ji said. "A Freeport is for industrial products, which need to be processed with raw material inputs. But culture isn't like this."

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Gehua is major player in various areas of Chinese media and entertainment. The brand is best known to Chinese consumers for its cable and home Internet subsidiary, which is the dominant web service provider in Beijing. The company also has a TV and animation production businesses and helps manage major events for the government, such as the 2008 Beijing Olympics and Beijing Design Week.

In 2012, Gehua secured Sotheby’s as its first foreign partner at the cultural Freeport. Sotheby’s was given an 80 percent stake in a new, jointly held auction company that will operate out of the facility, according to the Journal. The Sotheby's China deal marks the first time a foreign auction house has been given an opportunity to co-own its own operations in China.

So far no foreign film and TV companies have been linked to the project, but it’s understood Gehua will be actively recruiting new partners throughout the year ahead.

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