China Suspends Movie Distributor As Box Office Fraud Rocks World’s Fastest-Growing Market

SHANGHAI — China has suspended the license of a movie distributor after finding it guilty of major box office fraud involving falsified screenings and ticket sales. The case — involving the Chinese distributor of “Ip Man 3,” a Hong Kong martial arts movie — may fuel questions about the credibility of China’s box office, which has grown at a startling pace in recent years to become one of the brightest spots in the country’s economy.

The movie, directed by Wilson Yip and starring Hong Kong actor Donnie Yen as the eponymous martial arts master — and also featuring former boxing champion Mike Tyson — was said to have taken $121 million in mainland China by this Sunday, state media reported. However, suspicions were raised earlier in March, after it earned some 300 million yuan ($46 million) on its second day of screening alone — and around $78 million in its first four days — at a time of year when the market tends to be slack, according to Chinese media.

Investigations later revealed that some cinemas were running closely overlapping screenings of the movie, and sold out “ghost screenings" at midnight — with suspicions that many tickets had been “bought” by the distributor.

China’s official film bureau said in a statement that the film’s distributor, Dayinmu, also known as Beijing Max Screen, had “fabricated more than 7,600 screenings of the film,” and the company later acknowledged that it had bought some $8.6 million worth of tickets.

The company was ordered to suspend distribution for one month to “rectify malpractices,” the Shanghai Daily reported. Three online ticket agencies and 73 cinemas were also warned for their part in the fraud.

The scandal comes amid predictions by industry insiders that China’s movie box office is on course to overtake the U.S. as the world’s biggest market within the next two years, thanks to a fast growing middle class and a boom in multiplex construction that saw the country add more than 8,000 new screens last year. Takings grew almost 49 percent in 2015, to more than $6.7 billion, according to official figures — compared to just over $2.7 billion in 2012. In the U.S., meanwhile, last year’s $11 billion was only just higher than the previous record of $10.9 billion in 2013.

The boom has been widely held up as evidence that China is transitioning from a manufacturing-based economy to an economy focused on services. And China’s box office got off to another strong start to this year, with record daily takings of more than $100 million on the first day of the Chinese New Year last month (an increase of more than 50 percent on the previous one-day record set last summer), and more than $1 billion in the month of February as a whole. It was boosted by the success of "The Mermaid," a long-awaited environmentally-themed comedy from popular Hong Kong director Stephen Chow, which broke records by taking around $42 million on its first day and more than $300 million in its first nine days.

However, questions have long been raised about the credibility of the box office figures, in a nation where statistics are frequently questioned, and where competition is intense. The state film bureau said earlier this year it would launch a campaign against box office fraud, and the official China Daily noted that “authorities believe box office forgeries are common.” State media have said that some distributors are willing to spend money to break records, win headlines and attract more viewers.

Christopher Balding, associate professor of political economics at the Peking University HSBC Business School told International Business Times recently that while China's still-expanding middle class means it “makes sense that box office is growing," he had grave doubts about some of the statistics.

“They record the headline price, but large amounts of tickets are bought at very cut rates, like 25 percent of the full price,” he said. “And there are actually many cases where enormous numbers of tickets have just been given away.”

Lu Peng, a communications expert at the Shanghai Academy of Social Sciences, also recently questioned Chinese box office figures, telling Hong Kong’s South China Morning Post that the reported takings of some domestically-produced films were “shockingly high”.

Some observers have argued that the government is keen for Chinese movies to do better than their foreign competitors, with the authorities eager to build up the nation’s own film industry, and to reduce the influence of foreign values on the nation's young generation. And with Hong Kong movies classified as Chinese productions — and increasingly funded by mainland Chinese investment — there has been speculation that the government’s decision to allow "The Mermaid" an unusual four-month run (far longer than the normal one month given to most movies) may be designed in part to ensure it does better than any foreign competitors at the box office — though authorities said the move was based on market demand.

There is no question China's movie industry is still growing. Beijing-based movie producer and director Ma Ke, who has worked on several movies with Jiang Wen — one of China's biggest stars — told IBT recently that he expected continuing box office growth in the coming years, with an expanding urban audience for movies, even if China’s economy as a whole sees slowing growth.

However the distribution scandal may damage the credibility of an industry on which Hollywood studios are increasingly pinning their commercial hopes. And China film bureau head Zhang Hongsen acknowledged after the latest revelations: “Box office fraud has become so serious that it is harming Chinese cinema.”