The first rule of China is you don’t talk about China. Unless, of course, you live in Hollywood, in which case all you do is talk about China as execs find themselves in the midst of a historic shift in the global balance of power.

china-and-hollywood__130605112955-150x150__130925193515__131105220131__131105231458After more than a century, the studios are no longer the senior partner at the table, able to dictate terms at will, at least with respect to what will soon be the world’s largest single theatrical market. China’s box office, which annually grows at a rate of about 30%, is expected to border on $5B this year as local and Hollywood films share (government regulated) space on 18,000+ screens across a country of 1.3 billion people. The Middle Kingdom box office growth is even more profound when compared to the relatively static movement in the North American market. It is unprecedented for studio execs to find themselves in a situation with such a discrepancy in potential revenues between themselves and their prospective partners. And those partners, buoyed by exponentially increasing revenues at home, are increasingly confident and ambitious in their plans abroad.

Barely a week goes by without the announcement of a China-based company looking to invest in the film business. This breakneck pace has had Hollywood scrambling to keep up. The first wave started back in 2012 when Chinese investors funneled into town to kick the tires of various companies that included Summit and Lionsgate. Later that year, Wanda acquired AMC Entertainment Holdings for $2.6B, firmly planting a Sino footprint in Tinseltown. Since then, there has been increasing back-and-forth as the U.S. and the Chinese continue to size one another up. But in just the past few months, it’s felt like the process is accelerating. Recent deals announced include Fosun International’s $100 M+ investment in Jeff Robinov’s Studio 8; Producer Robert Simonds $1B link-up with Shanghai Media Group and Hony Capital to form STX Studios; and Huayi Brothers launching its own fully owned $130M U.S. division.

But with little to show yet in terms of actual fruit, the jury is still out on how successful these collaborations will prove, or whether China’s notoriously opaque co-production system will really give rise to a string of bonafide Chinese-international hits. And, Jeff Berg’s recent calamitous experience with Bison Capital only served to raise further doubts in certain circles of whether China is even for real.

There has never been a shortage of foreign money willing to invest in Hollywood. The Japanese, Germans, French, Arabs and Indians, amongst others, have all come and gone, only to find their pockets lighter than when they first entered. Nowadays, with many Chinese companies, the tables seem to be turning.

A local exec who has dealings in Hollywood says the Chinese nevertheless remain “suspicious and skeptical. ‘So, I have a lot of money now, let’s make a bet on Hollywood.’ It’s the honeymoon period.” Others contend the local industry is less interested in full and ongoing cooperation, and rather looking to Hollywood to help school it in how to make movies and build from the inside, much as they did in the automotive business.

poker“Hollywood has always run the poker table and has always been able to identify the sucker,” says one exec with extensive dealings in the U.S. and China. “Now, Hollywood is sitting at the poker table with China and it can’t identify who the sucker is. That’s a problem any poker player can tell you.”

So why is Hollywood so keen to play with China?

Previously, it was foreign money that wanted to buy into Hollywood movies, the Holy Grail both commercially and as a status symbol. This time, it’s American and Western companies who want — need — to get into China as much, if not more, than the other way around.

And they have to be careful. One China exec warns, “It’s different to come back to China, different from all the other suckers. The others don’t have a home market. If you screw up China, you burn the bridge and the chances of repairing this bridge are slim, so that’s why people really have to be looking at long-term partnerships.”

“China has leverage,” says a China-based American exec. “It’s not just a co-financier. It’s a strategic partner. The real big deal isn’t even the Chinese box office. Sure, that’s about to eclipse the U.S., but the really big deal is when ancillary revenues like SVOD and online become real platforms. This is a country of 1.3 billion people. One day that market might be five or six times the box office today. That would be revolutionary.”

China is filled with real, profitable, forward-thinking companies looking to grow internally and internationally. The likes of Wanda, Le Vision, Huayi Brothers, Bona and Fundamental are all spreading their wings either through joint ventures or launching their own U.S.-based entities.

Meanwhile, a particularly daunting prospect is that the potentially biggest players in China’s film landscape of the future, namely the internet giants Baidu, Alibaba and Tencent, aka BAT, haven’t fully shown their international hands yet.

It is particularly telling that Huayi Brothers Media, China’s biggest private film company, inked deals with Alibaba and Tencent, that saw it raise $590M (RMB3.6B) through a private placing of new shares. The strategic agreement will cover e-commerce, online entertainment and movie development, while the deal with Tencent also covers movie development as well as online games and TV.

It is a sign of the times that the three companies did their mega-deal in China, and not overseas. China is their big prize and they’re already there.

Tencent did ink a strategic tie-up with HBO to become the pay-TV company’s sole distributor in China. That deal will test new tougher control over the internet set to be introduced by China’s regulatory authority, SAPPRFT on April 1, which will limit foreign content on Chinese video websites.

BASKET-BKN-BKO-NBA-LAKERS-RANDLEThat isn’t stopping Hollywood execs from eagerly chasing after the likes of Alibaba founder, and China’s richest man, Jack Ma. One needs only to look at the breathless coverage of his recent magical mystery ride through California: Jack Ma is buying Lionsgate! Jack Ma had a meeting with Sony! Jack Ma likes hamburgers!!

Giving the keynote address at a Wall Street Journal event in Laguna Beach, Ma proclaimed Alibaba to be “the biggest entertainment company in the world.” This from a company that technically hasn’t made a single film yet.

It’s that kind of hubris which both excites and irritates some onlookers. Not that you’ll get anyone to say it on the record. When it comes to China, U.S. execs are models of discretion.

Reports have said Jack Ma wants to get content, but a U.S. film exec closely tied to China says, “I don’t know that he has to buy a company to get content. Netflix didn’t buy anybody and they have more content than anybody… There’s nothing Hollywood won’t sell you.”

Indeed, Chinese execs are being approached endlessly with investment opportunities.

“We’ve been contacted about many of them: IM Global, Relativity, The Weinstein Company,” says one Chinese exec. “They think the Chinese are stupid and will pay stupid prices to acquire. They want to sell at the high prices like they did with the Indians, the Koreans, the Japanese and the Arabs. But we are not stupid and we are not in a rush.”

If anything, many Chinese companies look as keen to launch and control their own entities as they do buying into existing American ones. Huayi Bros, for example, ultimately launched its own fully-owned LA division rather than invest with Jeff Robinov’s Studio 8, as had been originally mooted. Le Vision, which in 2013 ranked third in overall box office in China, is looking to raise $200M for its new venture, Le Vision US. And it’s still deciding whether to pact with a single studio on global distribution or patch together a mosaic of independent partners.

But even when Chinese companies do concretely buy a ticket with an American outfit — as Fosun, which has no film business track record, has with Studio 8 — it’s early days yet. Is Fosun’s investment a sign of greater things to come? From whom and to be spent on what? And how likely, and imminent, is the sight of a Chinese company buying a studio?

“Nobody has shown up yet with the billions the Germans, Italians, Japanese did,” says one American exec. “There are not a lot of plays that can be made. Jack Ma is not buying Time Warner, News Corp, the Walt Disney Company. He could buy Sony, but they hate the Japanese so that can’t happen or they would only do that to humiliate the Japanese.”

The really interesting factor at play here is whether a Chinese company would even need to buy a studio to be a global player. One recurring element when speaking to Chinese executives is the extent to which maintaining a strong local flavor to their business remains a priority.

For some observers, Legendary East’s planned epic The Great Wall could be a game-changer. In development for a number of years with various iterations, the project currently has one of China’s most respected directors at the helm in Zhang Yimou. Legendary remain on the hunt for an A-list male lead. “That project is kind of the Holy Grail for a real co-production,” says a China-based exec.

lost in thailandThe challenges of getting past China’s quota system and qualifying as a genuine co-productions pose myriad problems. Co-production status requires that certain elements of a film be resolutely Chinese or have particular resonance with local audiences. Because Chinese films — even the kinds that make a mint at home like Lost In Thailand — historically have a hard time traveling, Hollywood has to weigh whether it’s worth it to stuff a screenplay full of dragons or cast Chinese actors if it’s only to up the revenue share within China from 25% to 40%, with little hope of recouping elsewhere. The fact remains that the majority of attempts have failed.

Savvy China and Hollywood-based DMG Entertainment successfully partnered with Marvel on Iron Man 3, although it was not a co-production; and Paramount this year had the highest-grossing movie ever in China with Transformers: Age Of Extinction. That movie was made under a “cooperation agreement” with China rather than as a co-production, but came with a series of headaches in the form of lawsuits by unhappy local sponsors. A clash between Hollywood and Chinese business sensibilities still needs to be worked out.

Conversely, studios like Sony and Fox have made a concerted effort to make Chinese-language films purely for the local market with mixed results. That isn’t stopping them from pushing on. Universal also recently held a showy ceremony to announce the opening of its Beijing office and highlight its commitment to the region; it is a backer of current Chinese box office hit Rise Of The Legend.

gone with the bulletsSony announced this year it had sealed partnership deals with Chinese filmmakers and companies to expand its local-language production in the planet’s most populous country. The first projects out of that pipeline include Gone With The Bullets, Jiang Wen’s follow-up to his 2010 action comedy Let The Bullets Fly, which made $140M worldwide. The new film arrives on December 18 and has already blown past Age Of Extinction with advance ticket sales upwards of $20M.

Similarly, Fox is also in production with Bona on a Chinese remake of Bride Wars, directed by Tony Chan. If anything, the relationship between Fox and Bona illustrates just how idiosyncratic doing business with China can be for an outsider. In May 2012, Fox parent News Corp acquired a 19.9% stake in Bona as part of a concerted drive into China. In June this year, Bona’s chairman and CEO, Yu Dong, announced Bride Wars would be a defining project and the first of many co-productions to come from the partnership between the two companies.

Only weeks later, it was announced that Fosun would be buying out Fox’s stake, even though it was stressed that the move would not affect five Fox-Bona co-productions agreed between the two companies. Within days of the Fosun-Bona announcement, Fosun also confirmed its investment in Robinov’s Studio 8, which had originally been announced as an investment vehicle for the Huayi Brothers, who would eventually back out of that deal and launch their own standalone company.

That run around the table may well be the shape of things to come.