Accusations of fraud hit China's box office

After Chinese martial arts film, "Ip Man 3", was reported to have pulled in a massive ¥470m ($72m) over its opening weekend in China, in a rare move, regulators are investigating whether the distributor tried to inflate the film's box office by bulk-buying tickets for fake "ghost screenings". According to the Wall Street Journal article, this strategy is widely used in China to create a "buzz" around a film to draw in actual cinema-goers but this raises questions about China's true box office numbers and puts foreign films at a disadvantage. Business Insider suggests that the wider concern is whether this potential fake reporting of figures is reflective of similar practices in other sectors, which would dent external confidence in China's supposed boom in consumer spending.

Image: Disney

Over the years China has developed a well known reputation for "fakin' it".

Be it counterfeit goods, GDP figures or the size of import invoices from Hong Kong, doubts about what the country actually produces persist, and are arguably growing.

Now we might have to add cinema box office sales to the list.

According to the Wall Street Journal, rampant growth in cinema ticket sales - used by some analysts to justify the view that Chinese consumption is booming - may not be all that it seems.

After “Ip Man 3” — a Chinese martial-arts movie in which Mike Tyson plays a crooked property developer - pulled in 470 million yuan, or $US72 million, over its opening weekend, Chinese regulators have announced they are investigating if the distributor tried to boost the movie’s box office by buying tickets for “ghost screenings", said the Journal.

Ghost screenings?

Its the process of boosting reported ticket sales by screening movies with no one in the audience, undertaken by distributors to create a marketing buzz to draw in actual viewers.

The Journal explains how "Ip Man 3" was caught out:

The move came after local media posted screenshots of film-ticketing sites purporting to show that some theaters had sold-out screenings of “Ip Man 3” every 10 minutes after midnight in the same theater—an impossibility for a movie that lasts 105 minutes—and that tickets had sold for as much as $31 a seat, several times the price of tickets at other showtimes, with such prices helping to drive up the total box office.

On Sunday the China Film newspaper, a mouthpiece for the government's movie regulator, announced that “individual films and several theaters have recently launched fake screenings and box-office inflating". The newspaper stated that any ticket sales through “rule-breaking measures” will be excluded from the movie’s box-office statistics.

While the premise of the Journal's article is that "ghost screenings" of Chinese films is putting foreign film distributors at a disadvantage, limiting movie showings and as a consequence revenues, there's something more worrying about what the practice indicates about the broader Chinese economy, particularly as we've been told that the future of Chinese economic growth is all about household consumption and services.

As Chi Lo, senior economist for Greater China at BNP Paribas told the FT in December, economists need to start looking at new metrics to understand the true state of economic activity in China. “There is too much emphasis on old indicators such as industrial output, steel production, etc. It’s worthwhile to look at passenger [rail] traffic versus freight traffic growth, online sales growth, movie box office revenue growth,” Lo said. “Traditional macro indicators tell a distorted story.”

While ghost movie showings are inconsequential in isolation, if the fake figures being reported by some Chinese cinemas were reflective of similar patterns in other consumer sectors then that is a troubling sign.

Rapid growth in consumer spending has been reported by the government over recent years, helping to bolster flagging external confidence towards the Chinese economy resulting from weak trade, industrial and construction activity.

As the chart below shows, in comparison to industrial production and urban fixed asset investment, retail sales has been the one bright spot for the Chinese economy in over recent quarters. It's been accelerating, even as economic growth, production and investment has been slowing.

Stories such as ghost cinema screenings, and others, does little to enhance confidence in the supposed boom in consumer spending. With large swathes of the economy already struggling, consumption must remain strong in the years ahead.

It's all a little murky, and unsettling, at a time of of already heightened uncertainty.

You can read more from the Journal here.

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