"Kung Fu Panda" creator Dreamworks Animation may soon set up a production studio in China through a deal that could be announced Friday during a U.S. visit by Chinese Vice President Xi Jinping.
The studio is likely to unveil a joint venture with China-based investors during Xi's visit to Los Angeles on Thursday and Friday, a person familiar with the matter told Reuters earlier this week.
Joint ventures might get Hollywood closer to China's huge audiences. By producing in China, Dreamworks can bypass the restrictions on foreign content. Only 20 foreign films a year can be screened nationally at cinemas in China, and the films must be shown through a designated state-owned intermediary.
The new venture would produce Chinese short films and features for the Chinese market, which it could export to the rest of the world, a person familiar with the matter said. It also would have the potential to make English language films that would be exported from China and escape current import restrictions.
The partnership will see investments of up to $2 billion in the next five years, according to Caijing magazine, more than half likely to come from Chinese partners including China Media Capital and China Development Bank. Dreamworks should get low-cost local talent and wider exposure.
Analyst Tony Wible of Janney Montgomery Scott, in a research note, said he saw a "high probability" the deal would happen as some of the company's competitors had established a similar presence in Asia.
"It's an inexpensive way to get into the China market and make 'Kung Fu Panda 3' or the next 'Madagascar' movie," Wible said in an interview.
A Dreamworks Animation spokeswoman had no comment.
Shares of the company rose 1.2 percent to $19.40 on the New York Stock Exchange at mid-afternoon.