More than Meets the Eyes to Chinese Artists Salary Caps

The levels of remuneration enjoyed by Chinese actors for their appearance in films and TV dramas has long been a hot topic in China, which has drawn the attention of the public and the authorities to issues such as “yin-yang contracts”[1] and tax evasion.  These issues were brought to light by the now famously reported incident between Cui Yongyuan and one of China’s top film stars Fan Bingbing in May 2018 which sparked allegations against the latter for signing “yin-yang contracts” to disguise the true amount of her wages as a means of evading tax.

In order to calm the trend of increasing and exorbitant pay to artists, the National Radio and Television Administration (“NRTA”) have issued a regulatory document effective from November 2018 [2], implementing a salary cap on their remuneration.  Since then total actors’ remuneration shall be capped at 40% of the total TV programme production costs and the leading actors’ pay shall be capped at 70% of the total remuneration of all actors of the programme (“the Salary Cap”).

Most recently in February 2022, as part of the “14^th Five Year Plan”, the NRTA issued a “14th Five-Year Chinese Television Drama Development Plan” (the “Plan”) reiterating the strict implementation of the Salary Cap.  However as discussed below, the intended implications of the Salary Cap are more extensive than celebrities’ pay cuts and the public gloating that follow.

The Plan

One of the main goals of the Plan is to “strengthen the competitiveness” of the Chinese television industry by, for instance, (i) improving the quality of TV programme productions; and (ii) maintaining a TV production industry and market with high standards and healthy competitions.  One way to achieve the above objectives is by maintaining order in and improving the TV production market by, for example:-

• Preventing the uncontrolled increase in capital investment in the TV production industry, which should bring positive changes to the industry, and guide TV productions towards higher standards and quality;
• Protecting intellectual property rights in the TV production industry, and strengthening the sense of respect and protection of such rights from the industry;
• Structuring TV production costs in a scientific and reasonable manner. TV production companies should regulate and maintain order in the distribution of income, including remuneration for actors.  The use of standardized, systemized and unified contracts for remuneration should be promoted and the Salary Cap should be strictly implemented;
• Imposing tight supervision over the entire production process. Actors involved in illegal acts such as tax evasion, “yin-yang” contracts and exorbitant pay should be dealt with in a serious manner, and rejected with all opportunities to appear on TV programmes.

Accordingly, the focus of the Salary Cap is not simply limiting actors’ remuneration, but more importantly preventing a negative impact on the industry that such unchecked practice may cause.  In particular, by paying a disproportionate share of the production costs to actors, one can imagine that the remaining amount that could be allocated to other areas, such as directing, screenwriting and post-production, would be highly restricted, thereby harming the quality of the production as a whole.

Enforcement and Effects of the Salary Cap

The Plan may deal a fatal blow to noncompliance with the Salary Cap, which appears not to have been strictly followed, despite having been introduced in 2018.  As discussed, the Plan has provided some insight into the practical measures to ensure strict adherence with the Salary Cap, such as promoting the use of standardized contracts.  Further as the public has already seen, artists involved in illegal acts such as tax evasion would be categorized as “tainted artists” and completely banned from Chinese media (as was the case with Fan Bingbing).

Producers are equally expected to comply with the Salary Cap and the other regulations imposed by the Plan, which stated that the present reporting regime for Chinese TV drama production (under which all drama productions are subject to review and approval by the authorities prior to their publication) will be expanded so that production costs distribution and actors’ remuneration contracts will also be required to be reported, and thus subject to tighter supervision by the authorities.  Noncompliance with the regulations may result in a refusal of permission to air, a permanent ban of the TV programme, or worse, affect the production license of the producer.

Indeed, artists’ remuneration has reportedly dropped by over 50% as a result of the Salary Cap.  It is also anticipated that a higher share of production costs would consequently be allocated to other departments of TV production.  This is because producers are expected to place more focus on the quality (instead of other eye-catching factors) of TV programmes, which would encourage them to engage high quality actors, instead of the most popular and thus expensive ones.  As the pool of available actors expands, the increase in supply of actors will cause generally a drop in their remunerations, including those of the famous icons.

Whilst only time will tell the precise effects of the Salary Cap on Chinese film and TV productions, the authorities have demonstrated a strong desire to strengthen its grip on the industry.  Chinese producers are encouraged to familiarize themselves with the latest updates from the government.

Written by: Michael Leow, Partner; Eugene Huang, Associate

[1] “Yin-yang contracts” mean the practice where two parties, namely producers and actors, entered into two different contracts to engage the actor for the same appearance on TV or film.  Typically the amount of remuneration payable to the actor is different between the two contracts.  The contract with the lower amount of remuneration would be submitted to the authorities for tax reporting purposes, whereas the contract with the higher amount of remuneration represents the true amount of pay received by the actor.  The use of “yin-yang contracts” thereby disguise the true amount earnings of the actor and allows the actor to evade tax obligations.

[2] See Notice by the National Radio and Television Administration of Further Strengthening Administration of Radio, Television, and Network Audiovisual Entertainment Programs, No. 60 [2018]