The Success of “Ne Zha 2” and Beyond

In late January, the Chinese animation blockbuster “Ne Zha 2” was released alongside several other films for the local Spring Festival holiday period. The film’s success marks a significant milestone in the Chinese animation industry, which has seen a steady rise in popularity and production quality, especially since the end of Covid-19 restrictions.

For someone who has lived in China since before the pandemic, the success of “Ne Zha 2” is more of an industry milestone than a surprise. The steady drumbeat of homegrown animation had picked up in 2023, with popular releases such as “Chang An” — a re-telling of Chinese poet Li Bai’s life from the perspective of his friend. It raked in about $250 million as the only animated film in China’s top 10 movies for the year, according to box office data from Maoyan.

The team behind “Chang An,” Light Chaser Animation, works largely out of an old white building in the sleepy outskirts of Beijing. The ceilings are high; stairs wind through the building to connect multiple floors and rooms — and a gym.

When a journalist visited this week, some animators — working on their computers in the dark — were racing to finish cinematic lighting effects on scenes for this summer’s movie. Others designed historical Chinese robes, detailed eyebrows and re-created buildings.

“This place is no longer big enough,” Yu Zhou, president of the studio, said in Mandarin, translated by CNBC.

He said the 380-person company needs to hire at least 100 more people in the next year to keep up with its new production plan: two movie releases annually starting from 2026, up from one a year currently. AI, he said, can only be a tool for now. Light Chaser plans to move to a new office in the second half of this year.

Light Chaser sticks to a three-year production plan for all the movies it’s making simultaneously. It tries to imagine the future, and whether 20 million to 30 million people will watch it when the movie comes out, Yu said. “Will this story work in three years?”

This film slated for this summer, “Curious Tales of a Temple,” re-tells “Chinese ghost stories,” Yu said. The studio is in talks with “Hollywood mainstream players” for releasing the movie in theaters overseas, including in North America, at the same time as the planned China launch, he said.

Alluding to the studio’s appeal among global audiences, Yu claimed Light Chaser’s “Green Snake” — which is a rendition of a Chinese legend sets it partially in a futuristic city — did well on Netflix after its 2021 launch, remaining in the top 10 non-English content for three weeks.

Among the other animated features in the works, video-streaming company IQIYI is developing “Master Zhong” that’s expected to be released in China this year. Ya Ning, a senior vice president at the firm, said Chinese animation had started to break its “childish” image and was turning into an industry, expanding into movie merchandise and games as well.

A Recent History

Chinese animated films have only started to make a splash in the last 10 years. “In the history of Chinese animation, there has never been a film like ‘Big Fish and Begonia’ … as far as the Chinese industry goes, this bold and breathtaking fantasy adventure stands alone,” entertainment industry magazine Variety wrote after the movie’s 2016 release.

The film was made by Enlight Media. That’s the same producer behind this year’s “Ne Zha 2” and “Ne Zha 1” that came out in 2019 — it had topped China’s box office that year.

“Deep Sea,” from Beijing studio OctMedia, won acclaim in early 2023 with its fantastical pastel-colored rendering of a young girl’s journey of healing following her mother’s abandonment.

While popularity hasn’t always turned into box office sales, “Ne Zha 2” was able to succeed in part because it appealed to all ages, Liu Anxing, manager at a movie theater in Chengdu, told CNBC. While Liu said he was proud of Chinese animation industry’s achievements, he didn’t expect another “Ne Zha 2”-like blockbuster in the near future — at least not until “Ne Zha 3” comes out in 2028.

“Ne Zha 2” came out in China in late January as one of six movies for the week-long Spring Festival holiday — and took half the box office for the period, according to Maoyan. After its release in North America on Feb. 14, Maoyan data showed the movie beat Pixar’s “Inside Out 2” as the top-grossing animated film worldwide with more than 13 billion yuan ($1.79 billion) in ticket sales.

Strategy and Plans

In contrast to Light Chaser’s focus on in-house production, the makers of “Ne Zha 2” relied on various studios. The director came from Chengdu-based Coco Cartoon, while Enlight Media was the primary producer and distributor. Nearly 140 businesses contributed to the production.

State media also highlighted how government subsidies from Chengdu to Qingdao have helped support domestic animation. Beijing in 2021 laid out a national plan for “building China into a major cinematic player” by 2035 that included a call for producing 50 films a year with box-office sales of at least 100 million yuan each.

“Animation consumers are themselves a resource that needs to be carefully managed,” said Jonathan Clements, author of “Anime: A History.”

Clements added that in contrast to how Disney blockbusters made more than $1 billion in box office sales across multiple countries, “Ne Zha 2” has done so primarily due to sales in China. “You don’t have to worry about whether your story, or your characters, or your attitudes will play in other countries.”

China’s plan also specified that domestic films should account for at least 55% of the country’s annual box office sales.

Hollywood films, when allowed into China, have seen waning interest from domestic audiences. “Godzilla x Kong” was the only one to crack the top 10 last year, according to Maoyan. “Oppenheimer” failed to enter China’s 20 top-grossing movies in 2023, and “Barbie” was even further behind.

Back in 2019, “Avengers: Endgame” ranked third by domestic box office, according to Maoyan, just behind Chinese sci-fi sensation “The Wandering Earth” and the first “Ne Zha” film.

The characters and plots of many Chinese animated television series have come from stories written online by relatively unknown authors. China Literature, the operator of a major app for user-generated content, said 15 of the top 20 most watched online animated series in the first half of last year were based off content on its platform — in the last few years it’s also started putting the adaptations on YouTube as it strives to broaden its audience.

Chinese creators are also leveraging generative AI for filmmaking. Short-video streaming app Apartou is releasing a seven-part mini series, “New World Loading,” that’s largely created using the company’s Kling AI for video generation. Director Chen Xiangyu said the team just fed the AI model simple scripts, instead of having to draw characters.

Future Prospects and Challenges

The rise of Chinese animation is not without its challenges. Over-production of films could unpleasantly shock studios and investors, as Jonathan Clements cautioned. “Animation consumers are themselves a resource that needs to be carefully managed,” he said.

Moreover, the success of “Ne Zha 2” primarily hinges on its domestic appeal. While this is a significant achievement, it also highlights the need for Chinese animation to expand its global reach. The industry must focus on creating stories and characters that resonate with international audiences, much like how Disney and Pixar have done with their blockbusters.

Despite these challenges, the future looks bright for Chinese animation. With government support, a growing talent pool, and innovative use of technology, the industry is poised to become a major player on the global stage. As Yu Zhou of Light Chaser Animation put it, “This place is no longer big enough,” reflecting the industry’s ambitious plans and rapid growth.