For China’s film industry, the surge in ticket sales is a bright spot in an otherwise gloomy outlook.

China’s box office sales topped 10 billion yuan in January and sales during the week-long Lunar New Year holiday were the second best in history.

But insiders warn of a rocky road to recovery after three years of on-again, off-again closures. China’s film industry is beset by shrinking investment, rigid censorship and the pandemic has had a lasting impact on production and cinemas.

“Excessive optimism is unrealistic,” said Liao Xuhua, a senior consumer industry consultant at Analysys, a Chinese consultancy.

“The box office sales will see great performances during the summer and the national day holiday, but it will be very difficult to break records. An explosive box office will be hard to come by, largely due to the brain drain and the lack of creativity.”

Even if consumers adopt a “revenge spending” mentality, years of disruptions mean there is unlikely to be enough films in theatres, according to Xu Chen, an independent film producer based in Beijing and Hangzhou.

“A lot of [film] companies, especially the smaller ones went down, because the companies backing them were broke, and the projects they launched into the market couldn’t attract investment and weren’t profitable either,” he said.

“The direct impact of the bankruptcies is less content creators, and very few films actually get made.”

Box office sales last year were 30 billion yuan, less than half of 2019’s 64 billion yuan, according to the China Film Administration.

The blockbusters screening over the Lunar New Year holiday were mostly made by giant Chinese production companies. The Wandering Earth 2 took 18 months to produce, while Deep Sea, an animated fantasy film, was in production for five years. There were not any independent films in the mix.

China’s increasingly rigid state censorship is among the complaints of industry insiders and it means fewer appealing films are making it to cinemas.

Since 2018-19, all films have had nationalist themes and are loaded with political connotations, which has left less room for creative content, Xu said.

“Only when censorship is loosened can we diversify genres and create more content, and only then can there be investment in films that will later go to theatres and online,” he said, adding censorship is expected to be eased slightly this year.

Investors are reluctant to enter China across the board, and are watching which direction the market will go in the coming months.

“The censorship affects what content can be made, but then you still need money to produce,” Xu said.

“Investors will have seen the box office sales during the Lunar New Year and know that consumers are still willing to spend on films, so they will be more confident.”

Zhou Sida, an analyst in Beijing, said he would often go to the cinema to watch fresh blockbuster films before the pandemic, but the risk of catching Covid-19 or being caught up in strict quarantine mandates put an end to that.

“The quality of the films is also getting worse,” he said, adding more people were watching films via streaming services across the world.

Expectations of a slowing economy mean people are less carefree with their spending too, Zhou said.

The film industry is banking on more government support this year to ease strain.

The city government in Xiamen, Fujian province, announced new incentives on Wednesday to boost local production. Companies that set up bases there, build studios and buy equipment are eligible for cash subsidies of as much as 10 million yuan.

Local companies who produce films in and introduce talent to the city will also receive subsidies worth millions of yuan.

Hangzhou in Zhejiang province also launched a similar scheme last year to incentivise local film production.

William Zhou, a movie buff who has also worked in the film industry, said he had not gone to a cinema once in the past year due to virus fears and lack of good films.

He said the box office boom over Lunar New Year was “revenge spending” – and it would not last.

“Reopening doesn’t equal economic recovery, the pandemic has deeply reshaped the film industry in the past few years – the relationships between players and the industrial chain has changed, [and] the number of cinemas has fallen. A lot of talent has left the industry,” said Zhou, who has recently had conversations with industry workers.

Nonetheless, this year will be a year of transition for China’s film industry.

“People are certain that this year will be better than the last, but whether we will see a return to the prosperity we saw around 2015-18, and whether we will see improved variety are still issues that need to be watched this year,” Zhou said.

“In short, 2023 is a vital year, it will be a barometer to predict the direction of the next five years.”