HONG KONG -- A sharp rise in China's box office revenues last year, thanks to the moneyed middle-class willing to pay top prices for a trip to the cinema, has brought Hollywood hunting for local partners who can help them crack the booming Chinese market.

Co-productions are exempt from China's strict quotas on the number of foreign films allowed in the country, giving the major studios a better chance at having movies released widely in the country if they can find a local partner. And the market, which generates more than $2 billion annually at box offices according to the Motion Picture Association of America, is expanding.

"China is an amazing market, an amazing growth market," said Dan Mintz, chief executive officer of DMG Entertainment Group, which earlier this year inked a deal with the Disney studio to co-produce "Iron Man 3" starring Robert Downey Junior.

"What it's going to take to green light a film in the future will be a combination of sentiment in the United States, with Hollywood at its center, and huge markets such as China ... The thing to really watch is how that's going to shift the thinking process when starting to make a film."

Mintz's other co-production, "Looper", with Hollywood stars Bruce Willis, Joseph Gordon-Levitt, Emily Blunt and Chinese filmstar Xu Qing, is set for global release on Sept 28. For the Chinese release, DMG plans to restore some scenes set in Shanghai that were originally edited out. The move is designed to give the film greater appeal to Chinese audiences.

"Our real focus at this point is making international films, international wide-release, star-driven (films) with Chinese elements in them. It's a very specific criteria as we look for the right kind of story that will resonates around the world and in China," Mintz said.

Several major Hollywood film directors are getting in on the act. In April, James Cameron announced at the Beijing International Film Festival that he is looking for co-production opportunities in China for sequels to his smash hit, "Avatar".

The movie's release in China grossed $195 million, the most of any market outside the US, and according to the 20th Century Fox film studio, the April re-release of his "Titanic" in 3D grossed $67 million in China in its first six days.

Challenges, quotas, piracy

But the Chinese market is far from an easy one to crack, industry experts said, citing a range of obstacles that include quotas on foreign imports and strict censorship.

Though the foreign movie quota was hiked in February, it still remains capped at only 34. The share of box office revenue that goes to the studio also is limited to 25 percent. In the US, the standard is a 50:50 split between theaters and studios.

"Strict rules limit the kinds of films that can be shown in China," said William Pfeiffer, chief executive at Dragongate Entertainment, a Hong Kong-based production company.

"Also, censorship rules may require edits that negatively affect film quality when key scenes are required to be cut," he added.

Piracy looms as an even larger problem. The DVD market in China is primarily based on pirated copies, and piracy often means producers cut movie budgets to make up for lost revenue.

"Piracy threatens the film industry's bottom line," said Jennifer Thym, the Hong-Kong based director of award-winning short film "Bloodtraffick".

"Piracy affects the audience's decision to see movies in the cinema or to rent or buy movies on other platforms, and that will eventually throttle film investment," she said.

In the past, relief from piracy has been a difficult issue to control, and it may prove impossible to fix completely. Yet, some industry watchers think that if more movies were released to theaters, piracy would abate because people would see the films in theaters, first.

"I believe if studios were allowed to sell their content in a broad fashion across the market, they could curb some of the piracy and at least retain a portion of the economics of their content," Monica Dicenso, vice-president covering media sector JP Morgan, told Reuters in an e-mail.

Mintz said that with the number of Chinese cinema screens having doubled to about 10,000 and still rising at about eight movie screens per day, according to the China Film Group, opportunities remain huge.

Domestic entrepreneurs hope to gain as well.

Beijing-based Seven Stars Entertainment, a production company owned by Bruno Wu, in April announced a partnership with the Chinese government to open a new filmmaking centre outside the city of Tianjin, China.

The facility, worth more than $1.27 billion, would be named "Chinawood" and serve as a venue for Chinese co-productions with filmmakers from the US and other nations. The complex is due to be completed in October.