China Film Group, the production-distribution combine that bestrides the Chinese movie industry in a fashion unlike that of any other company in any other major movie economy, is ramping itself up for a stock market listing sometime this year.

The flotation, if it goes ahead -- CFG's previous attempt in 2005 was canceled -- will be a fascinating test of investor sentiment toward the Chinese entertainment sector. And it may give some further clue as to how far the Chinese industry is to be free to evolve.

One crucial question is whether foreign companies will be allowed to buy a stake of any significant size. Some might be happy with just a tiny parcel if that allows them a decent look at CFG's books and a better insight into the highly opaque finances of the Chinese industry.

It is not just Rupert Murdoch and News Corp. who have come to the conclusion that trying to build an entertainment business in China is simply too hard.

Warner Bros. last year walked away from its investments in China's hardtop sector, having found the regulatory environment too rigid for its liking.

Although China is too big and growing too fast to ignore, it's India that comes out on top when attracting coin from financial investors and industry alike.

Compare the Indian case with Korea, where local movie performance and exports have wilted lately, and with China, which offers poor returns and the constant threat of soverign intervention. Japan's stability and established brands mean investors may now be reassessing their previously cool attitudes to the world's second-largest entertainment economy.

Ashok Amritraj, an Indian-born Hollywood insider who is in the process of setting up shingle Hyde Park Asia, says he is close to launching local production deals in India, Korea and Japan. But, he admits, "I cannot figure how to do this in China yet."

Similarly, Continental Entertainment Capital, which is looking to replicate in Asia the project- and structured-financing activities it has in the U.S. and Europe, is steering a careful line on China.

Managing director D. Jeffrey Andrick says, "We are not excluding mainland China," and he suggests that budgets are often too low to justify sophisticated product like gap- or super-gap funding. But he is excited by growing global demand for the Weinstein Co., which successfully raised a $285 million fund to back Asian movies, and has a piece of big-budget Jackie Chan/Jet Li starrer "Forbidden Kingdom."

However, TWC was recently denied a permit to shoot "Shanghai," which would have been the first pic originated and bankrolled through the fund. If China's current crackdown on co-productions continues, company will have a harder job disbursing all the coin it raised.

Contrast that with the overseas cash flowing into Indian film and TV. Four Indian content companies have successfully raised money on the AIM section of the London Stock Exchange. In the last 12 months, Hollywood studio congloms Viacom, NBC Universal and DreamWorks (through Thomson) made their first content investments in India. Disney paid $230 million to raise its stake in UTV from 14% to 32%. Meanwhile, Sony and Singapore's WSG committed themselves to spending $1 billion for Indian sports rights.

Investors in India and Korea are well aware of the boom-and-bust cycles those countries' movie sectors have weathered over the past 10 years, and both could turn again. But without any meaningful foreign participation in CFG, China will miss an opportunity to lay to rest accusations that in the content biz it is isolationist, protectionist and a difficult place to do business.

© Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

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