• Walt Disney Co.'s latest film, "Deadpool & Wolverine," has made box office records, but not in China, the largest film market after the U.S.
• Factors such as geopolitics, advancements in China's domestic film market, and government regulators have led to American blockbusters losing appeal in the country.
• In parallel, film experts say Hollywood is becoming less focused on targeting Chinese audiences.

Hollywood blockbusters have dominated international box offices for decades, but in recent years, they have lost luster in the largest movie market outside the U.S. — China. 

Walt Disney Co.'s latest film, "Deadpool & Wolverine," has taken the world by storm since its release on July 22, becoming the highest-grossing R-rated film of all time. But it has failed to replicate that success among Chinese moviegoers.

While the Marvel superhero sequel made a respectable $57 million in its first 20 days in China, a locally produced comedy-drama, "Successor," made six times as much in the time period, according to data from maoyan.com. 

Released on July 16, "Successor" continues to thrive in Chinese theaters. As of Monday, it had grossed over $439 million to cement itself as China's third most-watched movie of the year. "Deadpool & Wolverine" languishes at number 15. 

A hit Hollywood franchise screened in China, especially one under Marvel, would be almost certain to rank higher in the box office prior to 2020. For instance, Avengers: End Game was China's third most popular movie in 2019. 

However, things have changed dramatically since then. "Godzilla x Kong: The New Empire" is this year's only Hollywood movie to rank among the top 10 highest-grossing movies in China, at number 8. 

Last year, no Hollywood movie made to the top 10 — a first since at least 2011 according to Maoyan's records.

Made in China sells

Though signs of Hollywood's waning influence on China's box office were evident even before 2020, the global pandemic helped solidify the trend, according to film experts. For roughly three years, Chinese theaters were closed, fewer films were made, and moviegoers turned to streaming for entertainment. 

By the time Hollywood movies returned to screens in China, they were met with a much more insular as well as developed home market, according to Stanely Rosen, a professor of political science at the University of Southern California. 

"China learned all they could from Hollywood. Now they make their own big-budget blockbuster films with good special effects, and even good animated films ... They don't need Hollywood anymore," Rosen, who specializes in Chinese politics, society, and film, told CNBC. 

Meanwhile, Chinese films like "Successor" have a major home-field advantage. 

"The Chinese audience, mostly young people, want stories they can resonate with ... films that relate to things happening in China in one way or another," said Rosen.  

Successor matches that description, with the film touching upon themes of child-raising, education and upward mobility, tailored specifically for the domestic market, according to Emilie Yeh, Dean of Arts at Hong Kong's Lingnan University. 

Meanwhile, American studios' past attempts to directly appeal to Chinese audiences haven't always worked out well.

In 2020, Disney had high hopes that its live-action remake of "Mulan," a movie set in China, would perform well in the market. However, the film flopped, with many Chinese movie watchers reportedly mocking it for historical inaccuracies and Western stereotypes of China.  

'Wolf warriors' and U.S. decoupling

Aside from films that are culturally relevant and relatable to the Chinese market, nationalistic and patriotic movies have also become increasingly popular. 

China's top-grossing movie of all time is 2021's "The Battle at Lake Changjin," which depicts a battle between the North Korea-allied Chinese People's Volunteer Army and U.S. forces during the Korean War. It's followed by "Wolf Warrior 2," a 2017 film about a patriotic Chinese action hero battling corrupt forces overseas. 

This patriotic streak has gone hand in hand with increased Sino-U.S. tensions and the 'decoupling' of the world's two largest economies. 

These strained relations have been a big factor in Hollywood's increasingly lukewarm reception in China, according to Ying Zhu, expert in Chinese film and television and author of "Hollywood in China."  

"The ongoing Sino-U.S. tensions are an underlying factor that dampens the Chinese public's enthusiasm for U.S. popular culture, including films," said Zhu. 

Chinese audiences may also be growing tired of repetitive Hollywood storylines, particularly since China has recently begun importing more films of non-Hollywood origins, she added. 

CCP intervention

The Chinese Communist Party takes an active role in developing and overseeing the local film market, as well as deciding how many foreign movies are screened in the country's theaters. 

In 2012, then-vice President Xi Jinping and Joe Biden signed an agreement to increase Hollywood's access to China. This eventually led to a 34-title quota for U.S. movies to be distributed by a Chinese state enterprise under a revenue share model. Approved movies also had to pass through China's strict censorship policies. 

When Xi became president, he put the Central Propaganda Department of the Chinese Communist Party in charge of regulating and overseeing films. 

As per local media reports, China Film Co. had a role in producing "Successor." The company was started by China Film Group Corporation — linked to Beijing's propaganda department — and other entities.

According to Lingnan University's Yeh, while "Successor" is a great movie with a good script, it still benefits massively from distribution, promotion, and "blessings" from the state.

She noted that the film may struggle outside China, even in Chinese-speaking territories like Hong Kong or Singapore.  

Hollywood reaction

With China no longer as bankable for Western films as it once was, Hollywood has changed its calculus, said Rosen, adding that blockbusters cannot reliably factor the market into their budgets.

However, for many fans in the U.S. and the rest of the international market, this may be a welcome change.

For years, films have caught bad publicity for pandering or making changes to movies to appease Chinese audiences and win approval from authorities.  

For instance, Disney was criticized for filming "Mulan" in the Xinjiang region in China, and thanking domestic government entities in the movie credits. The U.S. maintains that Muslim minority groups have faced human rights abuses and atrocities in Xinjiang.

"Movies are no longer putting China elements in there like they used to, because you can't rely on the market even if it gets approval," said Rosen, adding that the rest of the international market has become more important. 

"You make your film for the international market, and if it gets into China and makes some money, that's great. But don't count on it."