Japanese financial newspaper Nikkei posted an editorial on its online site on Tuesday discussing the effects of China's recent pivot to its domestic animation industry. Although China was the country with the most contracts with the Japanese animation industry in 2016, the Nikkei article argued that China has been retreating from the Japanese industry since 2018 due to tightening government restrictions on streaming anime, among other factors. (In 2018, China had 121 contracts, making it 6th after the United States, South Korea, Taiwan, France, and Canada.) This state of affairs has been exacerbating the problems in the declining Japanese industry and reinforcing the stark wealth differences between Japanese and Chinese animators.

While the Japanese industry continues to see little to no domestic growth in recent years, Chinese companies have been ramping up resources in Chinese home-grown animation. Historically, Japanese companies have subcontracted aspects of animation production to China, but the editorial points out that nowadays Chinese companies are increasingly hiring Japanese companies to work on Chinese IPs instead. In 2018, a company owned by the Chinese tech giant Tencent opened a studio called Colored Pencil Animation Japan, which works on animated works produced for Tencent 's streaming services such as the hit series The King's Avatar .

Nikkei highlighted the higher wages enjoyed by animators working for Chinese-owned animation companies. Unlike the Japanese industry, which tends to rely on the work of freelancers, Colored Pencil Animation Japan hires animators as employees, and even new employees earn a higher-than-industry-average salary of 175,000 yen (approximately US$1,580) per month. Meanwhile, according to the Japan Animation Creators Association (JAniCA)'s most recent survey, only 14% of Japanese animators are permanent employees.

China's pivot to domestic animation is occurring alongside a period of difficult financial times among Japanese animation studios. According to the credit rating agency Teikoku Databank, over 30% of animation production studios in Japan were in the red in 2018. Bankruptcy and dissolving companies were also at a 10-year peak. The management at one animation company said, "As the price of contract work keeps going down, we remain short-staffed and are unable to expand our operations. It's a vicious cycle. If even one person pulls out, the company is unable to fulfill its end of the contract, and many companies end up in the red."

The situation has made it harder to train young animators, and animation quality is also on the decline. According to Colored Pencil Animation Japan CEO Bunjirō Eguchi, there are even cases where the company has outsourced to Japanese contractors, only for the Chinese head company to harshly reject the low-quality work that the Japanese side produced. "The poor service on the Japanese side could trigger a stagnation in the industry," he cautioned. "China has used its abundant capital to procure the resources for digital animation, and the quality of their animation is improving noticeably. Japan previously outsourced to China, but now the situation has reversed."

According to the Association of Japanese Animations (AJA), the total market value for the anime industry in 2018 is 2.1814 trillion yen (approximately US$20 billion). On the other hand, only 267.1 billion yen (approximately US$2.4 billion) worth of the proceeds — a mere 12% of the market worth — went to animation companies. Nikkei observed that although approximately half of the anime industry's revenue comes from overseas, a larger share of the money is going to the production committees which handle the international rights than to the animation production companies. The production committee system prevents many studios from seeing profits even if they produce a hit anime.

According to Teikoku Databank researcher Daisuke Iijima, Chinese companies are now trying to entice Japanese animators to work in China in order to expand their domestic market. "They can easily offer three times the annual salary an animator would get in Japan, so there will probably be more cases of Japanese talent going overseas." Nikkei cited a Chinese recruitment website, which had listings with a monthly salary of approximately 34,000 yuan (approximately US$4,800) and 30,000 yuan (approximately US$4,240) for animator jobs based in Hangzhou and Beijing respectively.

Nikkei concluded the editorial with a gloomy forecast for the Japanese industry and the production committee system of financing anime. "The production committee system is effective at mitigating risks, but for the Japanese industry to be globally competitive, it is indispensable for it to have a system that ensures its profits are distributed effectively."

Source: Nikkei (Rei Nakafuji) via Otakomu