CHINA'S CULTURAL REVOLUTION ; the Chinese Cinema Industry; the New Merchant-Ivory Production Is the First Western Film to Be Made Entirely in the People's Republic. Meanwhile, Chinese Stars Such as Zhang Ziyi and Gong Li Are Becoming Global Household Names in Hollywood. David Eimer Reports on an Astonishing Movie-Making Boom

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0When three members of the Redgrave acting dynasty " Vanessa, her sister Lynn, and her daughter Natasha Richardson " set about filming the final collaboration between James Ivory and the late Ismail Merchant, it looked like the culmination of a film career famed for its Anglo-Saxon pedigree.

But, despite its British and American cast, The White Countess, just released in American cinemas and due to open in the UK in March, is a Merchant-Ivory production with an Oriental twist. Set among the nightclubs and teeming streets of a city engulfed in political conspiracy and consumed by its own flamboyant decadence, where Chinese nationalists and White Russian aristocrats mingle with Jewish refugees and Japanese spies, it is the first Western film to be made entirely in China.

And, as the cast began shooting in a Fifties-era film studio in Shanghai's old city, the Chinese crew manning lights and cameras could have been forgiven for smiling. Until recently, they were mostly consigned to working on soap operas. Now, thanks to a recovery in which the Chinese film industry has blossomed into the third-largest in the world, they are back in serious work.

Only Hollywood and India's Bollywood produced more than the 260 films made in China last year, while many Western actors have headed east to work there. Tom Cruise was in Shanghai last November filming Mission: Impossible 3. Next month, Nicole Kidman, Ewan McGregor and Edward Norton arrive in Beijing to shoot Headhunters.

At the same time, Chinese actors are moving to Hollywood. One of the country's first internationally known actresses, Gong Li, is starring in Memoirs of a Geisha, the first mainstream Hollywood film to cast Asian actors in the main roles. Li, who will soon be featuring in a cinema adaptation of the television series Miami Vice, is playing alongside Chow Yun-fat, China's most famous male actor, who is himself due play the villain in sequels to Pirates Of The Caribbean.

She is supporting fellow Chinese star Zhang Ziyi, who came to fame at the age of 21 with her performance in Crouching Tiger, Hidden Dragon. The three geishas are played by Chinese actresses speaking in English with Japanese accents, a decision triggered by a perception that, while Japan lacks many good actresses, China seems to be burgeoning with young talent.

With last year marking 100 years of film-making in China, the revival has come at an appropriate time. At a centenary celebration last week in Beijing, President Hu Jintao said, a little triumphantly: 'You have shared the people's breath and the fate of our motherland.'

Chinese films have never been as popular in the West, and domestic revenues last year passed pounds 140m for the first time. The writer/director Wong Kar-Wai has made a reputation on the arthouse circuit, and films such as Kung Fu Hustle are measuring up to Hollywood competition in the United States. When Hero, a historical epic directed by Zhang Yimou, reached the top of the US charts in August 2004, the achievement was a source of national pride and provided a warning to Hollywood that a film with subtitles could out-perform homemade films.

The film industry is being marketed as part of China's modernisation process. With the world growing used to the influence wielded by the country's economy, the rise of what are domestically known as 'cultural industries' is seen as the next step along a path from developing nation to world power.

That the ruling Chinese Communist Party backs film-making is ironic because the CCP under Mao Zedong came close to destroying Chinese cinema. Before the 1949 revolution, China had a vibrant film industry. Studios in Shanghai " known as the Hollywood of China " made comedies, romances and melodramas on an almost weekly basis which were very popular with domestic audiences.

Shots of the city's bustling, and usually romanticised, port were also used in Hollywood films from The Shanghai Gesture to Charlie Chan in Shanghai. …