How a Chinese animated movie reaped $1.2 billion and beat Hollywood giants

With $1.2 billion in box-office revenue so far, “Ne Zha 2," released Jan. 29, has outpaced American films that used to be a staple of the Chinese entertainment scene. It beat the record held by the 2015 “Star Wars: Episode VII—The Force Awakens," which reaped $936.7 million in North America.

The animated film’s record-breaking run within two weeks of its release marks a moment of national pride in China’s culture and technology as Chinese audiences gravitate toward movies made at home than the West. The movie’s success follows DeepSeek’s sudden shot to fame with a Chinese artificial-intelligence model that rivals American ones.

The buzz about DeepSeek and “Ne Zha 2" is a timely confidence boost as Chinese officials and consumers face prolonged economic gloom and another trade war with the U.S. under the new Trump administration.

Directed by Yang Yu, who is known by his pseudonym Jiaozi (dumplings) for his love of the Chinese delicacy, the film is loosely based on “Investiture of the Gods," a classic of Chinese mythology published more than 400 years ago.

“Investiture of the Gods" has proven to be lucrative source material for a country eager to see its own stories on screen. The movie’s folkloric roots have turned the ancient text into a kind of Marvel-superheroes universe of storytelling for Chinese filmmakers who want to offer epic story lines while hewing to narratives that will be allowed by Communist Party censors.

No Chinese movie has approached the success of “Ne Zha 2." The film, released during the Lunar New Year holiday, speaks to many Chinese who need something to lift their spirits amid a slowing economic growth and rising international tension, said Karen Ma, the author of “China’s Millennial Digital Generation," which profiles young Chinese directors.

Yang, in his mid 40s, was an unknown director with a good idea who stuck to it for years and pulled it off, Ma said. Makers of Chinese animated films “have arrived at a moment when they can proudly say that ‘we can rival Hollywood now,’ especially in special effects," she added.

A sequel to “Ne Zha," which topped the country’s box office charts in 2019, the movie captivated an even wider audience in China this year.

A theater in downtown Shanghai last weekend was packed, as an emotional crowd reacted to the nearly 2 1/2-hour long movie with laughter and tears.

Ni Mingyue, an art teacher in Shanghai, said her 8-year-old daughter was engrossed. Apart from the stunning visual impacts, such as those illustrating the heavenly palaces where the gods reside, Ni said she was most impressed by the plot’s twists and turns.

“For many American blockbusters, I can pretty much guess what’s going to happen but this movie surprised me so much, which is very satisfying," said Ni, who has collected all the Ne Zha-themed toys in the form of “blind boxes"—the contents of which buyers don’t know until they are opened.

Jiang Jie, a college student in Guangdong, said she missed part of the movie during a bathroom break the first time she watched it, so went back to see it again—then a third time. “The special effects are so cool that they are bursting from the big screens," Jiang said.

The movie officially opens in North America on Friday. The Chinese Embassy in Washington posted videos of the movie’s trailer being shown in Times Square on its Facebook and TikTok accounts.

Ahead of its overseas premiere last Saturday at a special screening in Los Angeles, Li Zhiqiang, China’s deputy consul general in the city, hailed the film’s strong performance in China and its potential global appeal. Li called for closer collaboration between China and the U.S. in the film industry.

Many animated productions, live-action movies and shows about Ne Zha have been made in China over the past decades, including an award-winning 1979 animated film  featuring hand drawings, so the character is no stranger to a domestic audience.

Chinese state media have said “Ne Zha" and the “Legend of Deification," another movie based on the classic “Investiture of the Gods," had taken cues from the Marvel universe. The “Ne Zha" animations reflect the influence of Pixar and DreamWorks—not just the animation style but the sense of humor, said Doris Sutherland, a cultural writer and commentator based in the U.K. Taiyi Zhenren, the mentor to the main character, Ne Zha, who is traditionally depicted as a divine sage, is made to be a fat, goofy guy who farts and vomits. “You can imagine him hanging out with Shrek," said Sutherland.

The success of “Ne Zha 2" is in many ways the culmination of a decadeslong campaign by Chinese officials to develop a homegrown culture industry. Starting in the 1990s, China began importing Hollywood movies, and watched as the imports drew larger crowds than the work of domestic filmmakers.

Hollywood producers were happy to see it. As the U.S. film industry’s domestic grosses flatlined, China offered a welcome growth market, quickly growing to become No. 2 in the world.

For the animation industry, the country also offered millions of children to rear on hit movies. Disney routinely saw hundreds of millions of dollars in box-office grosses that in turn helped boost attendance at its theme park in Shanghai. The success of DreamWorks Animation’s “Kung Fu Panda" in 2008 spurred conversations among Communist Party officials about how their own country could draw on Chinese culture and produce similar animated films that resonate around the world.

Over time, the Chinese government encouraged its producers and screenwriters to study the work of Hollywood. In some cases, Hollywood directors came to China to instruct crews there. Starting around 2016, Chinese movies started to regularly outgross the American competition, a trend that only accelerated as the two countries grew apart during President Trump’s first administration.

Today, Hollywood studio chiefs who once counted on China for easy money now consider the market an afterthought. Chinese audiences have lost so much interest in Hollywood movies that many American executives count on making zero dollars in the country, treating any grosses as essentially found money. Before “Ne Zha 2" hit its nine-figure gross, animated American offerings such as “Mufasa: The Lion King" and “Moana 2" saw paltry showings in Chinese theaters.

China’s homegrown movies—made by people who grew up with the stories and value them—managed to avoid the gaffes that one might expect from a Hollywood treatment of Chinese legends, such as when Disney gave Mulan a fire-breathing dragon as a companion—even though Chinese dragons are associated with water, said Sutherland, the U.K.-based writer.

These new versions retell old legends in fresh and exciting ways, making them more appealing to younger audiences and reflecting the cultural pride shared by Chinese and the millions of Chinese diaspora worldwide, said Adi Wulandari, a lecturer at Universitas Indonesia.

The $1.2 billion that “Ne Zha 2" has already grossed as of Wednesday accounts for at least 90% of the total current box-office revenue, according to Chinese ticketing platform Maoyan.

Meanwhile, a Chinese action movie that tries to tap in to nationalist sentiment didn’t do as well as similar movies in previous years. “Operation Hadal," also released two weeks ago in China, grossed only $50 million, far behind past propaganda films “The Battle at Lake Changjin" and “Wolf Warrior 2."

Despite its popularity in China, “Ne Zha 2" won’t be showing in many theaters outside the large cities in the U.S. It remains to be seen if American audiences can relate to the story line, unlike the household names of the Marvel heroes.

Out of the more than $700 million the original Ne Zha grossed in 2019 worldwide, only a fraction, some $3.7 million, was attributable to moviegoers in North America.

Zhao Yueling contributed to this article.

Write to Liyan Qi at Liyan.qi@wsj.com and Erich Schwartzel at erich.schwartzel@wsj.com