The talks are expected to lead to agreements for cooperative product development in the traditional and digital areas, market development, stake takeovers and other kinds of possible marriages.

"Lucky is a very good partner for Kodak in China, especially after our company's major (direct) investment in China," said Albert Chan, general manager of Kodak's greater China and Korea region, in an exclusive interview with Business Weekly last week.

"We have always kept in touch with Lucky, talking about how can we boost our penetration rate in China," said Chan.

"We believe we will have a lot of cooperations with Lucky, although at the same time we will compete with Lucky," Chan said when asked about the development of cooperations between the two firms.

Last year, it was rumoured that North China's Hebei-based Lucky, the country's primary and most famous film brand, was close to completing a deal with Japanese heavyweight Fuji Film for stake takeovers, which immediately sparked an upswing in Lucky's performance in the equities market.

Recently though, industry insiders have been discussing reports that Kodak is also in talks with Lucky.

Lucky is the country's sole filmmaker listed on the domestic A-share market that has not yet merged with a foreign rival.

Kodak controls around 50 percent of the Chinese film market after acquiring a string of debt-ridden local filmmakers in the 1990s.

Lucky is the only domestic brand in the film sector to be flanked by foreign rivals.Analysts said both Kodak and Fuji are eyeing a leading market position and looking to Lucky to secure their presence.

However, Lucky said it will insist on the use of its own brand in any deal -- a prerequisite that runs counter with Kodak and Fuji's usual practice in China.

China has already become the second largest film market in the world behind the United States, and it is expected to grow to be the largest in a few years, industry insiders said.

Chan did not outline a clear timetable for the possible deal, but analysts said Kodak's eagerness to partner up with Lucky could diminish considering the decline of the traditional film industry -- a key concentration for Lucky -- that has resulted from the emergence of digital image technologies. The film giant, which has pledged to diversify its earning portfolio in the local market, may think twice about merging with a company so vested in the traditional film industry, analysts pointed out.

Kodak is boosting its presence in China by dramatically expanding its business lines, including traditional film, imaging processing, traditional and digital cameras, digital imaging processing and even logistics services.

"By the end of 2005, we hope the sales of our digital products would account for 50 percent of our company's total revenues in China," said Chan.

And the company is planning to add over 100 chain digital film processing stores this year in major cities in the coastal regions to its current 7,000 film processing stores, making the country's largest chain film processor more competitive in the market.

"These digital shops, which represent a development trend for the future, will be expanded to smaller cities after we complete the opening of the shops in these 100 cities," said Chan.

He estimates that the growth of digital camera products will rank second following mobile phones in the years to come in China, which will in turn generate billions of dollars of earnings for his firm.

The company announced last week in China the launch of its latest digital camera product in its Easyshare family -- the DX-4900 digital camera.

The new product, which was named the best point-and-shoot digital camera in its price range at the industry's largest annual event -- the 2002 Photo Marketing Association Annual Show -- and which will be priced at around 4,000 yuan (US$483) in China, is a new attempt taken by the company to catch up with its rivals in the sector. Foreign firms, mainly big names from Japan such as Sony, Nikon and Canon, still dominate the market.

Unlike Kodak's vigorous business upswing in China, Lucky posted net annual earnings of 139.86 million yuan (US$16.9 million) last week, a dramatic decline of some 35 percent year-on-year.

"And the company is expected to see more difficulties under the current fierce competition if it does not play catch-up," said an analyst with Xiangcai Securities.

Lucky film accounts for about 20 percent of the country's total film sales, but it falls behind other brands in the development of digital products and will likely find itself in a tough situation in the years ahead.

(Xinhua News Agency April 18, 2002)