For example, locally made Monster Hunt officially became China's highest grossing movie of all time earlier this year, taking in more than 2.4 billion yuan and topping the mainland's previous highest earner, Fast & Furious 7. But analysts claim there was government interference in ticket sales, including how long Monster Hunt played in theatres and the timing of its showings. There were reports that Monster Hunt, a 117-minute movie, had showings apparently starting every 15 minutes in some cinemas.
China's movie industry is also less skilled than Hollywood at capitalizing on its films.
"Ten billion dollars in box office in North America translates into something like $50 billion when you have all the ancillary revenue streams," such as home video, Ellen Eliasoph, chief executive of Village Roadshow Entertainment in Asia, said at the Milken conference. "Ten billion dollars in box office in China translates into maybe $11 billion."
She noted that Chinese companies often prefer to invest in Hollywood movies over domestic ones as there's a bigger potential payoff.
There's another reason Chinese films aren't generating much income: They don't travel well. Hollywood films get around 60-70 percent of their revenue outside of their home market of North America, an option not often available to Chinese films, Shiao noted.
All of those factors play into why analysts advise looking to the cinemas, not the films, to play on China's emerging group of moviegoers.
Wanda Cinema's net profit rose 50 percent on-year in the first half of this year as it quickly expanded its theater network, with box office sales beating the company's target by 38 percent, Deutsche Bank said in a note this week; it rates Shenzhen-listed Wanda Cinema's stock a buy.
Nomura also advises playing the sector via Wanda Cinema, rated at buy, citing concerns China's movie studios lack a quality content library and the ability to monetize their films' intellectual property.
A new play on China cinemas could hit the market soon. IMAX China, a unit of IMAX Corp., filed this week for a Hong Kong initial public offering (IPO), Reuters reported. In the first half of this year, IMAX China saw its revenue rise 57 percent on-year.
But Deutsche Bank is concerned that China's film producers could let the cinema-owners down.
"China currently has a quota on the number of foreign films and the supply of high-quality domestic films is still limited. A lack of high quality films could hurt the box office revenue," it said.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1