Hollywood is salivating as the prospect of selling its blockbusters to the market offered by China’s huge 1.3 billion potential moviegoers. But are Chinese viewers buying into the Hollywood movie hype?

American blockbuster movies have generally performed well in China in the past, including the most recent installment of the action-series, Tom Cruise’s “Mission: Impossible-Ghost Protocol,” which dominated the Chinese box office for 23 straight weeks.

However, the New York Times reported that during the first quarter this year, ticket sales of U.S.-made movies in China plummeted 65 percent, to about $200 million, while sales for domestically made, Chinese-language movies surged 128 percent, raking in well over $500 million.

The lull in interest for Hollywood cinematic fare has apparently coincided with growing interest in home-grown Chinese films, like the disaster-comedy “Lost In Thailand,” which generated $200 million in ticket sales in China last year, surpassing the previous record that was held by James Cameron’s Hollywood science fiction magnum opus “Avatar.”

Still, Hollywood will keep targeting China, which recently increased the annual quota of foreign films allowed to play in the country from just 20 movies to 34.

The deal, which allows for the additional 14 films only if they are in 3-D or IMAX formats, will likely encourage Hollywood filmmakers to keep developing blockbuster-style movies, which have been successful in the past.

Last year’s “Men In Black III,” Oscar-winning “Life of Pi” and the 3-D re-release of “Titanic” were all box office hits in China.

Thus, it appears that China is willing to open its movie theaters to the U.S., but not quite as quickly as many predicted.

Richard L. Gelfond, the CEO of the Imax Corporation (NYSE: IMAX), said he is confident that Hollywood films will still thrive in the Chinese market, despite the recent “dramatic” drop in interest.

“China is opening up to Hollywood,” Gelfond told the New York Times.

But there are several factors that have to work in harmony in order for an American movie to succeed in China, he added. Hollywood has been doing its part, by slowly targeting content and themes to cater to the Chinese audience; however, China’s government still plays a large role in a movie’s success.

China’s State Administration of Radio, Film and Television, or SARFT, is the government body that determines “suitable” content for China’s moviegoers.

Interestingly, the longer it takes SARFT to vet and cut a foreign film after its international release date, the more time that offers movie goers time to pick up pirated copies of the movie, usually on the streets.

Gelfond thinks that the popularity of Hollywood movies will pick up in the coming months, as more films will be released in China closer to their opening dates in other countries.

Michael Andreen, a consultant at Chinese media firm Le Vision Pictures, thinks that the Chinese audience is looking for more than just the standard action-movie blockbuster that is usually delivered across the Pacific.

“The change is that Chinese audiences want more from Hollywood movies -- not just spectacle, but stories that engage them,” Andreen told the Times.

Rob Cain of Chinafilmbiz.com agrees, saying that action films may be losing their sparkle.

“I know what they don’t seem to want,” Cain said. “They don’t want the same old thing, over and over again, the action blockbuster with lots of explosions.”

The upcoming release of Marvel’s Studios’ “Iron Man 3,” featuring Robert Downey Jr. in the title role, was partly shot in China and has been heavily promoted in Beijing. Though it may not be the most accurate metric to measure Chinese interest in action films because it also features two Chinese actors (thereby automatically increasing local interest), Marvel is anxiously anticipating how the movie fares in theaters against the prestigious Chinese film “So Young,” both rumored to open this weekend.