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Media Regulations in China

Business Strategies Group, Hong Kong (a BIIA Member) recently published a report on Media Regulations in China.  The full report can be obtained by contacting www.bsgaisa.com or Kim Cheng: [email protected].  The following is an excerpt of the report.

The key starting point of any discussion of media regulation in China is the fact that the government in Beijing remains firmly in charge of market. The government’s objective is to maintain control of content and, by extension, all forms of media; print, broadcast and Internet. Consequently, online media tends to get the most attention due to the fact it is newer and harder to control.  The government has made some changes to loosen its grip in some sectors of the market, most notably events and advertising sales. This is partly due to China’s commitments in advance of its entry into the World Trade Organization (WTO) in 2001. There is, however, still no commitment to open up media ownership in China and no sign of one in the near to medium term future. Despite this key restriction, advertising, event organizing and media distribution operations can now be owned up to 100% by foreign enterprises.

Due to the regulatory environment in China’s media industry, the following table outlines which activities are permitted and which are forbidden to foreign publishers:  Table 1: Options in China for foreign publishers

Content & trademark licensing þ
Foreign ownership of titles   
Foreign employment of editorial staff   
Foreign ownership of advertising company  
Foreign ownership of publications distribution business  

Source: BSG Analysis

The regulatory environment in China is constantly shifting. The line between permissible and illegal is never fixed. The following figure offers BSG’s graphic representation of how this works in practice (see chart next page).

The green area represents the clearly legal area of operations in China’s media industry. Any company can safely operate there, many companies do, and, consequently, it is very difficult to run a profitable business there.   The red area is where operations are explicitly illegal.  Few companies choose to operate there, but those that do tend to make money, at least for a while. However, it is often only a matter of time before they are stopped by the authorities. The consequences of blatantly operating in the “red zone” can be quite serious.  The grey zone highlights the area where companies are operating beyond what appears to be permissible. The size of the grey area varies from industry to industry and typically the line marking “the law” and the “cutting edge” tend to move gradually and continually to the right side of the diagram. Officials prefer only to change the law in China once it has been proven that a new system will work. This tends to legitimize changes that have already been made in the market for some time. Occasionally, the government will move the line back as it did a few years ago invalidating over US$1 billion worth of international investment in the telecom industry.

An example of a typical practice which pushes into the grey involves a foreign publisher who finds a Chinese partner to take the license for their title. The Chinese partner technically “owns” the magazine in China and the partner is the official employer of editorial staff. However, in practice these editors may actually work from an office of an advertising company which is a joint venture or a wholly-owned foreign company which may also pay their salaries. The foreign brand owner essentially pays the Chinese partner a royalty fee, although the foreign company may run all of the essential business activities.  Even Chinese publishers have used this approach with companies like Hong Kong-listed SEEC Media, an advertising company which controls the business operations of Caijing magazine.

The more that the foreign company takes responsibility for the publishing activities, the more it is actually operating in the grey area. Received wisdom has held that Chinese officials will normally turn a blind eye to this practice for uncontroversial B2B titles, but that would not be the case for any politically sensitive news titles.  Increasingly, however, in the past two years, B2B publications have also come under scrutiny. This is partly due to what appears to be a pre-Olympic tightening of the application of existing regulations and partly due to opportunistic complaints by competitors.   Courtesy Business Strategies Group Hong Kong www.bsgasia.com

BIIA Newsletter March – 2008 Issue

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