The Publishing Industry in China: Regulatory Nightmare or Niche Market Opportunity?

By Kimberly Wright

BookExpo America, the largest book trade event in North America, took place this year from May 27th to 31^st in Manhattan, New York. Book traders, however, noted something very different about this year’s event – namely, the delegation of 26 Chinese authors and nearly 500 representatives from 100 Chinese publishing houses that the Chinese government sent to attend the event.

China was invited as an honorary guest to the book exposition, where many speakers called for increased interaction and exchange between the publishing industries in China and the West. For foreign investors looking to break into China’s market for publications and media, this could be an important cue; despite stringent restrictions on the publishing industry in China, there are still many avenues open to investment.

China’s Publishing Industry and Opportunities for Foreign Investment

While China’s significant presence at this year’s BookExpo may have come as a shock, China’s rise to prominence in the international publishing world is long overdue. The publishing industry in China is valued at US $8 billion dollars and is the second largest in the world after the United States, and in 2013, Chinese publishers published 444,000 titles and 8.3 billion books. Chinese citizens are also avid readers: according to the Chinese Academy of Press and Publication, roughly 78 percent of people in China read regularly and nearly 60 percent read for an hour a day on digital platforms. This large readership has created many opportunities for those involved in media and publishing, especially as many Chinese readers are eager to consume international media and learn more about the word outside China.

The publishing industry in China has undergone a significant transformation over the last 20 years. In 2014, China bought rights to 18,167 foreign works and sold rights for 10,401 titles to international publishing houses, whereas the import to export ratio for Western and Chinese books was only 15 to 1 in 2002. This increased contact between publishing industries in China and the West has created new opportunities for investment, which is sure to continue to grow as Chinese publishers become more proactive in overseas marketing and Western audiences become more familiar with Chinese authors and media.

Regulation of Foreign Investment in the Publishing Industry

Despite relaxations on foreign investment categories over the past years, publishing in China is an industry marked with restrictions and prohibitions for foreign investment. According to the 2015 Investment Catalogue, these restrictions and prohibitions are currently as follows:

• Foreign investment in the publishing and production of sound and video recordings and electronic publications is prohibited.
• Foreign investment or establishment of publication enterprises is prohibited.
• Foreign investment in the printing of publications is restricted, unless the domestic Chinese party is the controlling shareholder.
• Foreign investment in the operation of news websites, online publishing service, online audio and video programs, and internet cultural business (besides music) is prohibited.

Furthermore, quality inspections occur at both the pre- and post-publication stages in China, where a publication may receive random inspections to ensure that it does not contain content prohibited by the Regulations on Publication Administration. The State Administration of Press, Publication, Radio, Film and Television of China (SAPPRFT) is the regularly body responsible for the regulation of all media and publications.

Foreign Investment

Despite these restrictions, foreign involvement is still possible in some areas within the publishing industry. China allows the establishment of sino-foreign equity joint ventures (EJVs), sino-foreign contractual joint ventures (CJVs) and wholly foreign-owned enterprises (WFOE) that are involved in the issuance and distributions of books, newspapers, periodicals, and internet publications, and it allows the establishment of CJVs in enterprises involving the distribution of audio-visual products. It is also possible for foreign investors to operate a chain operation business for the distribution of books, newspapers and periodicals, but for any chain operation that has over 30 chain stores, the foreign party is not allowed to be the controlling shareholder.

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In addition, enterprises involved in the distribution of publications may establish a book club or similar social organization. Within 15 days of the organization’s establishment, however, the organization is required to file records with the local administrative department of press and provide copies of any relevant materials.

Licensing

The License for Publication Business and the Approval Certificate for a Foreign-Invested Enterprise is required in order to establish an enterprise for the general distribution, wholesale and retail of publications through foreign investment. Specific licensing requirements differ according to the nature of the enterprise; for example, general publication distribution entities are required to have a minimum of 20 million RMB in capital.

Book Retail and Publication Distribution

Foreign parties are legally able to engage in the wholesale and retail sale of books and publications, and a number of foreign-operated retailers have entered the Chinese market in the last ten years. After forming a partnership with the law firm China Law Press, CCH, a subsidiary of the Dutch publisher Wolters Kluwer, opened its first foreign-operated bookstore in 2006 to sell publications in Chinese on law, accounting, and medicine. In addition, Page One, a Singapore chain specializing in design books and English language editions of texts, has increasingly expanded into the Chinese-language market and has so far opened three branch locations in Beijing.

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Some individual investors have also been able to create a niche market for themselves within the expat communities in China by opening up foreign language bookstores. The Bookworm is a foreign-owned bookstore that first opened in 2005 as a library with 2,000 books bought overseas, but it later opened as a bookstore and expanded to three store locations in Beijing, Suzhou and Chengdu. In addition to retailing books, it also holds social events like its annual Bookworm International Literary Festival, which invites 60 to 80 writers from around the world to come give book talks at its stores. 

Digital Platforms and E-Reading

Digital publishing is one of the fastest growing areas within the publishing industry in China. It amassed 316.8 billion RMB (US $55.1 billion) in revenue in 2014, and it has grown at an annual rate of 30 percent over the past five years to now account for 10 percent of total revenue for the Chinese publishing industry. Some investors have been seizing this opportunity to form partnerships with digital publishing platforms in China. This past March, Trajectory, an American digital publishing and e-book distributor, signed a deal with China’s technology giant Tencent to distribute 200,000 Chinese e-books in North and South America. Trajectory has also been developing partnerships with online Chinese bookstores like Dangdang to develop English versions of the online store. In addition, at the 21st Beijing International Book Fair last year, Wolters Kluwer launched a partnership with CNPeReading, an online library providing services to universities and research institutions all over China, to distribute materials on its e-book platform.

Foreign investors may naturally be hesitant to invest in an industry that is so heavily regulated. However, the size of China’s publishing industry and its connections to the booming education and entertainment sectors creates many new opportunities for investment in China. Indeed, investors interested in media and the arts may see the publishing industry as an exciting opportunity to make an impact on the cultural scene in China. 

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