China Read

Following my first visit to China with a group of UK publishers in 2004, I concluded: "There has never been a better time to establish a business in China, with the authorities forcing several thousand holders of non-viable title licences to look for partners, a market clearly expanding dynamically, significant improvements planned for wholesaling and retail and China Post desperately keen to build its periodicals traffic as competition from new distributors grows."

After two further visits to that great country, most recently for the FIPP Congress in Beijing in May this year, I can do no more than reiterate: this is a great time to do business in China for all the same reasons.

As the middle classes continue to expand, magazines are doing especially well in the big cities such as Beijing, Shanghai, Tianjin and Guangzhou; the metropolitan areas of these four having a combined population at least as large as that of the UK.

But of the major world magazine publishing markets, the UK is currently lagging way behind in developing footholds. One of a few UK companies to establish a partnership with a licensed Chinese publisher is Haymarket, which feels it is doing well in China. Others, such as Emap, RBI, Dennis Publishing and Time Out have preferred to concentrate on licensing deals for titles while others, such as IPC Media and Future Publishing, have focused on licensing content. (See: www.ppa.co.uk/public/downloads/App1_FIPPmagazine_publisher_investment_in_China.xls).

But this is not just a game for the bigger players. A smaller company to have taken the step into the Chinese market, Crambeth Allen, has done so by launching a magazine, Hydrocarbon China, distributed to a carefully targeted audience with revenues coming from Western companies and using this base to develop two conferences and a website.

The Chinese media authorities are ready to put foreign publishers in touch with any number of the Chinese magazine title licence holders currently looking for partners to produce profitable magazines.

One of the things to understand is that only Chinese companies can legally hold a publishing license. Understanding the license system in China is not an easy task – but that is the nature of doing business on China.

As Steve Wilson put it in a recent report for PPA: "Everything you hear about doing business in China is true – and so is the opposite." So, a Western company cannot have 100% ownership… but Bauer has – or at least had. Hong Kong publishers are "not allowed to publish outside the territory"… but leading Hong Kong publisher Pu Dong was being assisted to do so. Porn is banned… but we saw it being openly traded in the Shanghai wholesale kiosks as "culture".

Main ways of doing business

There are three principal ways of publishing in China. The first, and probably the most controlled risk, is to strike a licensing deal for content with local publishers. IDG, Hearst and Reed Business, among others for example, trade through Trends.

Then there are the relatively new publishing groups encouraged by the authorities, such as China Publishing Group (CPG) in Beijing and the Arts and Literature Group and Century in Shanghai.

Beyond content, licensing a title to one of the international or indigenous groups is something which has been done to good effect by Emap, Dennis, Time Out and others.

Rental of a licence in a joint venture with a Chinese partner who is the owner of a Chinese publishing license is the method adopted by Haymarket, Bauer, Edipresse and a few others. The Chinese partner becomes a ‘silent’ partner who maintains the connection to the officials and the foreigner takes control of all publishing activities as if it was their own business.

The unease for those choosing this route is that if the arrangement breaks down, the investment becomes worthless.

And then there is the "outside in" model of Crambeth Allen and others, where all the revenue comes from advertising and sponsorship outside China and the title is targeted at a market of Chinese professionals. China Post is one of those who is delighted to assist with names and addresses for professional contacts.

Chinese officialdom

Most people would regard "publishing in China" as one exercise. This would be a mistake. Publishing is regarded as a regional matter, with each major centre having its own press and publications department, which makes the first permission decision, before secondary approval in Beijing.

The nature of the publication tends to dictate the level of interest that Chinese bureaucracy will take. If the publication is educational in any way – such as Nic Allen’s Hydrocarbon China, the authorities are unlikely to be interested unless it strays into political rather than technical territory. Lifestyle magazines – such as lads mags – can and from time to time do run into difficulties and for titles like the Economist, distribution is likely to be limited to hotels.

The government ministry responsible for the Press, the General Administration for Press and Publicity (GAPP), is on the one hand charged with encouraging foreign publishers to work with Chinese partners to help make strong businesses while, on the other, to ensure that its guidelines for what is acceptable are observed.

The China Periodicals Association (CPA) – a PPA equivalent - while answering to GAPP is there to help and advise magazine publishers, including foreign publishers wanting to do business in China.

Additionally, large cities such as Shanghai have press administrations and associations of their own and these can also be a useful way in to a successful partnership.

The Chinese market

There are around 9,500 magazines / periodicals registered as being officially published in China, and official policy has been to keep the number of titles at around that figure by encouraging new unsubsidised titles into the market while allowing subsidised ones to die.

According to FIPP’s World Magazine Trends 2006/2007, the Chinese magazine industry continues to see strong growth, with around 9,500 titles now on the market, compared to 9,000 in 2004 and just 1,000 at the end of the seventies.

Of these 9,500 titles, there are 1,200 consumer titles. B2B makes up the majority 4,800 titles and there are 3,500 academic research titles.

According to data from the China Statistical Data Collection of Press and Publication 2003, among the total number of magazine titles, the science and technology category had the largest share at 4,457 titles, followed by social science with around 2,318 titles, culture and education with 957 titles, general interest with 547 titles, art and literature with 539 titles, children with 149 titles and pictorials with 62 titles.

Distribution of magazines in China

Distribution of the press to retail outlets has been described as the Achilles heel of newspapers and magazines, and this is as true in China as anywhere in the world. But while the publishing of newspapers and magazines is still heavily restricted, distribution of them is not - the Hachette distribution operation based in Beijing and Shanghai being an example.

Wholesaling is still in many cases a pretty basic affair. As one senior publishing consultant put it to the FIPP Beijing Congress in May: "Most Chinese wholesalers were set up at the end of the 1980s and are traditional, individual, small-scale, family companies with little value added. There is inadequate point of sale support, no delivery to outlets, the operations are too small, there are no records of sales by point of sale and no IT…"

Given the huge scale of the country, it is little wonder that China Post provides probably the most reliable means of distribution. As well as delivering copies, China Post sells magazines at many of its 5,000 or so outlets and promotes subscriptions for 6,500 titles.

The 10,000 or so independent kiosks, 5,000 city-sponsored "chain" kiosks and around 6,000 convenience stores make up the bulk of "central city" outlets. Outside the central cities, there are around 20,000 outlets serving the bulk of this huge country.

Wholesale hubs are being established for chains such as the Shanghai kiosks, to bypass the traditional "kiosk" wholesalers.

Most importantly, advice is at hand from a variety of sources. Some useful contacts are available at www.ppa.co.uk/public/downloads/App5_Contacts.pdf

Hong Kong

Hong Kong is a separate market for publishing from mainland China and, officially, no publication is allowed to migrate from Hong Kong to the mainland – but they do.

Hong Kong and Quangzhou – the vast, sprawling province of 70m people to which Hong Kong’s Kowloon area is physically joined – have the traditional Chinese written language in common. Those brought up in the rest of China use simplified characters which make it impossible for most in mainland China to read the traditional ones.

Also, the southern provinces have a certain amount of regional autonomy which allows a growing amount of trade with Kong Kong.

Because of the lingering cultural links, the very western approach to business and good English skills, Hong Kong is certainly worth exploring as an option.

So in summary…

Although US, German, French and Japanese publishers are well established, there is still a hunger in China for the "right" kind of titles, and about half the current periodical licences have to be re-launched and could be available to incomers with Chinese partners.

Despite the surge in mobile technology, the magazine market is still expected to grow substantially between now and 2010 (at least) as the middle class expands.

Despite my comments, distribution is modernising and the antiquated wholesale markets are expected to be replaced by modern warehouses in the next year or so.

Retailing of magazines still has some way to go from a Western perspective, but the problem is recognised and being addressed, for example in the Shanghai kiosks, which are a big step up from roadside independents, and in supermarkets and smart shops in new modern shopping centres.

Just remember Steve Wilson’s comment: everything you hear is true… and so is the opposite.