China’s publishing industry is doing reasonably well during this global recession. In fact, it looks poised for a growth spurt, thanks in part to looser government restrictions on what can be published and also on foreign investment.


That outlook contrasts dramatically the situation faced by the American publishing industry. In December of 2008, Random House, the world’s largest publisher of consumer books, announced a major restructuring to cut costs. Houghton Mifflin Harcourt took the unprecedented step last November of suspending new acquisitions, except in rare cases. And the recent 2009 Book Expo of America (BEA), the United States’ biggest publishing event, was disappointing. If that’s all not bad enough, the Amazon Kindle, Sony’s eReader and Google’s new plan to sell books digitally represent another threat to traditional publishers’ market share. Michael Shatzkin, one of the publishing industry’s most respected gurus, recently claimed that reading a paper book will soon be considered “retro.”


Yet, the Chinese publishing industry seems to have a brighter future. According to financial reports, the four major domestically listed publishing companies — Shanghai Xinhua Media, Sichuan Xinhua Winshare Chainstore, Northern Alliance Publishing Media (based in Shenyang, Liaoning Province) and Time Publishing (based in Hefei, Anhui Province) — all posted double-digit revenue growth in 2008.


Despite negative sales growth in the last quarter of 2008, OpenBook, a Chinese market research agency, reported that by January 2009 its composite index, a tracking number which monitors retail sales, was up 20% from 2008. Greg Jones, International Sales Manager for People’s Medical Publishing House, says that despite concerns over the economy, publishers are “cautiously upbeat” about the industry.


Chinese publishing is a very domestically focused industry, and since China hasn’t been hit as hard as many other countries by the worldwide economic crisis, there has been less of a reduction in consumer spending on books. The sector is also well situated because of new regulations slated to consolidate the industry and make it more efficient. The recent slate of reforms is only the newest change in an industry that has been developing rapidly since Deng Xiaoping ushered in China’s era of reforms in 1978. Initial reforms reduced censorship and allowed publishers to start publishing books that people wanted to read. Further reforms through the 1980s and 1990s decreased government control slightly, though publishing, like other forms of media, remains under state control. 


A New Level of Reform


More recently, The General Administration of Press and Publishing (GAPP), the regulatory body responsible for the publishing industry, issued new guidelines ordering the privatization of university publishers by 2009 and general publishers by 2010. These publishers will have to function as businesses and their government subsidies will shrink significantly. One publisher at a large university press notes that before the reforms, the press had to pay 33% of its profits to the university. Now, it must pay an additional 33% of its profits to the government in corporate income taxes, effectively halving profits and causing “serious cash flow problems.” Additionally, the press now must pay for employees’ unemployment insurance, medical insurance and pensions, and contribute to a fund for local development. Together, the added expenses are considerable. For this university publisher, the only beneficial aspect of the reform is that the “sense of crisis will hopefully act as a motivator.”


Wharton management professor Marshall Meyer, whose research focuses on China, speculates that many state-owned publishers lose money and the government wants to trim their losses, especially in the wake of the newly announced stimulus package. The university press publisher, however, maintains that because the presses will continue to be owned by the state, university publishing houses will not be allowed to go bankrupt unless they distribute books the government deems inappropriate.


Another aspect of the reform is the encouragement of mergers between privately owned “culture studios” and state-owned publishing houses. Technically illegal throughout their 30-year history, culture studios provide services ranging from editorial assistance, marketing services and author management to the often bureaucratic state-owned publishers.


The system works because only state-owned publishers can get licenses known as “book numbers,” the legal requirement for publishing in China. This is another reason why Chinese publishing houses won’t go bankrupt — legal publishing entities, of which there are around 600 in China, receive a certain amount of book numbers a year. These scarce resources can be sold on the gray market for around US$2,000 each. So until the system changes, any publishing house can fire most of its staff and survive solely on the selling of book numbers.


The first joint venture since the newest reforms were issued — between culture studio Beijing Republic Publishing and Jiangsu People’s Publishing House — took place in April. In a report for CITIC Securities, researcher Pi Shun said that the reforms will help to better allocate publishing resources. By consolidating, the publishers will be able to complement each other more efficiently than through the current system of sharing publishing numbers. The two publishers jointly invested some US$14 million; the deal is seen as a barometer of just how the government will tolerate the edgier content produced by culture studios. “Culture houses are very good in marketing and acquiring authors,” said one publisher, who asked not to be named.


Looking to the Outside World


The consolidation of the two different types of publishing houses also allows foreign businesses a chance to invest meaningfully in state-owned publishing houses. An Boshun is CEO of Beijing Changjiang Arts and Literature, one of the curious hybrid companies that are 55% privately owned and extremely profitable. “State-owned publishers spend government money, and spend it freely. Because [in our case] it’s our own money, we have to be much more careful how we spend it,” he says. He adds that this is a good time for foreign money to enter the publishing business in China, partly because of government recognition of the importance of the sector and partly because many Chinese publishing companies lack professional managers and good management training, so management help from foreign companies could prove useful.


The minister of GAPP, Liu Binjie, notes that in the next five to seven years he wants consolidation to lead to the creation of six or seven international media and publishing conglomerates, with assets and annual sales both over one billion RMB. According to Liu, in keeping with the continued state involvement in the publishing industry, these media conglomerates should also be able to “guide world public opinion” — perhaps a reaction by the Chinese government to the massive amounts of negative press they received for the Olympic torch relay and the Tibet protests in March of last year. “As the foundation of cultural soft power, the Chinese publishing industry hasn’t progressed with the hard power of China’s rapidly developing economy and its status as a giant [state] in the world,” Liu said at a publication trade seminar in April.


As if on cue, Northern Alliance Publishing Media in June announced a strategic cooperation framework with two other parties, Tianjin Publishing House and Inner Mongolia Xinhua Distribution Group. A major cross-regional alliance, the movement has been viewed as a signal of the beginning of the industry’s consolidation.


One area of subsidy that the government still offers goes to publishers involves support for public relations efforts to push Chinese culture throughout the world, to increase its “soft power…. In the past few years the government has spent a lot of money and effort to encourage overseas publishing,” says Yolanda Liu, vice director of international cooperation at China Renmin University Press. This also suggests that the government might be more flexible in allowing investments in publishing houses that are primarily involved in disseminating Chinese culture to the world.


At the same time, the Chinese are also slowly opening the doors for foreign investment in other media. Foreign companies can now invest in companies that deal with book distribution and logistics, and can also sell original books from America. “In some graduate school classes, the professors require their students to buy the American originals and not the Chinese translation,” says Mrs. Liu, suggesting that this change in approach offers foreign publishers and opportunity. She added that, with the recognition of private culture studios, foreign companies can also close rights deals with the culture studios that are responsible for most of the bestsellers on the Chinese market, and they can worry less about the safety of their investment. As for publishing in China — the ultimate prize for foreign publishing houses – Mrs. Liu notes that might be permitted within five to ten years, though the future of the Chinese media industry is notoriously difficult to predict. 


Challenges to the Publishers


Chinese companies are still dealing with the challenges of piracy. One publisher complained that piracy “decimated our audiovisual sales. For a lot of our bestsellers, like The Biography of Mao Zedong, bootleg copies appear online or on the street days after we begin selling.”


Now the availability of web sites offering free books has driven people to read online. In 2007, “novel” was the most popular search term on Baidu, China’s biggest search engine. The ease of self publishing online, and the lack of content restrictions, has led thousands of amateur authors to post their stories on the Internet. Some of these have been picked up by publishers and turned into runaway bestsellers. Tales from the Ming Dynasty, a popular history of the Ming period in China, which spawned five bestselling sequels, first appeared online. Ghost Blows out the Light, written by an office worker at an investment company, was read millions of times online and also sold millions of copies in print. It has led to many knock-offs and popularized the genre of novels with grave-robbing story lines.


Another challenge publishers in China face is the lack of regulation and standardization — problems the most recent reforms would not necessarily resolve. In addition, fraud is rife: Chinese publishers routinely under-report the amount of copies sold in order to under-pay authors. Some agents charge 50% in royalties, as opposed to the 15% that is standard in America. Stories have also circulated about authors who discover that their book had been published in Hong Kong or overseas without their knowledge, having learned about it after receiving a phone call from a friend congratulating them. In such cases, an author’s overseas rights are sold without their knowledge and without any royalty payments.


Authors are often no better. Wang Gang, author of the bestselling novel in English, recently sold his new book, The Curse of Forbes, to both Shanghai People’s Publishing House and The People’s Literature Publishing House. The publishers published it at the same time, not knowing another publishing house was also contracted. The book even shows up at some bookstores with two different editions selling right next to each other. Both publishers are currently suing Wang Gang.

It remains to be seen how willing the government is to keep its promise and fully privatize the publishing industry. But it is a safe bet that the industry will become more profitable as the consolidations continue. “There are some really vibrant privately run book companies,” says An. “They are a bit like independent Hollywood studios-small, but with the real potential to shake up the industry and help it develop.”