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Private funds to enter media circulation market
( 2003-08-17 08:52) (Business Weekly)

Chinese entrepreneurs will face a "to-be-or-not-to-be" question next year when foreign firms become wholesalers in the nation's publications market, suggest analysts.

"Before foreign book and magazine wholesalers arrive, China's private dealers have only one year to strengthen themselves," said Zhao Xiaobing, president of Global China (Beijing) Media Consulting Co.

"That is not enough time to develop a united front."

The private sector, despite this fact, will be strong enough to compete in the cut-throat sector, Zhao told China Business Weekly.

Earlier this month, China Central Television (CCTV) reported private firms, with at least 20 million yuan (US$2.41 million) in registered capital, can apply beginning on September 1 to circulate and wholesale books, magazines and newspapers.

Applications must be approved by the General Administration of Press and Publications (GAPP).

Zhang Fuhai, deputy director of GAPP's Circulation Management Department, told CCTV during an interview private investors will face the same market-entry conditions as State-owned firms.

Although an official circular has not been released, Lin Jiang, also with GAPP, made similar comments last week when interviewed by China Business Weekly.

China honoured its promise to the World Trade Organization (WTO) on May 1 when it announced it would allow foreign investors to retail newspapers, magazines and books next year. In December 2004, China, under its WTO commitments, must allow foreign investors to wholesale newspapers, magazines and books.

China's post office, with outlets across the country, still monopolizes the circulation of national newspapers and magazines.

About 95 per cent of Beijing's newspaper and magazine booths are controlled by the post office.

Chinese media, however, have long complained that the post office is inefficient, and that it charges too much to distribute publications.

Most of the profitable local media have their own circulation networks. Some rely on private dealers, even though GAPP frowns on the practice.

In terms of book sales, State-owned Xinhua Bookstore, the nation's largest book seller, has lost market share to private firms.

Private book dealers, however, must identify themselves as branches of State-owned publishing houses when they either wholesale or publish books with their registration number.

Private dealers are currently prohibited from wholesaling publications, even though the practice exists. But when the State-owned post office feels competition is becoming fierce, it seeks retribution.

"With GAPP's approval, they could legally expand their businesses," said Wang Li, a private publisher and book wholesaler.

Private circulation firms have two major advantages: They can infiltrate every segment of society, at minimal cost.

Profit margins in China's publication-circulation sector are very low, and, therefore, only firms with low operation costs can survive, Zhao said.

But that does not mean China's privately run publication distributors can withstand competition with their foreign counterparts. They have many disadvantages, in terms of capital, talent, management and, sometimes, credit.

For example, German media giant Bertelsmann AG, the world's third-largest media company, has annual sales worth about US$18 billion.

Bertelsmann confirmed earlier this year it had applied to enter China's publication retail market. Bertelsmann said it expects to open numerous outlets this year across China.

Publication distributors from overseas must remain wary of their high operation costs, Zhao said.

For example, the salary a foreign firms pays its manager from overseas could be used to pay 1,000 Chinese newspaper vendors, Zhao said.

It will also take foreign wholesalers years to expand their outlets across China.

"Maybe the best option for foreign conglomerates is to ally with local private firms," Zhao said.

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