Chapter 19  Cultural, Radio, Film and TV Services

According to China’s commitment to the WTO, the opening of China’s cultural, radio, film and television services shall cover the renting and distribution of audio-visual products and entertainment software as well as the establishment of joint equity and cooperative enterprises. In 2004, foreign investment made its unheeded penetration into China’s film, television, cultural, radio broadcasting and media services.

I. Radio and Television

Starting from January 10, 2004, upon approval of the State Administration of Radio, Film and Television (SARFT), qualified overseas satellite TV channels are allowed to be broadcast in hotels and restaurants of three-star or higher class that receive foreign guests as well as certain specific areas and regions, for instance, offices and apartments exclusively for overseas people. Up to now, 31 overseas satellite TV channels have been granted the right to be broadcast in limited areas (hotels and restaurants of three-star or higher class that receive foreign guests and office and residential area exclusively built for overseas people).

II. Program Production

Starting from November 28, 2004, foreign-invested media companies may join Chinese radio and television program producers, however, with the share of the Chinese party no less than 51%. According to the relevant regulation, the joint venture is only allowed to make the following programs covering themes and columns, entertainment, and animated movies, with annual production of China-related programs no less than two-thirds of its total. Up to now, foreign media is strictly forbidden to make news programs or news-related themes or columns.

    Viacom, the third largest media group in the United States, has obtained the approval of SARFT to establish a content production joint venture between its popular children’s network – Nickelodeon and Shanghai Media Group (SMG). Being the first of its kind in China, the joint venture will co-produce live entertainment programs, games and animated programs.

III. Movies

In compliance with China’s WTO commitment, the State Administration of Radio, Film and Television (SARFT) together with the Ministry of Commerce (MOC) issued Provisional Measures Governing Entry Qualifications for Engaging in Film Production, Distribution and Screening on October 10, 2004, allowing foreign investors to participate in film production and screening, with capital contribution no more than 49% of the total registered capital. With regard to foreign movies, China will purchase around 30 to 50 foreign movies with exclusive copyright to be shown in movie theatres every year in addition to the annual import of 20 foreign movies on a revenue-sharing basis. Besides, the China Movie Channel is going to import about 400 foreign movies each year for its own broadcast.

IV. Cinematic services

China has also committed to allow foreign services providers to build and renovate cinemas. Provisional Measures Governing Foreign-invested Cinemas, effective as of January 1, 2004, allow Sino-foreign joint venture cinemas to be established in the following pilot cities: Beijing, Shanghai, Guangzhou, Chengdu, Xi’an, Wuhan, and Nanjing with foreign capital accounting for no more than 75% of the total registered capital.

July 12, 2003 saw the first investment move made by Time Warner in China’s cinema. The huge US media conglomerate signed its milestone deal with Shanghai Yongle Cinema, China’s No. 1 Cinema in box-office income, to establish Yonghua Cinema in Shanghai, the first joint-venture cinema in China after the country’s accession to the WTO. The new cinema involves a total investment of RMB28.5 million, among which 49% of the capital, RMB13.965 million, is contributed by Time Warner. Following the first move, Warner and the Shanghai Film Group reached an agreement to co-build 10 Shanghai Film and Warner Cinemas in China with total investment projected to reach RMB300 million.

V. Advertising

According to the statistics of the Shanghai Advertising Association, in the first half of 2004, there were 1273 newly established advertising firms in Shanghai, making the total number of advertising firms in Shanghai rise to 5424. Presently, the number of advertising firms, employees and turnover of these firms in Shanghai account for 4%, 5% and 15% respectively of the total in the country.

    By the end of 2005, China will meet its commitment in advertising by allowing foreign companies to establish exclusively-owned subsidiaries. Boosted by strong growth in economy, the advertising business in Shanghai is now developing rapidly. In the first half of 2004, the turnover of advertising industry in Shanghai reached RMB11.2 billion, which is expected to hit RMB20 billion at the end of the year. If the projection is right, there will have been an increase of 25% over 2003.

Box 19.1: Commitments made by China to the WTO in the field of culture

    With regard to audio-visual products, entertainment software and the rental and distribution of audio-visual products (excluding films, radio and TV programs), China is committed that foreign services providers will be allowed to establish cooperative enterprises with Chinese partners, with foreign investment no more than 49% of the total, on condition that that such commitment shall by no means undermine China’s right to censor the contents of audio-visual products to be provided by the cooperative enterprises. With regard to cinema services, China is committed that foreign services providers will be allowed to establish and/or renovate cinemas, with foreign investment no higher than 49% of the total. As for photographic services, foreign investors are allowed to establish holding companies. 20 foreign movies are allowed to be imported to be shown in cinemas in China every year on a revenue-sharing basis provided that relevant laws and regulations governing the administration of cinemas are observed.

    Regarding the distribution of books, newspapers and journals, China is committed to open retail business to foreign enterprises one year after the accession. Foreign services providers are only allowed to establish Sino-foreign joint venture retail businesses in 5 SEZs (Shenzhen, Zhuhai, Shantou, Xiamen, and Hainan Island) and 8 cities (Beijing, Shanghai, Tianjin, Guangzhou, Dalian, Qingdao, Zhengzhou, and Wuhan). However, the number of such businesses shall not exceed 4 in Beijing and Shanghai, 2 in other SEZs and cities though two of the firms in Beijing are allowed to set up branches in Shanghai.

    Within two years after China’s accession, foreign investors are allowed to hold the majority share of retail businesses selling books, newspapers and journals in all the other capital cities, Chongqing and Ningbo in addition to the SEZs and cities mentioned above.

    Within three years after China’s accession, foreign services providers may wholesale books, newspapers and books. They are also allowed to hold the majority share of wholesale businesses. Besides, restrictions shall be lifted with regard to quantity, territory, ownership and forms of business. Foreign investors won’t be allowed to hold the majority share of businesses with over 30 retail chains.

    With regard to advertising, foreign services providers, upon China’s accession to the WTO, are only allowed to establish joint venture enterprises in China with ownership no more than 40%. Within two years after the accession, they are allowed to hold the majority share of the joint ventures. Within four years after the accession, foreign investors are allowed to establish exclusively-owned companies.

    With respect to the value-adding telecommunications services (including related Internet ICP/ISP business), upon accession, foreign services providers are allowed to establish joint equity value-adding telecommunications enterprises and offer services in Shanghai, Guangzhou, and Beijing with ownership no more than 30%. There is no restriction on the number of such enterprises. Within one year after China’s accession, territory shall be expanded to cover 14 cities apart from Shanghai, Guangzhou and Beijing with foreign ownership no more than 49%. Within two years after the accession, there shall be no territorial restrictions with foreign ownership no more than 50%.

Box 19.2 Case:

    On December 8, 2004, Greenland Group, a real estate giant based in Shanghai acquired 49% of the stake of Shanghai Xinhua Publication group (SXPG), making SXPG the first mixed-ownership publication group as a subsidiary of the state-owned Xinhua Publishing Group. This was the first attempt made by cultural organizations in China to reform their ownership structure based on the bidding of the market. The Xinhua Publishing Group will further strengthen its business in order to meet its strategic goal of going public.