When reform came to China's press and publication sector at the beginning of 2003 it was seen as an important part of the cultural changes sweeping the country. By October 2004 the first 21 institutions including seven publishing houses will have been restructured.
Liu Binjie, deputy director of the Press and Publication Administration, recently spoke to 21st Century Economic Report.
Liu maintains that press and publication products have all the attributes of the products of any other sector. Though they may be unusually dependent on ideas, there are stages of manufacture or processing, packaging and marketing. They represent commodities to be purchased by consumers and should be treated as such.
The sector operates in a dual role for it generates both economic and social benefits, Liu said. However the social role depends on exposure of the intellectual property content through marketing and sales so the unique attributes of press and publication products should not be overemphasized. Without the support of large-scale and influential companies in the cultural field, trying to develop an advanced socialist culture would be like building a castle in the air. Restructuring the institutions in the press and publication sector into market-oriented enterprises is a first step in building up their commercial strength. They can then go on to succeed in the face of fierce competition from home and abroad.
21st Century Economic Report: Would you describe the restructuring of the seven publishing houses in the pilot? Have things gone smoothly?
Liu Binjie: Five have already completed the process of restructuring and four of these are now independent commercial organizations. Generally speaking, the process has been going smoothly showing that the current policies for reform are appropriate. By October this year, the pilot institutions will be in the final stages where they will each sum up their experience of restructuring. Then in November and December their various experiences will be shared and fed into the overall planning of reform of the cultural systems. It is expected that reforms of the press and publication sector, based on experience gained through these pilots, will go industry-wide from the beginning of next year.
21st Century Economic Report: People's Publishing Houses are to remain as public service institutions. How do the current reforms apply to them?
Liu Binjie: The People' Publishing Houses which are established in each province, municipality and autonomous region are not affected by restructuring. Other similar institutions such as those engaged in ethnic minority publication will also be unaffected. As they publish on behalf of the Party and the government they are very much in the field of public service rather than commercial enterprises and so will continue to be funded solely by the government. But this is not to say that they do not need reform in such areas as governance and management so as to more clearly define their roles and remits and how they relate to government.
21st Century Economic Report: What are the main obstacles to reform and how can they be removed?
Liu Binjie: There are four main obstacles:
First: Mind sets have not yet changed. As we know, China had a centrally controlled economic system for many years. For the publishing houses this has meant monopoly, local influence and industry protectionism. They have become accustomed to operating in this protected environment. For them the rigors of market competition is still a strange concept. This is all very reminiscent of the early days in the reform of the state-owned enterprises.
Second: A comprehensive set of policies needed to support the reforms is not yet in place. Many issues are involved during restructuring. These include such important areas as property rights, management structure, rationalization of organizational structures and the effect this will have on employees, asset restructuring, and the adjustment of the structure of the industry itself. These policies are now badly needed if the introduction of reforms in these areas is to be smooth and effective.
Third: There is a lack of personnel with expertise in management in addition to their press and publication skills. Press and publication people are highly educated and very knowledgeable on cultural matters. But few have the expertise in finance and management necessary to run a commercial enterprise. This was not an issue in the days of government funding when there were no worries about having to make a profit. As the reforms deepen in the sector there is now a very pressing need for talented people with management expertise to back up their abilities in press or publication.
Fourth: The existing legislation and regulations were formulated to meet the requirements of the old system of central control. The process of bringing them up to date is already under way. Some will need to be amended and others repealed. Meanwhile further new laws and regulations will be formulated to allow for market supervision and regulation. Putting a comprehensive set of laws and regulations in place is a prerequisite for the rule of law to apply to the market.
21st Century Economic Report: The issue of asset ownership is being hotly debated. What are your views?
Liu Binjie: In theory, the press and publication industry was founded entirely on state capital. But in practice, the position is not quite so clear cut. In many institutions, state capital only provided the start-up capital while the greater part of the assets have been accumulated through business development. Also in some cases, capital has come in from other than state or institutional sources. Now that reform is under way the issue of ownership has surfaced and people are asking, who owns the assets?
According to the law, the assets of a press or publication institution, no matter how obtained, are state assets and as such are subject to the rules and regulations concerning the restructuring of state assets. However some of the institutions in the restructuring pilot have raised capital in a variety of ways so treating all their assets as state assets during restructuring does not seem fair.
I think we should view the issue in this light of the following two points:
First: The current restructuring is a process of transforming state institutions into state enterprises. Therefore, all the assets of the institutions, whatever their sources, should be transferred to the state enterprises as state assets. This would be in accordance with the current financial rules and legislation.
Second: The next step in the restructuring process should be reform of the ownership of the enterprise. Equity rights can be enjoyed both by the enterprises themselves as corporate legal identities and by individual employees.
21st Century Economic Report: What are some of the main "favorable policies" to help the press and publication businesses make their transformations?
Liu Binjie: Many press and publication institutions have been outside the social security system as they have been funded by the government. But from the date of restructuring, they find themselves required to foot the bill for medical care, unemployment and pension provisions for their employees. In this case "favorable policies" mean that the reformed enterprises will not be required to make retrospective payments into the social security system. Meanwhile those employees who stay on in the enterprises after restructuring will enjoy social security benefits as if their insurance payments had actually been made.
Other "favorable policies" concern government subsidies together with tax reductions and exemptions. The existing government subsidies and tax incentives enjoyed by the press and publication institutions will remain in place. On top of these, there are new tax incentives to run alongside the old ones and all will stay in effect until 2008. For example, a holding company with several different publication businesses can have tax calculated for the group as a whole. This has the advantage that tax losses can be transferred from loss-making companies to profitable ones. What's more, any new companies established by the restructured enterprises in the cultural field will enjoy a five year tax break. And in addition, there will be tax rebates to encourage exports of cultural products.
21st Century Economic Report: What is the next step in the reform process?
Liu Binjie: The immediate task is to increase the number of institutions and 61 new groups have been added to the list of companies in the pilot. Next year the focus will be on the reform of press and publication institutions currently owned by local governments. In the case of the local governments, the decision-making process is more direct than with central commissions, administrations, ministries or departments, so the pace of reform should be faster.
Institutions owned by the central government agencies will begin their reforms later. We expect that the restructuring in any particular institution should take between three to five years. No specific date has been set by which all the institutions should have completed their restructuring. Instead the plan is to identify the most appropriate institutions for reform and restructure them first. However, all institutions should realize that restructuring is inevitable and that both an early start and speedy restructuring will help them to be competitive in the market.
After restructuring has been completed there will be a group of large press and publication companies. These will be the main driving force of the industry. Then there will also be a separate group of smaller specialized enterprises. They will all concentrate on producing their own products for the benefit of the consumers in the markets they serve. The sector will have become an industry in every sense as it produces, packages, and markets products that must be capable of standing the test of competition in the market place.
21st Century Economic Report: Would you say something about the opportunities for private and foreign capital to enter the publication industry after the completion of the restructuring?
Liu Binjie: In the past, government-owned institutions did not manage their assets, therefore they could not engage in financing activities. After their transformations from public service institutions into commercial businesses are completed, they will be allowed to bring in external capital but of course must do so only in accordance with legislation. It should be noted that foreign capital is excluded from the editing side of the press and publication sector. This is in line with what is common practice throughout the world. So after the second step of restructuring, when the enterprises have passed out of state-ownership, all kinds of capital will be allowed in if the business chooses to go public.
Currently, there are no restrictions on the ratio of private capital to total capital in such areas as circulation, advertising, and printing. This means for example that a major distribution or printing group could be restructured through mergers and acquisitions.
To sum up, with the deepening of reform and continuing adjustment and improvement of the policies affecting the cultural sector, China's press and publication industry will emerge with a brand new image.
(China.org.cn translated by Ni Xiaoqiang, June 24, 2004)
