China Comment

Energy, Environment, and Economy

Publishing in China

Have you ever wondered how a Chinese book gets published? Books in China are once again in the spotlight, due to Google Books’ scanning of Chinese copyright owners’ works without their permission, so I decided to comparatively examine the process of copyright and book publishing in China versus in the United States.

Book Identification Numbers

Anyone can publish a book and sell it in the United States and books are not reviewed by any state agency before publication. Despite the relative ease of publishing and self-distribution, selling a book to stores (and yes, even Amazon) is a bit more complicated. Retail outlets will only order books if they have something called an ISBN number. An ISBN number may only be purchased directly in blocs of 10 for $250 (Although larger bloc purchases of 100 or 1000 are possible) (Source). However, ISBNs can also be purchased individually from a company that previously purchased a bloc of ISBN numbers. These companies then sell ISBNs piecemeal to would-be self-published authors.

Until 2003, all Chinese publishing houses were owned by the state, but the state has gradually decoupled its ownership of publishers (Jing Bartz). The Chinese publishing industry has undergone three phases of changes since 2002. The first stage pre-2002 was government control over publication and oversight of book issuance. The second stage, after WTO entry, from 2003 to 2008 was a time when the state gradually divested both control over publication and oversight degraded. The third state, from 2009 until the present day is another time of tightening or shou of oversight, but loosening (fang) of control regarding publication. (See: Peterson Institute, page 3 for a description of China’s cycles of fang/shou, loosening and tightening, throughout reform periods.)

Books in China, unlike those in the United States, are not supposed to be published and distributed at all unless they have a state-issued identification number, a 书号 (shu hao) from the GAPP (General Administration of Press and Publishing). China today uses ISBN numbers, as can be seen from the back page of any recent-published book from China. These numbers may be purchased only from several state-designated publishing houses. Before 2009, the publishing houses made extra money by buying large numbers of book numbers and then selling them to third parties who were not directly associated with government approved (or run) print houses. (Jing).

A new system went into effect in 2009. The new system issues “book numbers on a per-title basis, eliminating the surplus ISBNs that could be sold off to unlicensed cultural companies.” (Martinsen, Danwei). Apparently, the new system will increase the Government’s influence on the book publishing industry. One Chinese newspaper expresses some fear that books may only be allowed to gain book numbers after being examined and approved by officials or those influenced by officials. (Martinsen, Danwei). Still, the 2003-2008 system has apparently continued in part due to the logistics of implementing the new system–the titles just may be more closely examined by officials than before: “[E]ven under the title-based application system, many publishers are still book number dealers: their books are actually produced by other cultural companies… . For books that have poor sales projections, authors use “self-financed publications” — actually, they buy book numbers from a publisher[,]” (Martinsen, Danwei) which in practice- despite murky legality in China, is similar to the path taken by some U.S. self-published authors.

A China Youth Daily article suggests that implementation of this new system is merely a tightening step enforcing existing laws before the publishing industry becomes more open three to five years (CYD, see second paragraph and phrase beginning “2010年年底…”) after the government decouples its remaining publishing units from their attached bureaus. Still, although these new publishing units may be more vibrant and nimble economically,  that does not necessarily mean the books will not  have to be approved. Under new policies, the censorship process merely shifts back a step as the Government retreats from ownership, but not from supervision.

Copyright

Copyright in China of a book lasts for 50 years past the author’s death (Article 21). The United States used to limit copyright’s extension to such a limit, but the Sonny Bono Copyright Term Extension Act— the “Mickey Mouse” law, passed in 1998, changed the law to “protect” works for up to 70 years after an author’s death.

Book Sales

“China had [about] 544 book publishing houses in 2007, turning out 248,000 varieties of books, of which 136,000 varieties being published for the first time. [NOTE: The 136,000 number is the number commonly used to compare to Britain and the US’ numbers of books released.]” (Hu Dawai’s Comments at Frankfurt Book Fair). In 2003, Britain published 120,000 titles and the United States 175,000 titles. (Beijing Review). (172,000 in the US in 2005)

China’s publishing industry as a whole sold 55 billion RMB of books in 2008 [about 8.5 billion USD.] (Jing). $24.3 billion in books were sold in 2008 in the United States, down from $25 billion in 2007. (Jing).

Appendix and Links

* PRC Copyright Law (english version; bilingual)

* Richard Lea of The Guardian gives a general overview  of Chinese Literature

* Overview of the Sonny Bono Copyright Term Extension Act.

* US Book Industry Statistics, 2008.

* Religious Book Publishing in China (Interesting).

* China Statistics on Books (2004).

* China Publishing Today (chinese)

* China Books Blog.

* And of course, Danwei.

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22 January, 2010 Posted by | China Economy, China General | , , , | 5 Comments

Fighting Corruption

Chinese national banks’ regional and provincial branches are audited by the state, and many state employees consider anti-corruption missions quite seriously. But to some degree, Chinese companies suffer from significant systemic corruption.

A Chinese friend served an internship over the Summer with the financial auditing arm of a provincial government. She worked on a team investigating a Shaanxi branch of a national Chinese bank’s accounting books. The team found several irregularities in the numbers, and they reported to their supervisor, who confronted the bank’s director.

The director offered to take the team to dinner and discuss the matter. He offered to pick up the check. My friend’s superior accepted and they ate, drank and discussed. The director argued that the misplaced amounts were inconsequential, somewhere around 7000 USD. He tried to convince the team to overlook the transgression in return for “help” and “benefits.”

The superior declined and the bank was fined. The director kept his job since the amount misplaced was only a “mistake” and the bank director was a “good man” who had long served. China’s system of friendship among bank officials almost guaranteed that unless the crime was disproportionately large, little negative attention would be fostered on the wayward director.

When asked what she felt about this situation, my friend seemed nonchalant. She stated it was common for bank owners to embezzle but she still admired her superior for being so “driven” in achieving his objective. She said most supervisors would probably have taken a bribe. Afterward, her team discussed the tragic situation whereby bribery and corruption are considered the status quo. They recalled their supervisor’s lament that although he always tried to quash corruption, his plans were often flummoxed. He annoyed too many in his bureau due to a “righteous” mentality, and was overlooked for promotions. He feared he could never move to a provincial-wide managerial position. Instead, for his efforts, he was stuck at a mid-level job, where he could be overruled if political considerations superseded a need for economic honesty.

China disciplined 115,000 Party members for corruption in 2005, and has dealt with an “average of 130,000-190,000 Party members each year for various types of misdeeds and crimes since the early 1980s,” according to Minxin Pei of the Carnegie Endowment for International Peace. For various reasons, “24,000 of the Party’s 68 million members” were expelled from the Party in 2005, according to Edward Cody of the Washington Post.

The country could have grown even faster without the stultifying effects of late-1990s corruption. According to Chinese economist Hu Angang, cited by Will Hutton in The Writing on the Wall, the annual cost of corruption “is between 13.3% and 16.9% of China’s [potential] GDP.” Admittedly, that number is difficult to believe and I would like to see it backed up by another independent evaluation. Still, when confronting the anecdotal evidence and the recent Gome and real estate scandals, it is not too difficult to perceive millions of RMB flowing where it should not.

My friend’s view of corruption is a common one, and she could not say she would refuse a bribe if it had been offered to her. The bank director was a powerful man and held lots of influence. Without protection, she may not dare confront such a man. She admired her heroic supervisor, but wondered whether she could emulate his courage.

Positively, the number of prosecuted corruption cases has risen in recent years. But negatively, many former Party and government members have “jumped into the sea” of business, and used government connections to flout laws, “grease wheels,” and avoid bureaucratic regulations.

Without a reevaluation and a recognition that everyone is equal under the law and none are more “equal than others,” people like my friend will hesitate in acting honorably and working against corruption. Eventually, they might do the right thing and oppose corruption, but without a change in its culture of privilege, China could face a very stormy and increasingly corruption-filled coming decade.

Links and Final Comment

Pei: http://www.carnegieendowment.org/files/pb55_pei_china_corruption_final.pdf

Cody: http://www.washingtonpost.com/wp-dyn/content/article/2006/02/14/AR2006021400672.html

It is far beyond the scope of this article to evaluate various countries’ approaches to fighting corruption. Corruption seems to be present everywhere in the world. Every few years the United States suffers something along the lines of an Enron, a Tyco, or a Bernard Madoff scandal; Germany suffers a Siemens scandal, Korea suffers a Samsung scandal, and so it goes ad. infinitum.

Note: This article was originally written in January 2008, and was recently updated.

2 February, 2009 Posted by | China Business, China Economy, China Future | , , , | Leave a comment

Out of China

Canon, Nissan, and Germany’s Steiff Toys are either forgoing China expansions or leaving China to produce in other countries. Other companies are leaving China to find cheaper, less regulated places to manufacture. RMB appreciation, costs of training, the new labor contract law, end of some preferential tax breaks for foreigners, inflation, visa regulations, and energy rationing have made China a little less attractive for foreign businesses and manufacturing. But where will these companies go, and why? Even some of the so-called drawbacks to doing business might be good for the long term. Below, the issue is examined.

Why Leave China?

Booz-Allen and AMCHAM released a March 2008 study that argued “More than half, or 54 percent, of companies surveyed [out of 66] believe that China is losing its competitiveness to other low-cost countries.” And “wages in China now [as of June are] rising close to 25 percent a year in dollar terms in many industries” (IHT). Specific “problems” include:

1.) China’s new labor contract law, which went into effect this year, might increase costs by 8% on average per firm, and will make it more difficult to lay off workers. One provision states; “from January 1, workers who have been with a company for 10 years – or signed two fixed-term contracts – will be entitled to one month’s severance pay for every year worked.” One could argue that this law is well-needed to align Chinese workers’ interests and pay with international norms. But still, it does put upward pressures on costs of doing business.

2.) RMB appreciation. The currency has risen by 7.1% this year against the dollar, which is amazing since the RMB only appreciated 3% from July 2005 through March 2006. (But there are opposing views, namely that the evaluation is overstated due to a weak dollar- since the RMB has actually declined 16% from 2006-2008 versus the Euro.)

3.) Preferential Tax Rates Ended for Foreign Firms; Export Tax Rebates Ended. Now, foreign firms pay a higher rate, generally 25% of taxes. (Information on the new law is from Deloitte, and HERE.) Also, export tax rebates were phased out. A trade manager quoted in AFP claimed, “The yuan appreciation has a huge impact on our business. It costs us much more in the production and delivery costs. What’s worse, the export tax rebates of 13 percent were cancelled so our total costs are up 20 percent,”

4.) Inflation.  “Seven out of 10 respondents cited the rising renminbi as a major reason for China’s decline, while wage inflation was cited by 52 percent of those polled.  Wages for white-collar managers and blue-collar workers have jumped 9.1 percent and 7.6 percent, respectively [on the year],” according to the AMCHAM study.

5.) Visa Regulations. The Wall Street Journal described how, due to the newly onerous visa regulations, one businessman had to leave China for Thailand, even though his company “researches commercially viable ways to sustain water and land resources in China.” In China’s defense, this businessman’s situation was made troublesome because his company had not been legally registered to operate. (Previously, many companies have not been registered). Visa regulations and enforcement of already on-the-book rules may do a little to slow inward-bound China growth. Ultimately, however, enforcement of logical laws will benefit China, so the stifling effect of strict Visa regulations may pass post-Olympics. (Michael at The Opposite End of China explains his visa problems HERE.) 

6.) Costs of Training/Turnover. The experience of Steiff Toys provides an interesting anecdote about the challenges of training and turnover in an emerging market. After being trained, employees might seek to market their talents at a better paying company. In Steiff’s experience, “[t]he company had frequently visited its Chinese partner to try to build up a good relationship. However, once, during a six-month gap between visits, almost the entire work force at one factory had changed.”

“It was no surprise the quality varied so much. New people came, the quality dropped, then they improved their skills and left,” he said, adding that the Chinese-made trampoline parts did not reach high enough endurance standards.”

7.) Energy Rationing. In January, and then again this summer, factories had to shut down power to ensure the grid was not overloaded.

Where to Go? 

Vietnam is the country most mentioned as a relocation place, but it faces surging inflation. In May 2008, food prices were 42% higher than they had been one year ago. China, in comparison, saw food prices increase by only 21% since 2007. Still, inflation worries in both countries only cuts their economic outlook from growth at 1-2% less than initially projected. This allows both countries to grow at 7% (Vietnam), or +9% (China) on the year.

What Vietnam lacks, that China increasingly has, are sufficient infrastructure developments. AmCham Vietnam discusses the problem of infrastructure. Vietnam’s plans for development are available at the World Bank.

Also, Vietnam’s population of 86 million pales in comparison to China’s 1.3 billion. International Lawyer Dan Harris, in informal interviews with several of his clients, believes that Vietnam’s manufacturing processes and human capital still need a great deal more of investment before they can compete with China- which may never happen.

Cambodia. Hailed as the next Vietnam, some garment manufacturers are relocating here. And “South Korea and Malaysia have been pouring in investment. In 2006, foreign direct investment totaled $2.6 billion, up from just $340 million in 2004, according to the International Monetary Fund” (IHT).

Cambodia “is where Vietnam was some 8 to 10 years ago.” [Yeo] likes a lot about Cambodia: its location in a fast-growing region, a young and inexpensive work force, rising productivity, a pro-business government, stable politics and strong GDP growth, which peaked at 13.5 percent in 2005 but was expected to mellow to 7 percent or 8 percent in coming years” (IHT). Still, Cambodia is tiny, with a population of 14 Million. And the vast majority of Cambodians are laregly uneducated and unskilled. Hyping Cambodia as a future economic powerhouse is probably overstated.

Malaysia’s International Trade ministry hopes to position itself to poach manufacturing plants that leave China. Malaysia claims it is interested in investments in “high technology,” less labour-intensive industries. Malaysia’s economy and workforce, however, is much smaller than China’s (at $357 billion PPP [Purchasing Power Parity] in 2007 and a 6.3% yearly growth compared to $6.9 trillion and 11.4% growth in China). More importantly, Malaysia has less to grow than China.  Only 13% of its workforce is in agriculture, compared to 43% of the workforce in China.) While it may attract certain manufacturing industries, a large-scale relocation is unlikely since costs in Malaysia will rise as the pool of workers decrease and compete for better-paying jobs.

India. People like to laud India over China due to its democratization, but India suffers environmental degradation just like China. And India suffers internal dissent, from Naxalites, from Jammu-Kashmir, from Islamist extremists, and from its rival Pakistan. Attempts to deal with water purification, smog, and other challenges will slow India’s growth in the short run, just like such attempts can short-term stall Western countries’ industrial expansions.

India’s Democratic society is also less likely to sanction the painful changes than China’s semi-autocratic government permitted to increase development. China ended or reduced many state pensions, reduced health benefits, and evicted thousands from their homes. As Robert Shapiro, a former undersecretary of Commerce, describes in his book Futurecast:2020, it does not appear India has the political will to carry through needed reforms.

India still faces a large variety of difficulties it must overcome before it can rightly challenge China as a competitive place for companies to relocate their industries. The day of relocations may come, but it is not yet here.

Why China is Still Attractive

China Law Blog believes the Labor Contract law did little to directly dissuade big foreign companies from investing in China. And that makes sense. China is a huge market, well worth the time and effort of investment, both for substantitve purposes (returns on capital), and for prestige (WE have a China office; do you?).

However, CLB also noted that “China has seen a number of factory closings of late, but most of these are very domestic factories that produced low end goods. I also have no doubt that many Taiwanese and Hong Kong and Korean factories producing the same sorts of goods have closed as well [because]… Beijing has instituted a number of policies explicitly aimed at marginalizing such factories so as to push China up the value chain. ”

Asia Sentinel backs up Dan Harris’ comments, calling attention to the closing of marginal manufacturing industries, but also stating that the higher value, better-run factories are staying open.

The Chinese Miracle, of its economic growth, still has a long way to expand. As the Motley Fool’s argues, the China Story is not going to end because wages are rising in coastal provinces. Instead, a new chapter will open as manufacturing and development “Go West” and drive to the interior. China has hundreds of million-person-populated second tier cities like Xi’an, Lanzhou, and Wuhan that can benefit from and contribute to internal development, services, and manufacturing.

China is experiencing teething pains, but it still has vast human resources. Its largest problems appear to be sustaining energy supply, its need to move more toward rule of law, and a need to contain inflation. And China, for the most part, is moving toward those goals (although containment of inflation is an open question). So will businesses depart from China? Some manufacturing might. Other manufacturing will just move farther inland, to take advantage of cheaper provincial labor as the coastal regions move up the value chain.

Extra

* September 8, 2008, the Washington Post presented a story about manufacturing moving from China to the US.

22 July, 2008 Posted by | China Economy | , , , , , , , , , , , | Leave a comment

Isn’t that Odd?: Plastic Bag Entrepreneurs

China has long been a country of entrepreneurs, from its urine merchants, to the indigents who walk around recycling plastic bottles and aluminum (they are ubiquitous, despite some efforts to remove them, both high and low tech [The former is an electronic recycling machine; the latter, a poignant transcript of a UK special on a “clean up” of homeless who make a living collecting plastic bottles]), to the proprietors of hundreds of mom and pop shops.

What follows is an amusing prediction for this week’s Isn’t That Odd.  If you’re in China and you see this happening, please post here- I’m asking my contacts to look out for this.

I predict that China’s new plastic bag policy is going to create a new wave of self-employment for their urban poor. Why? Well, first, let’s examine the policy:

1.) A National Policy Designed to Reduce Plastic Bag Waste
The policy of charging for plastic bags (at .2-.6 yuan), and phasing out the ultra-thin bags will hopefully decrease waste as people begin toting canvass and bamboo bags to the stores. However, some problems have been realized due to this policy, as a recent Xinhua article examined; ranging from vendors who are still utilizing the ultra-thin bags, to others who are not charging for bag usage.  “At a small grocery near the Carrefour, the shopkeeper still offered customers free plastic bags. As he said: “I sold vegetables worth 0.7 yuan. How can I charge 0.5 yuan for a bag?”

Other problems include:

It is more difficult to tote canvass bags everywhere when one goes outside. Penny-pinching people have to plan before going shopping, instead of previously being able to use free store-supplied plastic bags or to purchase new canvas bags at the grocery.

Also, at markets, fish-sellers now wrap fish in newspapers instead of inside plastic bags. This causes newsprint to leak onto the fish, which makes the food untasty and unsanitary. And places where the plastic bags are still used have suffered problems of people grabbing extra bags to use for private purposes- creating a shortage at some stores, as the Xinhua article goes on to explain.

Consequences: Depending on how much of a price these plastic bags might be oversold at, I wouldn’t be surprised to see some Chinese entrepreneurs standing outside stores, selling and undercutting the stores’ prices for plastic bags. They might grab a few extra bags when they are in the stores, they might repurpose previously-used bags, or they might (if they have some capital) go to a manufacturer and purchase bags in bulk.

If you’ve ever read Carl Crow’s venerable 400 Million Customers, you know how hardscrabble the Chinese can be in seeking out entrepreneurial opportunities.

My favorite tale of Mr. Crow’s (he wrote in the 1930s but his words are still relevant and amusing today- and inspired another informative book- James McGregor’s One Billion Customers.) is how Crow organized an ad promotion with a US manufacturer who wanted to introduce a better brand of soap (I think-I read the book a few years ago so my memory is slightly hazy) in Chinese stores. The manufacturer gave stores free soap samples to hand to their customers.

A month later, the manufacturer was quite upset, because brand awareness hadn’t increased. So Crow went to investigate. He found the stores and discovered several problems.

1.) Many stores were selling the “free” samples; because they figured it didn’t matter if one brand of soap was more popular than another; because they weren’t in the business of selling soap, consumers could buy their soap anywhere so giving soap for free would do nothing for their store! (They didn’t believe they could build store-brand loyalty with customers by giving something away for free- see point 2). And by selling the soap (cheaper than other brands), they could gain extra money that their neighbor stores wouldn’t get and could still win a little customer loyalty since customers would be glad that store A offered better prices!

2.) If something was free, many customers figured, it must be lower quality, or spoiled. So they didn’t want to take free samples. Only the poorest of the poor took the free samples, and they couldn’t afford to purchase this expensive soap anyway, so the marketing tactic fell flat!

 Oh, China- such an Odd and wonderful Capitalistic place.

4 July, 2008 Posted by | Book Review, China Business, China Environment/Health, Isn't That Odd? | , , , , , , , , , , , | 1 Comment

Isn’t That Odd? Segway Scooters

Isn’t That Odd is an occasional feature that aims to provide insight onto the Chinese psyche by pointing out particularly Chinese ways of thinking.

Segway Scooters, which in America cost about $5,000 on ebay and $4000-$6000 as of 2006 according to USA Today actually cost more in China- to the tune of $10,000!

Why do they cost so much? They have to be imported, and aren’t manufactured in China. In fact, they’re at a plant of a company based in New Hampshire.

******

Still… Couldn’t costs go down? Isn’t it surprising that they cost so very much more in China? According to the International Herald Tribune Article, Segway doesn’t want to move to China since it’s afraid its technology will be stolen by Chinese manufacturers. Well, they may be too late to prevent that. It appears copies have already begun emerging.

And as for the Segway name, which I believe is trademarked. It might have already been appropriated by a Chinese company making a remarkably similar product it calls “Segway scooter” (I suppose “Segway” is used in a similar manner as “Kleenex” is used when referring to tissues)

Compare this picture of a Segway on the Charmbright site Charmbright Segway Scooterto the ones on the real Segway site. Not being a Segway expert I can’t say whether the Chinese version is a copy, whether they are retailing the Segways on license (which I doubt since the Segway site has no mention of a “Charmbright.”). 

Charmbright’s listing says they are a “Manufacturer, Exporter, Agent” of Segway scooters from “Industrial Park, Jinhua,, Zhejiang, , China [CN]” which implies that they are creating them from scratch. Their post is quite recent; it’s from Apr 14, 2008.

So what is Charmbright? from their site: “CharmBright Limited is a professional manufacturer of sports products, marine products, fitness equipment and outdoor products. Our production line currently includes ATV, Dirt bikes Go karts, Scooters, Outboard motors, Inflatable boats, Trampolines, Pro-Jump, Waterbird, Skateboards, Fitness massager, etc.”   

Someone at Segway should probably check this out, for IP reasons.

7 June, 2008 Posted by | China Business, Isn't That Odd? | , , , , , , | 3 Comments