Letter from... China

In December, Beijing Media Corp raised HK$409.7m (US$116.3m) with a 47.7m share IPO on the Stock Exchange of Hong Kong. BMC encompasses the advertising, printing and trading arms of the Beijing Youth Daily, the capital city's second largest newspaper by circulation. BMC is the first state-owned media company in China to list on an overseas stock exchange.

The listing offers investors an opportunity to participate in China's economic growth. It also says much about the Chinese Government's recognition of the need to make China's media more competitive in the face of growing foreign competition.

It does not, however, mean a loosening of government control over editorial content. More listings of state-controlled media companies will follow, but their impact on press freedom is likely to be small.

'The listings will have absolutely no impact on editorial content,' says Simon Dewhurst, head of media investment banking at CLSA Asia Pacific. '(But) if you're not worried about having control over the vehicle that is doing the driving for your business, then they provide fabulous access to a proxy to GDP growth in China.'

Everywhere you look in China, people seem to be reading newspapers. Free sidewalk reading rooms are created by putting pages of different papers in glass cases on the sidewalk for people to stand and read. There's plenty of material to choose from. China has more than 2,000 newspapers, according to the China Daily.

The Beijing Youth Daily Group is one of the largest newspaper publishing groups in China. The Beijing Youth Daily, its flagship newspaper, is one of the most popular dailies in Beijing. The readership is fairly exclusive - 75% of its readers have college degrees, according to a Goldman Sachs report. It garners 30%-40% of advertising revenue in the capital city, according to a report by CLSA. Beijing is China's largest advertising market, and the coming 2008 Olympics in Beijing will make that dominance even greater in the next few years.

Access to that advertising income, and by proxy to China's fast economic growth, is what investors in BMC get. 'Advertising is the forecast of economic development,' says AC Nielsen Media Research in a recent report. Advertising revenue rose to RMB261.4bn in 2004, up 23% on-year, says the report. China's economy grew by 9.5% in 2004 compared to the previous year. 'Enterprises are confident (in the macro-economic environment) and are investing heavily in building up their brands,' says AC Nielsen.

China's media sector used to face no competition for advertising dollars, so premium content wasn't a big concern. In recent years, however, foreign publishers have entered China through copyright co-operation agreements. Under the agreements, magazines like Marie Claire and ComputerWorld are now available in Chinese. The Chinese partner approves the stories to include, and the translation.

The foreign publishers make money through advertising - under the accords of China's WTO agreement foreign companies can currently own 70% of an advertising company. On 11 December that rises to 100%. Attracting advertising is increasingly dependent on having quality content, and the foreign titles have better stories than most local publications. Chinese media companies see listings as a way to close that gap. 'The only way to compete against this foreign content is with money,' says a Hong Kong based lawyer who specialises in China's media sector.

Hence the BMC listing. 'There are a lot of listings in the works,' says the Hong Kong lawyer. But all are looking for 'how to bring foreign money in but not letting foreigners get too close to content'. The funds will help the Chinese companies nourish local talent and develop China content, an important consideration for a central government concerned about the growth of foreign-produced programming in China, without a matching growth of local programming.

To be sure, there is a chance that listing will compel newspapers in China to at least attempt to carry more daring copy. 'If the stock price starts to fall the board of directors will have to reconsider the editorial guiding principles,' says Yu Guoming, deputy director of the School of Journalism at Beijing's People's University. But as CLSA's Dewhurst notes: 'The principle responsibility of any media in China is to provide a platform for the Government.'

Alysha Webb is a business journalist based in Shanghai.