Behind the China Firewall
Magazine Publishers of America, (20060315)Abstract
China has been much in the news of late and not only for buying US
debt or pulling Asia out of a recession. China is under immense media
scrutiny because of recent disclosures that Google, under pressure
from the Chinese government, is removing (e.g. censoring) on its
Chinese search engine certain words such as Falun Gong, Tibet, democracy
and the like. So serious were these disclosures that Congress summoned
Google, Yahoo, and MSN to Washington to berate Google in particular
for such un-American activity, suggesting in a sense that the search
engines and technology companies do what the US government and more
than 100,000 international businesses in China have failed to do:
insist the Chinese government embrace the tenets of free speech and
a free press.
That this Google news would come as a surprise to Congress is no particular
surprise. But it should not be a surprise to even a chest-thumping
general public or to the media. Harvard’s Open Net Initiative (ONI)
has probably provided the most thorough critique of the lengths to
which China has gone to police the online behavior of its fast-growing
population of Internet users. The ONI reported in 2005 that “China’s
Internet filtering is the most sophisticated effort of its kind in
the world. Compared to similar efforts in other states, China’s filtering
system is pervasive, sophisticated and effective. It comprises multiple
levels of legal regulation and technical control. It involved numerous
state agencies and thousands of public and private personnel. It
censors content transmitted through multiple methods, including Web
pages, Web logs, on-line discussion forums, university bulletin board
systems, and email messages.
“Our testing found efforts to prevent access to a wide range of sensitive
material, from pornography to religious material to political dissent.
Chinese citizens seeking access to Web sites containing content relating
to Taiwanese and Tibetan independence, Falun Gong, the Dalai Lama,
the Tiananmen Square incident, opposition political parties, or a
variety of anti-Communist movements will frequently find themselves
blocked.”
The Open Net Initiative provides a detailed analysis of the pervasiveness
of Internet control in China. The report concludes that “China operates
the most extensive, technologically sophisticated, and broad-reaching
system of Internet filtering in the world. The implications for this
distorted on-line information environment for China’s users are profound
and disturbing.” IEEE Spectrum has also looked very carefully at
Internet censorship in China.
The magazine poses this question: “Could the (Chinese) government
open the floodgates to the waves of information washing up on every
shore yet keep out the ideas it was afraid of, such as ones about
sexuality, democracy, religious expression, and Taiwanese independence?”
Spectrum answers the question in the affirmative. It also reminds
us that “China’s experiment in cyberspace censorship is about to
take a dramatic turn. A massive upgrade to the country Internet will
soon give China robust, state-of-the-art infrastructure easily on
par with anything in the developed world. New technology will likely
give the Chinese authorities more censorship power at the router
level, making censorship more a matter of politics than technology.
I hear from many, inside and outside China that the best answer to
censorship is a technical solution. In the long term that might very
well be true, though short term, considering Chinese wealth, access
to the newest technology, and a 50,000 strong Internet police force
operating in 700 cities, the government appears to have the upper
hand. (The Internet in the U.S. is also highly centralized and could
be censored much as it is in China).
After the U.S. Congress called Google and others on the carpet, the
media reported that this issue extends far beyond China and Google,
Yahoo, Cisco, and Microsoft. Xeni Jardin writes in the New York Times
that SmartFilter, a product from Secure Computing, a California company,
has been used by Kuwait, Oman, Saudi Arabia, Tunisia and the United
Arab Emirates. “It has also been used by state-controlled providers
in Iran, even though American companies are banned from selling products
there (Secure Computing denies selling products or updates to Iran,
which is probably using pirated versions.)
Other filtering products, such as Websense, have been used in Iran
and Yemen ostensibly to filter offensive content and that aimed at
converting Muslims. Myanmar uses a filtering product from an American
company and Singapore uses one from a British firm. Western filtering
products appear to be used everywhere the government restricts free
speech, and not just in China. Jardin recommends that filtering technologies
be put on the United States Munitions List, a list of products for
which exporters have to file papers with the State Department. But
the horse appears to have already left the barn.
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China’s Shadow Side
Every development, good or bad (depending on one’s point of view),
has a shadow side. Spectrum has reported and many others have observed
that Internet traffic is outpacing capacity, so the Internet is becoming
somewhat of a bottleneck to the country’s push for greater industrialization.
When Internet transactions are slowed down by the censors, business
suffers. And this is just one of the dilemmas facing Chinese leaders.
Despite such sophisticated technology this system works best when
self-censorship is practiced by the population.
China has presented to international companies something of a choice
that might be applauded by the 17th century determinist Thomas Hobbes:
If you want to do business in the PRC, you must abide by our rules,
even if they run counter to your own traditions and business practices.
Though it’s not my intent to give the Chinese government wiggle room
under the wings of Hobbes, the philosopher is emphatic about a strong
social order being the only way the keep in check unruly nature,
which is man. Whether we like it or not, China has not been meek
about its position. At the FIPP conference in New York in May 2005
a Chinese delegate raised questions about the disputed Newsweek article
regarding the desecration of the Koran by Americans. The delegate
asked, in effect, what is the proper balance between the social order
and the social good and the public’s right to know. I am not sure
whether the question was answered to his satisfaction. Nonetheless,
his question accurately frames the media policy of the Chinese government.
Censorship in China is serious business. Violators, real or imagined,
are put in jail and some are killed. Newspaper and other media outlets
are regular shut down. The list of banned words and topics seem to
grow by the day. Recently the New York Times reported that a group
of prominent Chinese officials, senior scholars, and retired publishers
denounced the closing down of Freezing Point, a popular news journal.
(Click here for more.) They considered this move as a violation of
China’s guarantee of free speech. The letter read: At the turning
point in our history from a totalitarian to a constitutional system,
depriving the public of freedom of speech will bring disaster for
our social and political transition and give rise to group confrontation
and social unrest. Experience has proved that allowing a free flow
of ideas can improve stability and alleviate social problems.”
David Barboza reported in the New York Times that Chinese Internet
police are very adept at blocking and deleting phrases such as “human
rights” and “free speech” from online bulletin boards, but in most
respects the Web in China is unregulated. He writes that “Chinese
entrepreneurs who started out brazenly selling downloadable pirated
music and movies from online storefronts have extended their product
lines—peddling drugs and sex, stolen cars, firearms and even organs
for transplanting.”
As Xiao Qiang, director of China Internet Project at the graduate
school of the University of California, Berkeley notes, “Outside
of politics, China is as free as anywhere. You can find porn just
about anywhere on the Internet.”
China has about 110 million Internet users and is expected to surpass
the U.S.( 130 million users) in a year or so. China’s size and the
rapid growth of its Internet population makes long-term policing
very difficult. So do the muckrakers! Reuters reported that Li Xinde,
a self-styled Internet investigative reporter, exposes corrupt officials
and injustice on his China Public Opinion Survellience Net. According
to Reuters he uses 49 blogs to slip past censors. “It’s what Chairman
Mao called sparrow tactics, Li said. “You stay small and independent,
you move around a lot, and you choose when to strike and when to
run.”
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Reforming the Media Landscape
The New York Times writer Joseph Kahan notes that though most of the
signers of the letter cited above are retired, a collective letter
from respected elder statesmen can often help mobilize opinion within
a ruling party. Though Chinese President Hu Jintao has seemed to
favor tighter media controls, such as practiced in Cuba and North
Korea, he has solicited support from liberal elements. This is the
dance that is China.
There exists more than one parallel media universe in China. In 2003
the government announced plans to reform its media of 2000 newspapers
and 9000 magazines. According to China Daily in less than five months
the edicts has affected 1,452 Party and government newspapers, 673
had been suspended from publication. Perhaps the most important move
was to eliminate over time the so-called “command-subscriptions”
where in effect people were ordered to subscribe.
Reforming China’s media landscape is easier said than done. Over a
half-century the government spread media licenses around its thirty-one
provinces and among Communist Party powers and trade and industrial
groups (with Beijing getting the lion’s share). Publications tended
to be of low-production quality, boring, and often unread. China’s
next step was to organize the stronger publishing and media units
into larger units with scale. Concurrently international magazines
continued to enter China with most of the global advertising revenues
going to Western brands such as Cosmopolitan and Elle. However, domestic
Chinese brands, especially in business and women’s lifestyle made
significant progress. The business magazine CAIJING has been censored
and closed down on more than one occasion for criticizing the government
(Better targets are corrupt businessmen and questionable consumer
products). The magazine has vocal supporters in and outside China—including
the Wall Street Journal.
One often forgets that Western magazines have been in China in quantity
for at least twenty years (International Data Group enjoys that honor).
Since 1995 most major Western publishers have a presence in China.
Indeed, the women’s, fashion, lifestyle, men’s and special interested
categories are quite filled and mature. It is hard to find room on
the newsstands for another automotive title. In other words the market
has segmented along expected lines as it has done in so many other
countries—only faster. But big brands always matter. Vogue was introduced
last September to considerable fanfare and success. Rolling Stone
will launch shortly a China edition. The safe, lifestyle sector has
been a bonanza for international publishers.
But there is no such a thing as linear development in China, especially
in regard to the media business. Many publishing companies, including
some American firms, have been in the queue a long time waiting for
government approval. Media regulations change frequently in China,
are often ignored, and are frequently used as a means of giving or
not giving a publishing license to an international company.
Just when the talk in late 2005 was about China opening up its media
to outside investment and ownership, the door seemed to close a little.
Basically the State Council, which is China’s Cabinet, issued a directive
that non-public capital cannot set up and operate a news agency,
a newspaper, a publishing house, a radio station, or a TV station.
The regulation is extensive, including audio and video programs,
and Internet news sites. The regulation appears to limit any control
of content in the various media. At the same time the government
seemed to throw its doors wide open to outside investment in museums,
entertainment venues, and travel and culture services. China-watchers
suggest the government wants investment in these cultural venues
in advance of the 2008 Beijing Olympics.
We know that the 2005 announcement was simply a re-statement of existing
regulations that have been ignored or flouted through the pervasive
gray market. We have reported in the past that the government is
very unhappy with the blatant (and illegal) license leasing. However
interpreted, this directive was not good news for international television
content providers eager to tap the China market. The government seems
confident that no matter the hurdle, foreign media companies will
still be lining up in Beijing for operating licenses.
This perception is probably accurate though there is considerable
discontent about how China manages its license approval process.
As recent as January 2006 Qi Yongfeng, an official of the powerful
National Development and Reform Commission was quoted as saying that
the ongoing restructuring of the Chinese publishing industry is virtually
at a stalemate. He cites a number of reasons for this. The Chinese
had planned to designate all but a few Communist Party publications
as “for-profit,” and they would no longer enjoy government funding.
Apparently many publishers have resisted this, reluctant to give
up the government subsidy.
The government has not made clear how these new, for-profit entities
are to be managed. On paper these businesses were to be governed
by law and not by Party edict. Since the government requires state-run
publishing entities to retain majority ownership, this makes it very
difficult to attract outside investment. Perhaps more to the point:
the restructuring of the industry required a massive investment in
staff and infrastructure and the government was not able to underwrite
this. In effect many companies were cast adrift without the necessary
funding or expertise to prosper.
In China one never knows when comments are official or unofficial.
Nonetheless these remarks are strong evidence that many Chinese publishers
have been reluctant to embrace restructuring because they see no
immediate benefit. (Click here for more)
I know plenty of people and reputable companies who have access to
legitimate licenses. The Chinese government is becoming increasingly
concerned with the prospects of a newly introduced brand being financially
successful. The last thing the country needs are more under-funded,
unprofitable media businesses. As noted the China magazine market
is now very competitive and most niches are either filled or filling
up fast. China is woefully lacking in experienced publishing people
and this dearth is sending the price of talent sky-high.
Publishing in China is now very much about rapid brand-building, multi-platform
publishing, and sustainable competitive strategies. China is now
experimenting with granting licenses to well-established and financially-sound
Chinese publishing companies that can in turn transfer them to international
companies with the tacit agreement of GAPP, the license approval
body, without the usual delays and red tape. Whether this is due
to a realization that the current licensing system is neither convenient
nor sustainable, we will probably never know. But it does suggest
the government is willing to try a different approach. This effort
will likely become more public if it is successful.
China is a country of few laws and many exceptions. If something works,
it often becomes policy and law. Many international media companies
in China should not be able to exist. But they do. And this is China.
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The Map and the Territory
What is most bewildering about China is that the map never seems to
fit the territory. China is a Communist country that is demonstrably
brutal in repressing free speech. International publishers will rightly
say they don’t make the rules and are obliged to operate within Chinese
law. There are those, including some in the U.S. Congress, who suggest
large media companies in particular should make China a cause celebre,
insisting on certain rules of conduct. Unfortunately there is absolutely
no evidence that the Chinese government would respond favorably to
such assertiveness. China doesn’t need Google.
The Chinese government is not unfamiliar with glasnost and perestroika
and the consequences of the breakup of the Soviet Union. They see
that period as representing too much democracy much too fast. “Breakup”
is the operative word. China seems very fearful of the rural/urban
split, which is how the economy is developing. Thus the attempts
to suppress news of the 2005 riots in rural China!
Beneath a roaring economy, a Byzantine welter of government regulations,
and very real censorship is a growing middle class: 300 million strong,
mainly spread out over the urban axis from Beijing, to Shanghai,
and to Guangzhou. This is the reading room for so many Western and
upscale Chinese lifestyle magazines. Consumers in this region are
consuming products in much the same way as their Western counterpart.
Young couples are moving into apartments that need to be beautified.
Shelter, design, and décor magazines will surely be the next hot
category in China. Children in urban settings have assumed an exaggerated
importance, spurred by the one-child, one-family rule. They are not
called “little emperors” for nothing and will need all the accoutrements
that their Western counterparts enjoy. Baby, parenting and financial
planning magazines won’t be far behind. Nor will health magazines,
following in the footsteps of Prevention magazine, already well-positioned
in China.
China is experiencing a very aggressive consumerism, fanned by the
government because it’s in the interest of the state. The Chinese
consumer marketplace is a dizzying spectacle of products. Advertising
is not immune from consumerism. Procter & Gamble has been taken to
task for overstating the benefits of Pantene shampoo. This is a rare
example in
China of a genuine consumer protest movement presumably for the common
good. On the other hand, the Chinese consumer has to develop a more
subtle understanding of the language of advertising, appreciating
the role of metaphor. And international marketers should be aware
that the Chinese consumer is collecting marketing savvy at a fast
clip. UPS has done extensive research on what American products the
Chinese would or wouldn’t buy. The research indicates that consumers
are very interested in American-made consumer electronics products
and fashion items. Conversely, they have little interest in alcoholic
beverages and cigarettes coming from the U.S. (though advertising
for American liquors dot the urban landscapes). The research indicates
that in terms of overall purchasing behavior, sensitivity to price
and importance of brand, Chinese consumers are very similar to their
Western counterparts.
When asked why his company Danfoss, a Danish manufacture of compressors,
values, and motion controls, recently decided to invest much more
heavily in China, CEO Jorgen M. Clausen underscored the availability
of expensive consumer items even in rural areas. “Something that
particularly caught my eye was a refrigerator with inverters that
control the speed of the motor and thus saves energy—a luxury category
one wouldn’t even find in a Danish town.” (Click here for more)
Just consider some of the economic facts recently reported in China.
The country has become the largest market for Bentley. Best Buy opened
its first store. Kraft just shifted production from Australia to
China. China produces 60% of the world’s ceramic products. Warner
Bros. moved a design center from London to Shanghai. Wal-Mart has
at least 52 stores in China. And the country’s foreign exchange reserves
reached US $818.9 billion (Click here for more)
Go to the site listed and see how international China has become.
In many areas of production China has become the center of the world.
China is fast developing the world’s largest middle class. No wonder
more international companies see China not just as an important area
of investment but as a second home market, to borrow a phrase from
Jorgen Clausen.
China remains the elephant in the room and we are the blind men each
getting a limited sense of a large canvas. One can certainly object
on ethical grounds to doing business in China. But one must acknowledge
with as much certainty the salutary effects from the 100,000 international
companies operating in China. A large and growing middle class, interested
in the spoils of work, has developed and this has been one hallmark
of a country’s stability since the Industrial Revolution. F. Scott
Fitzgerald, the American writer, advised his readers to hold a number
of contradictory thoughts in their heads at the same time, maintaining
the tension of contradictions. One might try the same exercise with
China, but increase the contradictions by a factor of ten.
Publishers and direct marketers have a lot to offer China. In large
measure China remains a command information economy with the Post
Office being the ineffectual center of subscription marketing. This
is an area that offers considerable promise. Likewise, China lacks
in the truest sense a national distribution system, though numerous
initiatives are underway. Distribution and advertisings are sectors
where foreign ownership is encouraged and can reach 100%.
Late last year Hachette Distribution Services (HDS) took over a majority
stake in Huadao, the operating company based in Shanghai, indicating
HDS will be more aggressive in the sector. HDS is well-equipped to
produce what is desperately needed in China: strong management and
a reliable system to track and report back sales data.
China is forcing publishers, domestic and foreign, to scramble. Much
of the low-hanging fruit has been picked. The push now is to identity
and reach the hundred high-growth, second-tier cities that marketers
are hungry for. If introduction of the Western media promotes democracy
and cultivates a middle class, which has been the conventional wisdom,
then publishers have a distinct stake in investing in national magazine
distribution and subscription marketing system.
A Chinese friend wrote that a “great socialist idea would be to give
everyone the equal right, at equal price, to buy anywhere any time
all the magazine and book titles published in China. My speech to
the Chinese people is that they have to move away from a poor retail
distribution system to more subscriptions and digital products.”
He adds that to a degree China should (and perhaps must) leap-frog
over the antiquated distribution systems and move briskly to digital
delivery of content and subscription offers. Given the rate that
China is developing its Web infrastructure and the number of Internet
users the Internet can become an important content delivery system.
And the country is already wired for this.
Perhaps the kindest view of China’s press and foreign ownership restrictions
is to look at the country from the perspective of other developing
nations. Though India has been a rambunctious democracy for sixty
years, it has only recently loosed it restrictions on foreign ownership
of news content. But we are talking ownership, not censorship. After
the collapse of the Soviet Union Russia moved fairly quickly to permit
joint ventures, in the Western sense, often using these agreements
as ways to get hard currency and/or industrial components (I recall
a publishing company that gave the Russian partner a sausage factory
as its contribution). And only in the last few years did Brazil make
it possible for an international publisher to enter a bona fide joint
venture agreement.
Some would argue that Russia moved too quickly to restructure state-owned
business because Communist Party members just put on their democratic
hats. China has chosen a more cautious path: maintain a one-party
government but restructure the business environment. Though in practice
the regulation can be interpreted in many ways, the Chinese government
restricts foreign ownership of content. That’s the bullet a publisher
must bite when entering China. In most instances, due to self-censorship
and the lifestyle focus of most international titles, content ownership
is not a big deal. The government simply won’t permit hard-hitting,
critical news or business magazines into China. The government will
tolerate a certain amount of criticism from the domestic press—and
gets it—but not from foreigners. No one expects that to change any
time soon. To be sure this edict has as much to do with history and
the Chinese psyche as with censorship.
I recall launching Novii Fermer (New Farmer) in Russia with the late
Bob Rodale. This was in 1989 and he saw a huge opportunity with the
expected collapse of the large, unmanageable state and collective
farms. The magazine would be an instrument of change, bringing about
a generation of new farmers (He died before that dream could be fulfilled.
(Click here for more)
But one had that sense in Russia after the breakup of the Soviet Union.
That is not the sense one has when entering China. Obviously international
companies are contributing extensively to China, but the compact
is very different. The Chinese government, too aware of its history
and the tendency of the country to pull apart, has no such fantasies
as glasnost and perestroika. The restructuring that does take place
will be in the industrial and business sector, not the foundations
of government.
By some estimates magazine advertising revenues for China in 2005
were more than $770 US million. As noted, most of this goes to the
big international brands. Publishers are in China to extend the brand,
project a lifestyle and sensibility readily embraced by the middle
class, and to make money. Perhaps that’s enough. Given the complexity
of the situation, the international dependence on the China market,
and the global consequence of any government missteps in the PRC,
perhaps we should leave it to the Chinese (and American politicians)
to lecture their government.
I think it was George Green, President of Hearst Magazines International—and
a keen student of China, who said that America’s greatest contribution
to international publishing is our emphasis on empowerment and self-sufficiency.
These traits in its citizenry, after all, have a lot to do with America’s
success. Moreover, the traits stand in sharp contrast to the Communist
collective, which the Chinese entrepreneur seems to be running away
from.
We should probably be pleased that most international magazines in
China are filled with all sorts of “revolutionary” products and ideas
that help, inform, and cultivate the country’s important middle class,
offering a kind of transformation from within.
Richard Madsen writes in The Consumer Revolution in Urban China of
the power of consumerism to transform China but adds: “The novelty
of the first stages of the consumer revolution will wear out. The
freshness of consumer freedom is maintained by the constantly increasing
production of new and different commodities.”
Madsen fears moral and emotional anarchy if rising expectations outstrip
the capacity of the economy to deliver. While he is probably over-reacting,
he does underscore how influential international businesses have
been in changing the consumer psychology in China during the last
twenty years.
Every country goes through its “Age of Narcissism.” China is no exception.
Charles McCullagh
cmccullagh@magazine.org
March 15, 2006
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