China's book retail sector has become as exciting as a page-turning thriller with foreign players making it their entry of choice to get a foothold in the publication distribution market.

New rules, which went into effect on May 1, provide specific guidance on the establishment of foreign-funded book, newspaper and magazine distributors.

Zhao Xiaobing, president of Global China (Beijing) Media Consulting Co said book retailing was the easiest breakthrough area for foreign companies.

China's book-retail market is mostly controlled by State-owned company Xinhua Bookstore, while the newspaper and magazine distribution is almost monopolized by the China Post Bureau.

Xinhua's dominance has been challenged by many domestic private bookstores, Zhao said, but the post-office system still has a near monopoly on the circulation of national newspapers and magazines with retail outlets in most Chinese cities.

In Beijing, for example, 95 per cent of newspaper and magazine retail booths are controlled by the city's post office.

"It is difficult for foreign investors to unseat the post office in the press circulation market," said Zhao. "I think most of the foreign players will first enter into book retailing."

Foreign giants

Several foreign distributors have submitted applications to set up shops after the detailed regulations were issued.

China Press and Publishing Administration Vice-Director Liu Binjie said that seven foreign companies had expressed a desire to start business in China - Bertelsmann, Germany's Books Information Centre, UK-based Pearson Longman Group, the US-based McGraw-Hill Group, Japan's Hakusha, Cambridge University Press and Singapore's SNP Publishers.

"Most of them are interested in book sales," Liu said.

German media conglomerate Bertelsmann AG confirmed that it had already filed documents to enter the industry.

"But we are only applying to extend business lines offered by our book club," said Ji Hanbin, an official with the company's corporate affairs department in China.

The opening up will be very helpful for Bertelsmann's book club to improve services and extend into other cities from its base in Shanghai, said Ji.

Bertelsmann set up a book club with special permission in Shanghai in 1994, which sold books, tapes and discs worth over 100 million yuan (US$12.1 million) in 2000.

More than 60 overseas companies have set up offices on the mainland with the intention of investing in the distribution sector.

China's retail sales of books, newspapers and magazines reached over 150 billion yuan (US$18.12 billion) last year, with sales volume growing at 12 per cent each year, said industry experts.

The seven applicants are among dozens of companies who have been in consultations with the press and publishing bureaux in Beijing, Shanghai and Guangzhou.

Zhao said some foreign companies might be deterred from entering the market by the likelihood that Chinese authorities would favour companies from Hong Kong, Macao and Taiwan, adding that it might take some time before overseas companies enter the market in strength.

But Zhao did not think the entrance of foreign players will bring with more cheaper books, something many Chinese have eagerly been looking forward to.

"Foreign investors' participation in distribution channels will not influence book prices much," said Zhao. He reasoned that they are not likely to attract customers simply by discounting products and running down profits.

"Their advantages lie in providing excellent service to customers and paying publishing houses on time," Zhao said.

Joint ventures

Zhang Wei, a senior researcher with the State Publication Research Institute, said that without stores or other sales outlets, foreign companies would have to choose local private stores to establish joint ventures.

Private bookstores are currently enjoying fast growth and would be more attractive to foreign companies than State-owned firms.

Vice-Director Liu Binjie said that except for textbooks, private stores had almost caught up with State-owned stores in revenues around China; and it is believed that a number of overseas companies have started talks with them.

Tu Yuyan, executive president of Xishu Bookstores, the largest private bookstore chain in China with over 500 branches, told China Daily that her company has been in discussion with four foreign companies including McGraw-Hill.

Privately-owned distributors generate 30 per cent of total sales; they can get better discounts when purchasing books from publishers, sometimes 60 per cent lower than State-owned counterparts.

Some private book sellers believe they can beat the State-owned and foreign competition with their flexible operations. They are trying a variety of strategies - offering specialized stock or loyalty-building services, discounts on best-sellers or a pleasant browsing experience.

One example is Jifeng Bookstore in Shanghai, a chain founded in 1998. It has built an image as an easy-to-find bookseller strong in arts and social sciences. Most of its 10 branches are in stations along the Metro 1 line.

Jifeng has also set up a readers' club. Members get even larger discounts and can exchange books with one another for free.

Shanghai Century Scholar Books Co Ltd has similar ideas. The 70,000 members of the readers' club attend concerts and group discussions.

Scholar calls its 6,500-square-metre store perfect for white-collar browsers because wall-to-wall carpeting lets them sit anywhere without smudging their fashionable clothes.

"Also, background music makes the process of shopping for books an absolute pleasure," enthused Marketing Director Ding Zhongyuan.

Beijing Jingqi Xishu E-Commerce Co, the largest private book retailer in China, also has an ambitious blueprint.

"I hope that in two to three years, the number of our chain bookstores can be expanded to 1,000," said Xi Shu, founder of Beijing Jingqi Xishu. It has more than 500 chain stores across the country.

Xi said the company's book club and online store have more than 200,000 members and the latter attracts a large number of Internet surfers.

Flexing muscles

Although State capital will no longer be the sole player in the market, senior managers of State-owned companies have expressed confidence in facing the challenges.

"It's stimulating for us," Xinhua company official Wang Yaohua said, referring to foreign booksellers. "Their participation is good for the development of the market, and we will also seek changes to be more competitive," he said.

With competition from overseas players imminent, reforms shall take place in the sector, he said.

One of the possible moves is to restructure Xinhua Bookstore into a share-holding company. Xinhua controls 70 per cent of the country's book market.

Competition from foreign capital should encourage them to develop into stronger firms rather than going on the defensive, Wang said.

Sources also said the authorities are now working on establishing large distribution groups besides Xinhua.

"China is planning to develop a number of State-owned distribution groups, giant publication enterprises with chain operations and modern logistics services to improve competitiveness," said an official from the China Press and Publishing Administration, who did not want to be named.

The distribution sector is an important part of the publication industry, he said, adding that if domestic distributors perform well in the next few years, publication enterprises could compete with big multinationals. Otherwise, they will be unable to cope.

China does not permit foreign capital into the book publishing sector. As publishing is linked to national culture and ethics, the WTO allows for protection in the field.

But he said foreign investors could influence the decisions of some mainland publishing houses in their choice of topics.

"As a result, big State-owned book distributors are important for the country," he said.

E-business

Besides competition among foreign, private and State-owned capital in the traditional book retailing business, online book stores will add another dimension.

In the eyes of Chinese Internet surfers, DangDang.com, Joyo.com, and Bertelsmann's Bol.com are the three most popular websites for books.

Among the three online stores, DangDang.com's prices are more competitive. It also has an advantage when it comes to variety, given its supply of 200,000-plus books and audio-visual products.

China Internet Network Information Centre's statistics say that by the end of 2002, China had more than 6 million Internet users who had shopped for books and other products online.

Online bookstores are attractive as they offer publications cheaper than those bought over the counter at a traditional bookstore.

Peggy Yu, executive general manger of DangDang.com, a well-known online Chinese-language bookstore, said online bookstores cost less than traditional ones given that they require no retail facilities.

The shareholders of DangDang, founded in 1996, are IDG, Luxembourg Cambridge Holding Group, Softbank, Science and Culture Book Information Co, Yu and her husband, Li Guoqing.

The website offers 210,000 titles, 90 per cent of the books available in the mainland's book market. Moreover, 200 new titles are added to DangDang's selections every day.

Since November 1999, when DangDang started its experimental run, the website has received orders from large cities such as Beijing, Shanghai and Guangzhou, as well as remote regions such as Xinjiang. Overseas Chinese living in the Unites States, Brazil, Southeast Asia, Hong Kong and Taiwan have also ordered from it.

Yu explained that the gross profit margin of an online bookstore in the mainland is about 35 per cent, similar to that of a traditional bookstore and higher than the 20 per cent earned by online bookstores in the US.

She also predicted that online bookstores from other countries, such as Amazon.com, will enter the Chinese market at the earliest chance.

Therefore, DangDang has already begun to make preparations to meet the challenge - Yu said that after her company is strengthened, it will not exclude the possibility of co-operating with large foreign websites.

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