Chapter 6
A Survey of China's Book Publishing Industry: 2005–2006

In recent years, the reform of China's publishing and distribution system has made important achievements, one of which is the cultivation of some large and famous presses through group formation and intensive development. These outstanding publishing organizations have become the mainstay of China's publishing industry. Consequently, the market concentration of the industry has become higher than ever before. In addition, the industry structure has become more rational and profit has grown together with the increase and diversification of new titles. The competitiveness of China's publishing industry is becoming apparent as the industry expands. In order to obtain a more objective view of China's publishing groups and well-known presses and better understand the development trends of the publishing industry, in early 2007 the GAPP Administrative Department of Book Publication undertook a survey of the major economic indicators of 25 publishing groups and 14 Beijing-based publishing organizations with annual sales of over RMB 200 million. The research group has made an elaborate analysis of the data collected in this chapter.

OVERALL SITUATION

In 2006, the 39 surveyed publishing organizations maintained a good development momentum with marked increases registered in each economic indicator, despite the bidding system for textbooks and the price-cap regulation on textbooks for primary and high schools.¹

In 2006, these publishers published a total of 132,345 titles, accounting for 54% of the national total, among which 58,542 were new titles, accounting for 44% of the total. In the same year, their total assets amounted to RMB 93.353 billion, net assets were

¹ According to data released by these publishing organizations, the two factors resulted in a revenue reduction of nearly RMB 1.01 billion.

RMB 51.807 billion, sales revenue reached RMB 73.761 billion, and the publication value based on list price was RMB 40.983 billion. Delivery value was RMB 40.432 billion and total pre-tax profit was RMB 5.260 billion. Stock value by list price was RMB 18.811 billion and returned books were valued at RMB 2.233 billion.²

Compared with 2005, the total assets of 25 of the publishing groups grew by 8.43%, net assets 7.45%, sales revenue 5.22%, and the total pre-tax profit 0.68%. From 2004 to 2006, total assets of 14 large well-known presses expanded by an average annual growth of 9.84%. Net assets, sales revenue, and pre-tax profit grew by 15.38%, 13.87%, and 12.56% respectively.

ANALYSIS OF MAJOR ECONOMIC INDICATORS IN 2006

SCALE ANALYSIS

Analysis of Total Assets In this survey, the 39 publishing organizations were each shown to have very different proportions in terms of total assets. The aggregated total assets of the top 15 accounted for 75% while the other 24 accounted for only 25%.

Jiangsu Phoenix Publishing and Media Group ranked first with total assets valued at RMB 8.894 billion. The total assets of Zhejiang Publishing United Group, Shandong Publishing Group, Hunan Publishing Group, Henan Publishing Group, and China Publishing Group exceeded RMB 5 billion. In general, the aggregated total assets of publishing groups were greater than those of large well-known presses, with the exception of two large presses—Higher Education Press and the People's Education Press. The total assets of 14 presses were RMB 10.605 billion, with an per press average of RMB 760 million. Publishing groups also differed greatly in total assets: three had total assets of less than RMB 1 billion; China's Reader Publishing Group had total assets of RMB 626 million, only 7% of that of Jiangsu Phoenix Publishing and Media Group. Nearly half of the large well-known presses had total assets of less than RMB 500 million (see Table 6.1).

Analysis of Net Assets As with total assets, the net assets of each press or group also differed significantly. The net assets of nine publishing organizations exceeded RMB 2 billion, while those of the leading Jiangsu Phoenix Publishing and Media Group was 20 times those of the smallest Publishing House of the Electronics Industry. Except for Higher Education Press and the People's Education Press, 18 out of the top 20 by total assets and net assets were all publishing groups.

Analysis of Sales Revenue Ranking the 39 presses or groups by sales revenue, we will see that the top six were regional publishing groups in Jiangsu, Zhejiang, Shandong, Hunan, Henan, and Hebei. China Publishing Group ranked seventh. Although the sales

² Seven publishing organizations did not report their total value of returned books and so the number is incomplete.

revenue of most publishing groups was higher than that of large well-known presses, China's Reader Publishing Group, Chongqing Publishing Group, Beijing Publishing House Group, and Shanghai Literature and Art Publishing Group were exceptions.

Analysis of Pre-tax Profit Higher Education Press, the People's Education Press, the People's Medical Publishing House, and Foreign Language Teaching and Research Press ranked among the top ten according to total assets, net assets, and sales revenue, showing the strong profitability of large well-known presses even though the top rankings went to publishing groups, such as Jiangsu Phoenix Publishing and Media Group, Zhejiang Publishing United Group, and Hunan Publishing Group

Although Liaoning, Jilin, and Shanxi publishing groups each exceeded RMB 2 billion in terms of total assets, their pre-tax profit stayed below RMB 100 million. In addition, Heilongjiang, Beijing, and Chongqing publishing groups ranked last in terms of pre-tax profit despite their high total assets. None of the 38 publishing organizations which provided data made a loss (see Table 6.2). ³

Analysis of Publication Value Based on List Price The book publication value based on list price represents the publishing or production capability of a press or publishing group. Since many publishing groups are also distributors, publishing capability refers only to the production capacity of a press inside the publishing group. Table 6.3 shows that Higher Education Press and China Publishing Group ranked second and third respectively, although they fell behind in the rankings by total and net assets. This means that their main business was very robust, as was Jiangsu Phoenix Publishing and Media Group which ranked first. By comparison, other business divisions of Shandong, Hebei, Jilin, and Guizhou publishing groups made up a higher percentage. Among the top 20, four were large well-known presses: Higher Education Press, Foreign Language Teaching and Research Press, the People's Education Press, and Beijing Normal University Press.

Analysis of Total Delivery Value The ranking by total delivery value is slightly different from the above rankings. Here Jiangsu Phoenix Publishing and Media Group, which ranked first in the above rankings, ranked second in this ranking. It should be noted that of the top 20, six were large well-known presses, showing their relatively strong sales performance.

PERFORMANCE ANALYSIS

Analysis of Profitability The average profit margin of total assets of the 39 publishing organizations in 2006 was 5.63%, the average profit margin of net assets was 10.15%, and the average ratio of profit to sales was 7.13%, showing that they maintained a high profit level.

³ China Machine Press did not provide any data.

Tables 6.5, 6.6, and 6.7 rank the 39 publishing organizations by profit margin of total assets, profit margin of net assets, and ratio of profit to sales. An obvious phenomenon is that large well-known presses generally ranked higher than publishing groups. The average profit margin of total assets of the 25 publishing groups was 4.37%, the average profit margin of net assets 8.36%, and the average ratio of profit to sales 5.52%. For the 14 large well-known presses the average profit margin of total assets was 13.94%, average profit margin of net assets 17.32%, and average ratio of profit to sales 20.42%, which were 9.57%, 8.96%, and 14.9% higher than those of publishing groups respectively. The majority of top ten publishers by profit margin of total assets were large well-known presses, while the last 20 were all publishing groups. Ranking by the ratio of profit to sales is similar, showing that large presses had superior assets and strong profitability.

Stock Analysis In 2006, the total stock value of the 39 publishing organizations was RMB 18.811 billion. Their stock turnover rate was 46% in 2006, much lower than that of the industry which was 98% in 2005. The same rate of large well-known presses was 43%, lower than the average of the 39 publishing organizations. We should not generalize the stock situation. For publishing organizations mainly engaged in college

and university textbooks, a certain level of stock is required to guarantee books are in the shops before a new term starts in view of the uncertainty of enrollment. The stock turnover rate of some publishing organizations, such as Zhejiang Publishing United Group, Higher Education Press, Hunan Publishing Group, China Publishing Group, Liaoning Publishing Group, Jilin Publishing Group, and Shanghai Literature and Art Publishing Group, was more than 70%, with that of Zhejiang Publishing United Group, Shanghai Literature and Art Publishing Group, and Jilin Publishing Group ranging between 100% and 200%.

Analysis of Book Returns Since seven publishing organizations did not provide data on book returns, we can only analyze 32 publishers. The total value of returned books of these organizations was RMB 2.283 billion. The ratio of returns to sales was 6.57%, which is acceptable. Since the majority of the 32 organizations are engaged in the large-scale textbook publishing, their overall ratio of book returns to sales should be lower than the average industry ratio. However, China Publishing Group, Tsinghua University Press, Publishing House of the Electronics Industry, and China Renmin University Press had returns of more than 10%, China Machine Press and China Science Publishing Group more than 20%, and China Science Publishing Group 23%.

ECONOMIC INDICATORS: 2006 vs. 2006

Large well-known Presses Compared with 2005, the 14 large well-known presses grew remarkably with their total assets growing by 10.52%, net assets by 18.61%, sales revenue by 11.14%, and pre-tax profit by 29.84%. From 2004 to 2006, total assets grew by 9.84% period on period, net assets 15.38%, sales revenue 13.87%, and pre-tax profit 12.56%. The growth of these indexes was much higher than the industry averages.

Table 6.8 shows the rankings of 14 large well-known presses by the growth of total assets in 2006 against 2005. Overall their total assets and net assets grew. However, the pre-tax profit of Beijing Normal University Press, Higher Education Press, and SinoMaps Press decreased.

Publishing Groups Many publishing groups were established in or after 2004. They reorganized assets and incorporated presses, resulting in enlarged scale. For this reason we chose to compare data from 2006 with data from 2005 to better reflect

the development of publishing groups. Compared with 2005, the total assets of the 25 publishing groups grew by 8.43%. Their net assets grew by 7.45%, sales revenue by 5.22%, and pre-tax profit by only 0.68%.

Table 6.9 ranks the 25 publishing groups by the growth of total assets in 2006 over 2005. Compared with 2005, only two publishing groups experienced decline in terms of total assets and net assets. Out of the 24 publishing groups that provided data, four found their sales revenue dropping, with that of Sichuan Publishing Group decreasing by nearly 13%.

It is worth noting that the pre-tax profit growth of the 24 publishing groups providing data is not optimistic. Compared with 2005, the profits of 11 publishing groups declined by more than 10% and six by over 20%. Shanxi Publishing Group's profits decreased by 40% and Shandong Publishing Group even more.

The profit decline was caused by the bidding system for textbooks and the price-cap regulation. The 25 publishing groups suffered a total income reduction of RMB 1.01 billion. In 2006, the pre-tax profits of these groups totaled RMB 3.619 billion. Those deeply affected by the two factors include Hunan, Shandong Henan, Guangdong, and Sichuan publishing groups.

GROWTH CHARACTERISTICS AND REASONS

CHARACTERISTICS

The major economic indicators of most publishing organizations grew, although a few experienced a decline. Publishing groups have the advantage of scale while large well-known presses rank better. The imbalance between publishing organizations increased the polarization in the industry. Textbooks for primary and high schools played a significant role in raising economic indicators, showing that the industry needs to be guided more by the market. The deepening of institutional reform had an apparent impact on the profit increase of the publishing industry.

REASONS

The overall situation shows that the growth rate of large well-known presses was higher than that of publishing groups. This demonstrates that large well-known presses have good profitability and are sustainable in development.

The publishing groups ranking top by growth rate include Beijing Publishing House Group (25%), Heilongjiang Publishing Group (21%), Jilin Publishing Group (19%), and Shanghai Literature and Art Publishing Group (19.1%). On the one hand, these publishing groups were revitalized through reform. On the other hand, they are smaller in scale than other publishing groups and therefore have a smaller base figure.

It is a different picture for large well-known presses in top rankings. Higher Education Press grew at the highest rate. Its total assets reached RMB 2.276 billion in 2006, up 66.15% from 2004. Its net assets reached RMB 1.875 billion, up 45.05%, sales revenue RMB 1.181 billion (37.49%), pre-tax profit RMB 307 million (42.93%), and the profit margin of total assets 13.49%. Higher Education Press ranked above all other large well-known presses by total assets, net assets, and profitability. Foreign Language Teaching and Research Press and China Science Publishing Group also had high growth rates. These large presses owed their rapid growth to their expansion of publishing resources and opening-up of new growth areas. For instance, apart from traditional scientific and technological textbooks, Higher Education Press has also engaged itself in publishing textbooks for arts and social sciences, vocational education, and various examinations in recent years. Other presses also explored such fields as textbooks for primary and high schools as well as business and economics.

At the same time, these presses also made great effort to integrate their distribution channels for higher profit. For example, Landraco Book Publication and Distribution Corporation under Higher Education Press is a major player in the field of book selling that has contributed significantly to the sales increase of the press. In addition, these presses improved their internal structures, employment mechanisms, income distribution, and performance evaluations, which has inspired employees' initiative and creativity and enhanced the corporate competitiveness.

PROBLEMS

DECREASE IN MAJOR INDICES

Some publishing groups experienced a decrease in the major indices. For instance, Hubei Changjiang Publishing Group, Hebei Publishing Group, Guangxi Publishing Groups, and Henan Publishing Group experienced decreases in publication value based on list price, total delivery value, sales revenue, and pre-tax profit. The pre-tax profit of Henan Publishing Groups decreased 33.63%. The sales revenue of some publishing groups had grown but they still experienced profit drop. For example, the total delivery value of Heilongjiang Publishing Group grew 21%, but its profit decreased 25.23%. Guangxi and Hebei publishing groups also saw a profit decrease between 17% and 18%.

POOR OVERALL PROFIT

From reported data, we can see that the total profit of publishing groups only increased by 0.68% over 2005. This has something to do with the bidding for textbooks for primary and high schools and price reduction. Moreover, these groups were newly established and they needed time to integrate resources and reduce costs for internal transactions. At the same time, these publishing groups must also expand the scale elect and increase economic returns.

POLICY SUGGESTIONS

BUILD BIGGER AND STRONGER PUBLISHING GROUPS

In terms of performance, the aggregated profit margin of total assets of the 14 large well-known presses was 13.98%, profit margin of net assets 17.48%, and ratio of profit to sales 20.68%. For the 25 publishing groups, the profit margin of total assets, profit margin of net assets, and ratio of profit to sales were 7.67%, 11.06%, and 13.73% respectively, way below those of the large well-known presses. In terms of scale expansion, in the two years from 2004 to 2006, the total assets, net assets, sales revenue, and pre tax profit of the 14 large well-known presses grew by 20.65%, 33.13%, 29.66%, and 31.05% respectively. The four indices grew annually 9.84%, 15.38%, 13.87%, and 12.56%. Whereas for the 25 publishing groups, the four indices only grew 8.43%, 7.45%, 5.22%, and 0.68%. Beijing Publishing House Group, which ranked first of the publishing groups by growth rate of total assets, also saw a remarkable drop in pre-tax profit. This is a reminder to publishing groups that while expanding their scale, they should attach importance to core competitiveness and try to increase profitability.

SUPPORT PUBLISHING GROUPS SEEKING INTENSIVE DEVELOPMENT

It should be the focus of institutional reform in the publishing industry to extend vigorous support to large well-known presses seeking intensive development and turn them into professional publishing groups. The government should help them with preferential policies, encourage them to seek both intensive development and extensive expansion, and make themselves bigger and stronger through merger.

END THE MONOPOLY OF REGIONAL PUBLISHING GROUPS

In the rankings of the 39 publishing organizations by total assets, net assets, sales revenue, those ranked top were the regional publishing groups in Jiangsu, Zhejiang, Shandong, Hunan, Henan, and Hebei with the exception of China Publishing Group. These regional publishing groups have incorporated almost all local presses (except university presses) and most of them are engaged in both publication and distribution, making it easier for them to monopolize the local market and keep other publishers away from their territories. This goes against China's goal of creating a competitive national market of publications. It should be noted that the scale expansion of publishing groups within a province has not necessarily enhanced the performance and profit of the presses they took into their group. Instead, they have actually fallen behind those large well-known presses seeking intensive development.

BALANCE DIVERSIFICATION AND SPECIALIZATION

The relationship between diversification and specialization needs to be handled correctly.An important trend of the international publishing industry is that publishers are becoming more specialized of order to strengthen their core competitiveness. For diversification, publishers should consider both the upstream and downstream of the industrial chain in order to avoid the "snare of diversification." Some publishing groups in China own a huge amount of assets but are weak in profit generation, lagging far behind the professional large well-known presses. This further highlights the importance of specialization in development.