Chapter 4
Organizational Analysis of China's Book Publishing Industry

Market structure, behavior, and performance are the core components of modern industrial economic analysis. Market structure determines enterprise behavior in the market; enterprise behavior determines market performance; and industry policy can influence industrial structure, behavior, and performance. This chapter will investigate China's book publishing industry from 2003 to 2004 using the theory of industrial organization.

ANALYSIS OF MARKET STRUCTURE

Market structure is the fundamental determinant of the competitive character of any industrial organization. Among a good many factors that determine market structure, the most important indices are concentration (including concentration of sellers and that of buyers, especially the former), product differentiation, and entry barriers. Since China adopts an examination and approval system for presses, all publishing houses are state owned, resulting in high entry barriers. At the same time, with over 200,000 book titles, it is hard to make a quantitative analysis of product differentiation. We will therefore focus on the concentration of the book publishing industry and analyze the impact of group formation on industrial concentration.

SCALE STRUCTURE OF PRESSES IN CHINA

The scale structure of presses in China takes an olive shape: there are a few super large and extremely small presses, while most are even-distributed medium-sized presses. Since medium-sized presses hold the majority of assets in the publishing industry, the leading role of large Chinese presses is not as significant as that of foreign ones. By comparison, the distribution of presses in foreign countries is pyramid-shaped, with most being small presses and several large presses leading the market.

Total Assets and Net Assets Total assets refer to all the assets owned or controlled by a press, including liquid assets, long-term investment, fixed assets, intangible and deferred assets, and other long-term assets or deferred taxes. The larger the asset amount of a press, the larger the operation scope of its assets. Net assets, which are the balance of total assets minus all liabilities, indicate the actual assets owned by an enterprise. They can better reflect the asset operation situation of a press.

The 2004 statistics show that the total assets of the publishing industry were RMB 44.345 billion, with average assets of each press at RMB 83.043 million. The difference in total assets was clear: 83 presses had total assets of less than RMB 10 million, accounting for 16% of all the presses; 243 presses had total assets of RMB 10-50 million; 11 presses had over RMB 500 million. Only two presses had total assets over RMB 1 billion. The total assets of the People's Education Press (RMB 2.3 billion) were more than 2,000 times that of the smallest press with merely RMB 1.1 million. In terms of press type, education presses rank high in all parts of China (see Tables 4.1 and 4.2).

The total net assets of all the presses in 2004 were valued at RMB 29.233 billion, while the average net assets of individual presses were RMB 54.743 million. The difference in net assets was clear: five presses had net assets of more than RMB 500 million; 216 presses less than RMB 10 million, accounting for about 40.4% of all presses; 41 presses less than RMB 1 million; and 14 presses, zero or less. Nearly 30% of all presses had net assets of RMB 10 to RMB 50 million (see Tables 4.3 and 4.4).

SBD and Sales Revenue SBD and sales revenue can reflect the operation scale and capability of a press. In 2004, the total SBD of 534 presses in China amounted to RMB 49.388 billion, with an average of RMB 92.487 million. Three presses had a SBD of over RMB 1 billion; 22 presses had less than RMB 5 million; and most presses ranged between RMB 10-50 million. The SBD of the top-ranking Higher Education Press was RMB 1.59 billion, more than 5,300 times that of the 50th press which had less than RMB 300,000 (see Tables 4.5 and 4.6).

Compared with the rankings by asset index, the number of university presses in top echelon increased remarkably according to ranking by SBD. Foreign Language Teaching and Research Press was third in the SBD ranking, indicating that the sales of university presses had increased rapidly.

Sales revenue, which measures the capital withdrawal capability and operation e?ciency of a publishing house, is the most important index on the scale of a publishing house. In 2004, the total sales revenue of 534 publishing houses in China was RMB 27.228 billion, with an average of RMB 50.988 million. Five publishing houses had sales revenue

in excess of RMB 500 million, while six publishing houses had less than RMB 1 million. The sales revenue of the top-ranking People's Education Press exceeded RMB 900 million, more than 3,300 times that of the lowest-ranking press. Accounting for nearly 60% of the total, 312 publishing houses had sales revenue below RMB 30 million (Tables 4.7 and 4.8).

CONCENTRATION OF THE PUBLISHING INDUSTRY

Industry concentration reflects the degree of market monopoly. A common index for measuring the concentration is the absolute concentration index, namely, the market share of several top-ranking enterprises, or the number of the largest enterprises with a certain market share. We adopt the former index, that is, to get the concentration rate (CR) of the publishing industry in China by computing the market shares of the top four, top eight, and top 20 publishing houses in sales revenue.

Joe S. Bain, an American economist, introduced an important index CR_n, the production or market share of n leading enterprises. Based on the value of CR_n, industry concentration can be classified into four types: highly concentrated oligopoly (CR₄> 65%,CR₈ > 85%), less highly concentrated oligopoly (35% < CR₄ < 65%, 45% < CR₈ < 85%), less concentrated oligopoly (30% < CR₄ < 35%, 40% < CR₈ < 45%), and the atomistic structure which is lower than the above indices.

From Table 4.9 we can see that in the four years from 2001 to 2004 the concentration rates of the top four, top eight, and top 20 large publishing organizations increased slightly, having attained the target of optimizing the industrial structure though at a somewhat slow pace. According to Bain's theory, the concentration rate of China's publishing industry is still atomistic (CR₄ < 30%, CR₈ < 40%), with a low industry concentration. The trend of concentration was not obvious and values of all the parameters in the past four years remained almost unchanged. Since the beginning of the 21st century, R₄ has been around 10% and R₈, around 15%, showing a trend of slight growth. Low concentration has become an important factor in preventing China's publishing industry from achieving economies of scale.

GROUP FORMATION

As competition within the publishing industry becomes fiercer and internationalization increases, the trend of group formation has become apparent. International and domestic factors are now pushing China to speed up group formation in the publishing industry. The essence of group formation is operational economies of scale and scope. Expanded operational scale and range due to the merger of publishing organizations can generate greater benefits than scattered operation. There are two methods to achieve operational economy of scale: vertical integration and diversified operation. Vertical integration can reduce the costs of enterprises and optimize resource allocation and maximize profit. Diversified operation can help extend the brand and reduce operational risks.

In 2002, the Opinions of the Publicity Department under the CPC Central Committee and the General Administration of Press and Publication on Strengthening and Improving Publishing Work proposed to push forward group formation and emphasize the cultivation of large-scale publishing and distribution groups. Group formation has become an important part of the reform of China's publishing industry. In 2003, the Third Plenary Session of the 16th CPC National Congress called for e?orts to boost cultural restructuring in light of the socialist market economy, creating unprecedented development opportunities for publishing groups.

From February 24, 1999, when the first publishing group—Shanghai Century Publishing Group—was established through the end of 2004, seventeen national pilot publishing groups had emerged in China. In order of establishment date they were: Shanghai Century Publishing Group, Beijing Publishing House Group, Guangdong Publishing Group, Liaoning Publishing Group, China Science Publishing Group, Shandong Publishing Group, Zhejiang Publishing United Group, Jiangsu Publishing Group, China Publishing Group, the Chinese Writers Publishing Group, Jilin Publishing Group, Sichuan Publishing Group, Henan Publishing Group, Hebei Publishing Group, Hubei Changjiang Publishing Group, Hunan Publishing Group, and Anhui Publishing Group Co., Ltd (see Table 4.10). Under the umbrella of these pilot groups were 125 book publishing organizations. Moreover, there were some non-pilot publishing groups approved by local governments and publishing administrations, such as Jiangxi Publishing Group and China Children's Press and Publication Group.

Currently in terms of the mode of association, publishing groups can be divided into the following types:

• General book publishing groups based on original publishing organizations supervised by administrative departments of press and publication, such as China Publishing Group, Liaoning Publishing Group, Shandong Publishing Group, Jiangsu Publishing Group, Zhejiang Publishing United Group, and Hunan Publishing Group;
• Restructured and established publishing groups that take publishing houses as key members and publishing as their main business, such as Shanghai Century Publishing Group and Guangdong Publishing Group;

  	Date of formation	Group	Members	Nature
  1	February 24, 1999	Shanghai Century Publishing Group	Thirteen publishers: Shanghai People's Publishing House, Juvenile and Children's Publishing House, Shanghai Scientific and Technical Publishers,Shanghai Educational Publishing House, Shanghai Translation Publishing House, Shanghai Lexicographical Publishing House, Shanghai Chinese Classics Publishing House, Xuelin Press, Shanghai Far East Publishers,Shanghai Science and Technology Education Press, Publishing House of the Unabridged Chinese Dictionary, Shanghai Bookstore Publishing House, and Horizon Media Co., Ltd.	General Books
  2	July 7, 1999	Beijing Publishing House Group	Seven publishers: Beijing Ancient Chinese Texts Publishing House, Beijing Children and Juvenile Publishing House, Beijing "October" Arts and Literature Publishing House, Beijing Education Publishing House, Beijing Arts and Photography Publishing House, Beijing Electronic and Audio-Video Publishing House, and Wenjin Publishing House	General Books
  3	December 22, 1999	Guangdong Publishing Group	Six publishers: Guangdong People's Publishing House, Guangdong Education Publishing House, Guangdong Science and Technology Press, Huacheng Publishing House, New Century Press, and Guangdong Economics Publishing House	General Books
  4	March 29, 2000	Liaoning Publishing Group	Nine publishers: Liaoning People's Publishing House, Liaoning Fine Arts Publishing House, Chunfeng Literature and Art Publishing House, Liaoning Science and Technology Publishing House, Liaoning Children's Publishing House, Liaoning Education Press, Liaoning Ethnic Publishing House,Liaohai Publishing House, and Volumes Press	General Books
  5	June 25, 2000	China Science Publishing Group	Two publishers: Science Press and University of Science and Technology of China Press	Science and Technology
  6	December 12, 2000	Shandong Publishing Group	Nine publishers: Shandong People's Publishing House, Shandong Science and Technology Press, Qi Lu Press, Shandong Literature and Art Publishing House, Shandong Education Press, Shandong Friendship Publishing House, Shandong Fine Arts Press, Tomorrow Publishing House, and Shandong Pictorial Publishing House	General Books
  7	December 21, 2000	Zhejiang Publishing United Group	Eight publishers: Zhejiang People's Publishing House, Zhejiang Education Publishing House, Zhejiang Science and Technology Publishing House, Zhejiang Juvenile and Children's Publishing House, Zhejiang Literature and Art Publishing House, Zhejiang People's Fine Arts Publishing House, Zhejiang Photographic Press, and Zhejiang Ancient Book Publishing House	General Books
  8	September 2001	Jiangsu Publishing Group	Eight publishers: Jiangsu People's Publishing House, Jiangsu Science and Technology Publishing House, Jiangsu Education Publishing House, Jiangsu Juvenile and Children's Publishing House, Jiangsu Fine Arts Publishing House, Phoenix Publishing House (former Jiangsu Ancient Chinese Texts Press), Jiangsu Literature and Fine Arts Publishing House, and Yilin Press	General Books
  9	April 9, 2002	China Publishing Group	Ten publishers: the People's Publishing House, the People's Literature Publishing House, Commercial Press, Zhonghua Book Company, Encyclopedia of China Publishing House, China Fine Arts Publishing Group, the People's Music Publishing House, SDX Joint Press, China Translation and Publishing Corporation, and Oriental Publishing Center	General Books
  10	2003	The Chinese Writers Publishing Group	The Writers Publishing House	Literature
  11	December 12, 2003	Jilin Publishing Group	Eight publishers: Jilin people's Publishing House, Jilin Science and Technology Publishing House, Jilin Education Publishing House, Jilin Fine Arts Press, North China Women and Children Publishing House, Jilin Literature and History Publishing House, Jilin Photography Publishing House, and Time Literature and Art Press	General Books
  12	December 26, 2003	Sichuan Publishing Group	Ten publishers: Sichuan People's Publishing House, Sichuan Education Publishing House, Sichuan Ethnic Publishing House, Sichuan Children's Publishing House, Sichuan Science and Technology Publishing House, Sichuan Literature and Art Publishing House, Sichuan Fine Arts Publishing House, Sichuan Lexicographical Publishing House, Bashu Publishing House, and Tiandi Publishing House	General Books
  13	March 28, 2004	Henan Publishing Group	Nine publishers: Henan People's Publishing House, Henan Science and Technology Publishing House, Elephant Press, Petrel Publishing House, Henan Literature and Art Publishing House, Henan Art Publishing House, Zhongzhou Ancient Chinese Texts Press, Zhongyuan Nongmin Press, and Wen Xin Publishing House	General Books
  14	April 15, 2004	Hebei Publishing Group	Six publishers: Hebei People's Publishing House, Hebei Fine Arts Publishing House, Huashan Arts and Literature Publishing House, Hebei Science and Technology Press, Hebei Children's Publishing House, and Hebei Education Press	General Books
  15	October 12, 2004	Hubei Changjiang Publishing Group	Seven publishers: Hubei People's Press, Changjiang Literature and Art Press, Hubei Education Press, Hubei Children's Press, Hubei Science and Technology Press, Hubei Arts Press, and Chongwen Publishing House	General Books
  16	December 2004	Hunan Publishing Group	Seven publishers: Hunan People's Publishing House, Hunan Literature and Art Publishing House, Hunan Education Publishing House, Hunan Science and Technology Press, Hunan Fine Arts Publishing House, Hunan Juvenile and Children's Publishing House, and Yuelu Press	General Books
  17	December 2004	Anhui Publishing Group Co., Ltd.	Six publishers: Anhui Educational Publishing House, Anhui Science and Technology Publishing House, Anhui Children's Publishing House, Anhui Literature and Art Publishing House, Anhui Fine Arts Publishing House, and Huangshan Publishing House	General Books

• Trans-regional professional publishing groups a?liated to certain industries, such as China Science Publishing Group;
• Regional publishing groups formed on the basis of an expanding publishing house bent on seeking intensive development, such as Beijing Publishing House Group.

All these publishing groups are committed to becoming large cultural groups to engage in editing, printing, distribution, copyright trade, research of books, newspapers and periodicals, audio and video products, and electronic publications.

After establishment, these publishing groups have actively carried out internal reform and strengthened resource integration so as to seek the benefits of economy of scale. In 2004, pilot cultural restructuring achieved initial success. Table 4.11 shows that the asset scale of publishing groups witnessed significant increase, with total assets rising by 6.6% and net assets 9.53%. However, sales revenue grew relatively slowly with a rate of 0.44%, almost equal to that of the previous year. The asset scale and sales revenue of some publishing groups have increased substantially. For instance, the total assets of China Publishing Group increased 8.81% in 2004, net assets 9.42%, and sales revenue 8.64%. Hunan Publishing Group's sales revenue increased 13.04% in 2004 compared to the same period of 2003. The total assets and net assets of Jiangsu Publishing Group rose in 2004 by 7.01% and 13.5% respectively compared to the same period of 2003. The total assets and sales revenue of China Science Publishing Group increased in 2004 by 29.70% and 6.38% respectively compared to the same period of 2003.

In addition, from the proportions of four indicators (total assets, net assets, SBD, and sales revenues) in the national market, the 17 publishing groups made up 30% of the whole industry, indicating that publishing groups will take a dominant position and possess certain controlling power in the publishing industry (Figure 4.1). To make the publishing industry larger and stronger, China must make full use of the advantage of

economies of scale, expanding the scale, promoting the brand, and increasing the profit. At the same time, e?ort must be made to continue to promote group formation in the publishing industry, optimize the industrial structure, and strengthen the international competitiveness of China's publishers.

Tables 4.12-4.15 are rankings of top 50 presses/groups in China by total assets, net assets, SBD, and sales revenue, with established publishing groups included.

The above tables show that to some extent the emergence of publishing groups has changed the structure of the publishing industry. With the exception of the Chinese Writers Publishing Group, 16 pilot publishing groups were included in the top 50 presses/groups in terms of sales revenue. Of the top ten, six were publishing groups (Jiangsu Publishing Group, China Publishing Group, Shanghai Century Publishing Group, Shandong Publishing Group, Liaoning Publishing Group, and Zhejiang the Publishing United Group) while the rest are Higher Education Press, the People's Education Press, Foreign Language Teaching, and Research Press, and Gansu People's Publishing House.

If a publishing group is taken as statistical unit, the total number of publishing organizations in China should be 465. An analysis of industry concentration using sales revenues of presses/groups was undertaken in 2004 and the results are given in Table 4.16.

Table 4.16 shows that China's publishing industry remains atomistic in market structure, but the concentration rate has increased. In particular, the market share of the top 20 presses/groups has reached 38.70%, ten percentage points higher than the concentration rate based on individual presses.

Currently, the concentration rate of publishing groups in China is much lower than that of their foreign counterparts. The market share of publishing groups is almost equal to that of the powerful individual publishing houses. Take sales revenue. In 2004, the total sales revenue of 17 publishing groups (including 125 book publishing organizations) was RMB 7.625 billion while that of the top 16 individual publishing houses was RMB 6.841 billion, close to the former figure. The book publishing industry in China still has a long way to go for an improved industrial structure enabled by group formation.

ANALYSIS OF MARKET BEHAVIOR

Market behavior refers to the strategic actions an enterprise takes to obtain more profit, higher market share, and wider room for development under a specific market structure and environment. What follows is an analysis of the industry behavior of China's publishing industry in the course of development.

CULTIVATE THROUGH REMAKING NEW-TYPE MARKET ENTITIES

Experience from the practice of opening-up and reform indicates that the fundamental premise for developing and expanding China's book publishing industry is to vigorously promote many competitive market entities. For this, the Chinese government has rolled out a series of effective measures to cultivate through remaking the new-type market entities.

To promote the publishing industry, the CPC Central Committee and State Council have issued several important documents pointing the way for the rapid development of the industry. The 2002 Circular of the General Office of the CPC Central Committee and the General Office of the State Council on Forwarding the "Opinions of the Publicity Department of the CPC Central Committee and General Administration of Press and Publication on Strengthening and Improving the Publishing Work" calls for efforts to draw on the successful experience in economic restructuring, give full play to the enthusiasm of publishing personnel, set up and improve a mechanism whereby leadership of Party committees and corporate governance structure are combined, define the responsibility for asset operation, and introduce the incentive and restraint mechanisms. The 2003 Circular of the General Office of the State Council on Releasing Two Provisions on Supporting the Development of Culture Industry and the Corporatization of Cultural Institutions at the Pilot Stage of Cultural Restructuring includes detailed policies on authorized operation of state-owned cultural assets, disposal of assets, income distribution, and finance and taxation in the course of corporatizing cultural institutions, the majority of which are publishing organizations.

Important documents, including the two aforementioned, have enabled publishing personnel to further emancipate their minds, set new tasks for the book publishing industry and publishing reform, and make possible new developments. According to the spirit of the above documents, publishing organizations must achieve the gradual authorized operation of state-owned assets during corporatization, allowing publishing organizations to have property rights as legal persons separated from the owners' rights, be independent in management and accounting, be responsible for their own profits and losses, and be subject to taxation according to the rules. This will not only guarantee that publishing organizations are owned by the State, but also stimulate the internal impetus for self-operation, self-constraint, and self-development with a view to preserving and increasing the value of state-owned assets.

Relevant CPC Central Committee documents have stipulated new regulations on the investment and financing behaviors of publishing organizations. On the one hand, the editorial departments of publishing organizations are definitely prohibited from receiving external funds and private capital shall not be allowed to play a part in the editing process; on the other hand, private and foreign investors are encouraged to invest more extensively in the areas specified by policies, founding and operating joint-stock or private cultural enterprises to engage in distribution and service agency. These enterprises shall enjoy the same treatment as state-owned cultural enterprises. Efforts will be made to separate publishing from marketing and strengthen supervision of the publishing business while at the same time opening up investment and financing channels in the marketing business step by step as planned. This will help provide a strong boost to the development of the publishing industry.

In June, 2003, the CPC Central Committee approved the plan to pilot cultural restructuring in nine provinces (municipalities) and 35 publicity and cultural organizations. Among the 35 pilot organizations, 21 belonged to the press and publication system, including seven book publishers and four distributors. With the aim of targeting present problems troubling cultural institutions in China, this pilot program differentiated nonprofit cultural institutions from commercial cultural enterprises by devising di?erent reform requirements and targets. Publishing houses that were corporatized upon approval were required to establish a modern corporate governance framework, operate independently, and assume sole responsibility for their profits and losses. The pilot program defined the market-oriented cultural restructuring and accumulated valuable experience, laying a solid foundation for all-round cultural restructuring.

Group formation is an important form of cultivating through remaking new-type market entities. Group formation within the book publishing industry plays an important role in separating government functions from enterprises, adjusting structure, optimizing resource allocation, tapping the idle stock, forming economies of scale, and enhancing overall strength. All publishing groups carry out reforms centered on assets and business, separating operational business from administration, founding group-controlled enterprises, and establishing and perfecting corporate governance structure. At the same time, large and famous presses gradually develop into professional groups while small and medium-sized presses focus on specialization. All these are important ways toward the cultivation of new-type market entities.

In 2004, the GAPP separated its government functions from enterprises and institutions, also separating administration from operation. The press and publication administrations of most provinces, autonomous regions, and municipalities also followed suit. All levels of press and publication administrative departments shifted their focus of work to perfecting macro-control, strengthening supervision and law enforcement, and improving their public services. They initiated the legislation for publishing administration by introducing laws, regulations, and provisions, such as the Administrative License Law of the People's Republic of China, the Copyright Law of the People's Republic of China, and Regulations on the Administration of Publication. This functional transformation has enabled the press and publications administrative departments to concentrate on regulating the publishing market and nurturing industry development.

END ADMINISTRATIVE MONOPOLY AND REGIONAL SEGMENTATION, AND ENCOURAGE COMPETITION

To sustain the development of China's publishing industry in the context of developing the socialist market system, open competition needs to be encouraged. Protectionism and inadequate market functions under the planned economic system had resulted in an underdeveloped book publishing market.

In order to turn around this situation, government departments concerned proposed further restructuring the circulation system and ending monopolies. Each province, autonomous region, and municipality was required to gradually reduce and finally eliminate entry barriers to circulation, putting an end to the long-standing mode of operation based on administrative divisions. The tendering and bidding for the publishing of primary and high school textbooks made great progress from 2002 to 2004. In 2001, the central government issued the Circular on the Opinions on Reducing Prices of Textbooks for Primary and High Schools and Deepening the Reform of Textbook Administration System as well as new course standards for primary and high schools, kick starting the reform of textbook distribution. In 2002, Anhui, Fujian, and Chongqing piloted the tendering and bidding methods for nine textbooks, including Primary School English and Middle School Chemistry. On top of this, the State Development and Reform Commission, the GAPP, and the Ministry of Education expanded the scope of pilot reform to include other provinces and started trans-regional bidding among all pilot provinces and municipalities. These reform measures will reduce each citizen's educational cost, improve the competitiveness of educational publishing houses, and gradually reduce the publishing industry's reliance on textbooks, especially those for primary and high schools.

DIVERSIFY CAPITAL AND OPERATION, AND INCREASE THE OVERALL STRENGTH OF THE PUBLISHING INDUSTRY

According to the state planning on publishing reform, publishing and distribution organizations can attract investments from other industries or countries in various forms through diversified operation. They can establish book-distributing group corporations, book chain operation corporations, modern printing companies, electronic product development companies, and vocational education and training centers. Guangdong Provincial Publishing Group is a case in point showing the trend of diversification within publishing groups. Its major businesses range from book and periodical editing, publishing, printing and copying, distribution, and logistics to copyright trade as well as import and export. It is also engaged in many other businesses, such as education, travel, overseas study and migration agency, real estate development, and property management. While large publishing groups are diversifying their capital structure, others seek diversification in their product chains. For instance, the Shanghai Century Publishing Group owns 13 publishing houses and 45 newspapers, making it both a brand book publishing organization and a famed publisher of high-quality periodicals.

Another important step to boost diversification is to allow private and foreign capital to flow into the field of book distribution. The state encourages, supports, and guides private capital to establish printing or distribution enterprises in the form of equity joint ventures or private companies. According to the revised Provisions on the Administration of the Publications Market which the GAPP began to implement on September 1, 2003, state capital is no longer the only capital that is qualified for the wholesale and general distribution of publications. By the end of 2004, six private corporations had been granted the "general distribution right of publications in China," and four issued the "nationwide chain operation license." The introduction of private and foreign capital has diversified the competition in the publishing and distribution industry, helping improve industry services and enhancing international competitiveness.

STRENGTHEN MARKET REGULATION AND COMBAT UNFAIR COMPETITION

Currently, the publishing market of China is still one of imperfect competition. As the publishing market is going through a major transition, cases of illegal operation are bound to appear in the book market. Recently, some vulgar or obscene pocket books have appeared in the market. Administrative departments of press and publication have launched a nationwide campaign to ban such illegal publications.

It has always been the focus of administrative departments of press and publication in supervising and controlling publishing activities to crack down upon and punish severely illegal publishing activities, such as trading ISBNs, using one ISBN for several books, substituting books for periodicals, and illegal co-publishing. From 2003 to 2004, the administrative departments of press and publication punished 55 publishing organizations for violating regulations by circulating notices of criticism, serving notices on violations, internal correction, and suspending business for corrections. Furthermore, the State Council prioritized the protection of intellectual property rights and the fight against counterfeit, infringement, and piracy as part of its e?ort to regulate the market order. Administrative departments of press and publication took a series of e?ective measures to combat such illegal publishing activities as copyright infringement and piracy. These measures have helped create a better market environment for the long-term development of the publishing industry.

MARKET PERFORMANCE ANALYSIS

Market performance is the final economic result under the joint working of market structure and market behavior. It reflects the effciency of market operation. Important financial indices for measuring the performance include, among others, profit margin of total assets, profit margin of net assets, and ratio of profit to sales.

PERFORMANCE ANALYSIS OF THE ENTIRE BOOK PUBLISHING INDUSTRY

The total assets of China's book publishing industry in 2004 was RMB 44.345 billion; net assets, RMB 29.233 billion; sales revenue, RMB 27.228 billion; and total profit, RMB 4.515 billion. The profit margin of total assets was 10.18%; the profit margin of net assets, 15.44%; and the ratio of profit to sales, 16.58%.¹

¹ The "profit" in this section refers to the total pre-tax profit, and financial indices, such as the profit margin of total assets, profit margin of net assets, and ratio of profit to sales are all calculated on the basis of this total pre-tax profit

According to PricewaterhouseCoopers' survey on the growth rates of global book publishing, filmed entertainment, and video games as well as their development forecasts for 2005, 2006, and 2007, the growth rate of the book publishing market is much lower than filmed entertainment and video games.

The same survey also indicates that in 2004 global book sales reached US$107 billion, an increase of 1.5% over 2003. The growth rate of the global book market was projected to reach 3.1% in 2005 because a new volume of the Harry Potter series and the No Child Left Behind Act passed by the Bush Administration would increase the sales of textbooks.²

The average profit margin of operation of 15 European Union countries was 14.9%.³ The countries with a margin exceeding 15% were Austria, Denmark, Spain, Italy, the Netherlands, Portugal, and the United Kingdom.

The above statistics show that there was little difference between China's book publishing industry and overseas industries in terms of profit indices. However, the growth in the sales revenue of the international market is slow while that of China is rapid. The sales revenue of China's publishing industry in 2004 was RMB 27.228 billion, up 7.29% from RMB 25.377 billion in 2003.

By comparing China's book publishing industry with those of other countries, we can measure the gap in between. However, we cannot ignore the fact that the book publishing industry is one capable of exerting strong external influence. In other words, while it is reasonable to demand an improved performance in the book publishing industry, this improvement should not be achieved at the loss of social benefits. Moreover, the book publishing industry should satisfy the diverse cultural demands of people in all social strata. An important index for measuring the external influence of the book publishing industry is the diversification of book titles. Therefore, when evaluating the performance of the book publishing industry we should not confine ourselves to comparisons of financial indices. Rather we should put the industry in a broader perspective.

PERFORMANCE OF PRESSES OF VARIOUS TYPES

This report includes statistics on the performance of ten types of publishing houses in 2004 (see Tables 4.17-4.19).

Profit Margin of Total Assets Educational presses ranked first with the profit margin of total assets reaching 12.80%, 2.62 percentage points higher than the average 10.18%. The profit margins of total assets of 383 presses in educational, social science, and science and technology exceeded 10%. Although presses in these three categories di?ered greatly in performance, their performances were good in general.

² "Book Publishing," Economist (July 18, 2005), http://www.economist.com/agenda/PrinterFriendly.cfm?Story_ID=4181401 (Accessed May 2007).

³ They are Austria, Belgium, Germany, Denmark, Spain, Finland, France, Greece, Iceland, Italy, Luxemburg, the Netherlands, Portugal, Sweden, and the United Kingdom.

Profit Margin of Net Assets The top three presses in terms of profit margin of net assets were also in social science, education, and science and technology, as were the top three presses in ranking by profit margin of total assets. However, social science presses and science and technology presses surpassed education presses according to this index, which had something to do with the large net assets of education presses. The highest profit margin of net assets for social science presses was five times that of the lowest margin for travel presses, highlighting that presses of di?erent categories di?ered greatly in the profit margin of net assets.

Ratio of Profit to Sales Ratio of profit to sales can reflect the profit that a certain type of press makes from selling a given number of books and the profitability of its main business. The top three types of presses were education, children's, and social science. The education presses topped the three with 24.15%, 7.59 percentage points higher than children's presses which ranked second. The ratio of profit to sales for travel presses was only 1.73%, far less than other types and 13 times lower than education. As children's books have similar features to educational books, the market for educational books is highly profitable.

PRESS RANKING AND PERFORMANCE ANALYSIS

The performance of the book publishing industry depends on that of each press, especially the performance of large- and medium-sized presses that dominate the market. Statistics show that performance-related financial indices fluctuate greatly in smaller publishing houses. Unable to reflect the performance of the publishing industry as a whole, these indices may misguide one's judgment on the industry performance, resulting in incomplete, unfair evaluation. Therefore, only publishing houses with total assets above RMB 100 million and net assets or sales revenue above RMB 50 million have been selected below for ranking and analysis.

Profit Margin of Total Assets The scale of total assets shows the resources controlled by a publishing house and is an important indicator of its strength. The profit margin of total assets of the book publishing industry in 2004 was 10.18%. The profit margin of total assets reflects a press's asset profitability and quality.

Out of the 118 publishing houses with total assets over RMB 100 million, 59 had a profit margin of total assets over 10% and 95 over 5%. This shows that the asset quality of large- and medium-sized publishing houses is satisfactory and that the profitability of the book publishing industry is relatively strong. Of course, there are still some publishing houses with low profit margin of total assets.

Profit Margin of Net Assets The scale of net assets reflects the capital strength, accumulated funds, and the solvency of a press. The net assets vary significantly among publishing houses. Although the net assets of the People's Education Press was nearly RMB 2 billion and that of the Higher Education Press was also above RMB 1.2 billion, the overall net asset scale of all presses was relatively small in 2004. The net assets

of 218 presses were less than RMB 10 million, 26 were zero or negative. Compared with other industries, the book publishing industry had fewer leading enterprises. The profit margin of net assets reflects a press's profit and asset profitability. The average industry profit margin of net assets was 15.45%. Table 4.21 shows the top 50 presses by profit margin of net assets out of 151 presses with net assets of more than RMB 50 million.

Of all publishing houses with net assets above RMB 50 million, 45 had a profit margin of net assets over 20%; 54 ranged between 10% and 20%; 49 remained below 10%; and three presses showed negative. All these point to the fact that large publishing houses have stronger profitability and satisfactory capability for preserving and increasing the value of state capital.

Ratio of Profit to Sales Sales revenue reflects the capital withdrawal capability of a press. Statistics show that there were 142 presses with sales revenue exceeding RMB 50 million in 2004. The ratio of profit to sales is an important index reflecting the operational status of a press. The average industry ratio of profit to sales was 16.58%. Table 4.22 shows the top 50 presses by ratio of profit to sales for presses with sales revenue over RMB 50 million.

Of the publishing houses with sales revenue over RMB 50 million, 55 had a ratio of profit to sales in excess of 20%. This shows that these presses enjoyed relatively big market shares and good product profits.

Pre-tax Profit Pre-tax profit (PTP) is the most important index for measuring the profitability of a press and also an important index for reflecting its performance. In 2004, the profit of publishing houses in China totaled RMB 4.515 billion, with an average of RMB 8.455 million for each press. Five presses had a PTP of over RMB 100 million and 19 over RMB 50 million. The top press was the People's Education Press with a PTP of RMB 319 million while the lowest PTP was a negative RMB 14.3 million. Altogether 114 presses exceeded more than RMB 10 million each in PTP, accounting for 21% of the total number of publishing houses, while 203 presses (38% of the total) had a PTP below RMB 1 million (see Tables 4.23 and 4.24).

Per Capita Profit Per capita profit (PCP) reflects the level of human resource management and per capita productivity of a press. In 2004, PCP of China's book publishing industry was RMB 90,200. Table 4.25 shows the top 50 presses by PCP with total assets of over RMB 100 million and net assets of over RMB 50 million.

Of the 113 publishing houses with total assets valued above RMB 100 million and net assets valued more than RMB 50 million, 39 publishing houses had a PCP more than RMB 200,000. Seven publishing houses exceeded RMB 500,000, 32 ranged between RMB 200,000 and RMB 500,000, and 67 publishing houses surpassed RMB 100,000. Clearly large- and medium-scale publishing houses have relatively high PCP.