China sizes up the returns from its ‘cultural industries’ (Gulf News)

24 October 2011 22 h 55 min 4 comments

China’s innovative economic planners have managed to marry state control over the arts with a large dose of free market financial practices

By Suranjana Roy Bhattacharya, Special to Gulf News
October 24, 2011

The arts and movies bring cheer to people but now they seem to be cheering up the private equity industry as well. China’s innovative economic planners have managed to marry state control over the arts with a large dose of free market financial practices.

Next month, three new stock indices are slated for launch, one of them the CSI TMT Industries Index designed to track companies in the technology, media and telecommunications (TMT) sectors. The CSI, which specializes in creating and managing indices and index-related services, has picked 100 large companies with high liquidity for participation in the new index.

The CSI TMT launch coincides perfectly with a new found enthusiasm among commercial banks to back television stations, publishing houses and other cultural enterprises, sectors now encouraged by the 12th Five Year Plan.

‘Cultural credit’ is a brand new sector for banks.

In 2010 alone, 27.6 billion yuan (Dh15.81 billion) in new loans were made to so-called ‘cultural industries’, a leap of more than 61 per cent from the previous year, marking the fastest increase of such lending in any sector in the country’s banking history. The value of the Bank of China’s (BoC’s) total outstanding loans to cultural industries is now 25 billion yuan, increasing by 55 per cent, since early 2009.

Chinese banks, which are generally swift to change gear, have adopted a flexible collateral policy for cultural industries, even allowing companies to obtain loans by putting up copyrights or money owed by their clients as collateral. However, certain cultural sub-industries receive more support from financial institutions than others.

As of now, most of BoC’s lending is for traditional cultural industries in broadcast, film and television, publication and leisure, while emerging business in cartoons, advertising, and digital media is yet to catch on.

The State Council unveiled the Cultural Industry Revitalisation Plan in 2009 to upgrade the sector into the category of ‘national strategic industries,’ and opened up various financing platforms, including capital market participation. Under the programme, financial institutions were asked to support cultural enterprises by issuing bonds, while the the banking industry was told to establish an ‘asset value appraisal system’ for cultural companies.

The China Securities Regulatory Commission also announced concrete measures to help more mature companies get listed, encourage listed firms to float new shares or offer stock dividends to get refinancing for expansion or acquisitions and support qualified creative companies to issue corporate bonds or convertible bonds.

Private equity boost

The private equity sector, however, has turned out to be the real backer of the ‘cultural industry’ in a silent, but big way. In April this year, CCB International, an investment banking flagship owned by China Construction Bank Corporation, launched the CCB International Cultural Industry PE Fund. With a size of 2 billion yuan, this is the first cultural sector investment fund in Mainland China whose investment focus is broadcasting, film/TV production and publishing industries. The fund, under Qianxin Culture Investment Management Company, has investors like China Publishing Group Corporation, a national level publisher and China Film Group Corporation, a major film producer.

Fund-raising success

. In July, the government launched another private equity fund also targeting film, publishing, broadcasting and internet. The China Culture Industrial Investment Fund, backed by the Ministry of Finance, Bank of China International Holdings and two other state-owned enterprises, aim to amass 20 billion yuan. In its first round of fund-raising it mopped up 4 billion yuan from the two partners. According to reports the China Culture Industrial Investment Fund has already made its first disbursals, investing in China Publication Group and Xinhuanet.com.

. The BOC fund is not without its rivals — it has state-backed competition from rival CCB international Holdings, an investment bank owned by China Construction Bank, which launched a 2-billion yuan CCB International Cultural Industry PE Fund in April.

Apart from banking institutions, venture capital and growth capital investors Saif Partners and IDG Capital Partners, as well as Matrix Partners China and Sequoia Capital China have all backed companies in the media industry. Some of them have ventured into film production and target films that have audiences both in US and China.

Despite the efforts, however, China’s culture industry is still in the early stages of development with several bottlenecks coming in the way of investment and financing.

SOURCE: Gulf News

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