For some time now, anecdotal reports suggest that Chinese publishers have been instructed to slow purchases of foreign rights.
Officially, there is no censorship in China. For much of the past decade, as China’s publishing market has opened up to foreign publishers, Chinese publishers would say that potentially controversial books were tolerated so long as they remained marginal and little read. Once a book became popular and hit the mainstream, it would become subject to the scrutiny of censors.
Surprisingly, China’s wildly popular online publishing platforms were largely able to develop unhindered. Recently, though, they have become the target of government censors, who have forced several online platforms to suspend operations, citing the presence of “obscene” material on the sites.
This summer, Midu Novels (owned by Qutoutiao); Tomato Novel (owned by Bytedance, the company behind the social media platform TikTok); and Jinjiang Literature City (partially owned by China Literature, the online publishing subsidiary of Tencent Holdings, China’s most dominant holding company) were all told to remove materials deemed objectionable by the government. Those materials include salacious book covers and titles with sexual or gay themes, according to reporting by Nikkei Asian Review.
While this may worry advocates of freedom of speech, it is investors who may be most spooked. The stock price of China Literature has been plummeting. China Literature went public in November 2017 and raised $1.1 billion on the Hong Kong stock exchange in one of the most popular IPOs of a Chinese stock ever. But the share price has since fallen from a high of 110 HKD ($14) to below 25 HKD ($3.30). In June the company announced plans to buy back some $64 million in shares over the remainder of 2019.
In its latest interim earnings report, released August 12, China Literature stated it had 217 million active monthly users, about 20% of the population of China. Of these, 9.7 million are users who have paid for the service, a drop of a million paid users from last year. In all, 7.8 million users have written for the site and posted 11.1 million original works. China Literature’s app comes installed on phones by manufacturers such as Huawei and OPPO. As for revenue, the company reports taking in RMB 2.9 billion ($432.2 million) for the first half of 2019, a growth of 30.1% year-over-year. Still, EBITDA was RMB 266.8 million ($38.8 million), a significant drop, compared with RMB 415.4 million ($58 million) in the first half of 2018. Overall, the year ended Dec. 31, 2018, showed $734.1 million in revenue and EBITDA of $136 million.
The company has been especially successful in licensing works published on the site for television and film adaptations; in 2018 the company states it signed licensing deals for 130 different works. This too may be proving problematic, as the government has become increasingly selective about giving films the “dragon seal” of approval, the official designation that allows a film to be distributed.
Impact May Be Felt Overseas
How China’s government crackdown on the platforms might impact the North American book market remains to be seen. In 2016, several Chinese online publishing platforms participated in BookExpo, and there were reports at the time that 20% of the books sold in China each year were translations. Of course, since then, with the election of President Trump, relations between the U.S. and China have notably cooled and have escalated to an outright trade war.
For some time now, anecdotal reports suggest that Chinese publishers have been instructed to slow purchases of foreign rights. Officially, it is claimed this order was made because the government wanted publishers to act on the deals they had already signed before making more. Unofficially, it is seen as another de facto attempt to reassert control over the publishing industry, which had been given some leeway in recent years. For evidence of a shift in policy, several international publishers who work with China have pointed to the announcement that this year’s Beijing International Book Fair (held August 21–25) focused on children’s books, an area deemed less potentially controversial than adult titles.
As for China Literature, since its IPO, the company has made several bold moves abroad. It made a $25 million investment in Munpia, Korea’s top online writing platform; announced a partnership with Singtel in Singapore; and partnered with Transsion, the biggest mobile phone operator in Africa. The company also expanded the presence of Webnovel, its international, English-language platform, with a focus on attracting more users and selling rights. Closer to home, Tencent led a group of investors who put $51 million into Wattpad, the Canadian social reading and writing platform.