David Wolf at Silicon Hutong had a busy weekend and has spared me having to write anything about the recently announced tightening of controls on foreign news providers in China. This will no doubt provoke the usual tsk-ing about the government's desire to control information. But might the real reasons behind the "crackdown" be more prosaic? David writes:

The Tea-Leaf readers will look at this, nod their heads sagely, and in hushed tones suggest that this is a part of Hu Jintao's ongoing effort to deepen his hold over the media as he continues his soft purge of Jiang Zemin supporters left in government. That might be true in part, but as with most things in China, that is at best only part of the real reason (and possibly only a political fig-leaf for the action.)

In reality, I suspect this is as much about money as politics.

The Xinhua News Agency has for a long time been the owner of a dying business model. The agency's power was its monopoly over wire service distribution in China, but its ability to retain this monopoly has been slowly weakening as China's media organizations build political power of their own, and as the sheer number of media outlets grows. There are nearly 10,000 publications in China, and some of the parent organizations - The People's Daily Group in Beijing, The Wenhui-Xinmin Group in Shanghai, China Central Television, and a host of others - no longer feel the need to work through middlemen, and have (they believe) the political air cover to build their own relationships.

Add this to the growing number of Chinese who get their news from online media (many of whom reprint foreign wire service stories from other Chinese publications), and Xinhua is watching it's biggest cash cow waste away in a dry pasture. Despite Xinhua's efforts to diversify its business (with the purchase of AFX last year, the rechristened Xinhua Financial News became China's global newswire), the core business is still its role as a domestic news service, and the most valuable content it (re)sells is what comes in from overseas.

The current policy announcement is thus clearly a Xinhua gambit to regain its revenue stream. The political justification for the measure is mostly a red herring - any news organization in China legitimate enough to deal directly with Xinhua would run a politically sensitive story at its own risk anyway, and the informal sources for outside information available to the media are manifold. Xinhua's role as a critical filter for sensitive information may have been viable in the past, but it is no longer.

The fact that this was directed at the newswires, and the bold stretch into Hong Kong (the Taiwan thing was also a diversion) together suggest that the primary driver behind this is Xinhua's revenue stream.

Go have a read.

Also interesting is this Wall Street Journal story (subscription) which looks at the ramifications for the financial information businesses of Reuters and Bloomberg (and, to a lesser extent, their own parent company, Dow Jones). Xinhua has had its eye on this market for a while:

[The regulations] also place curbs on access to a multimillion-dollar financial-information market for companies such as Reuters Group PLC and Bloomberg LP, which currently sell directly to Chinese banks, brokerage firms and corporations. Chinese traders rely on this information to buy and sell financial products in global markets.

The new rules appear to nullify a hard-fought agreement reached between U.S. and Chinese officials a decade ago that gave foreign financial-information companies direct access to the China market.

Under the new rules, Reuters and other companies will have to sell their products through the China Economic Information Service, an agency appointed by Xinhua, according to an official at Xinhua's Foreign Information Administration Center. The rules take effect immediately.

***

According to people close to the situation, Reuters may be potentially vulnerable because its news and financial data are mixed together in products delivered by electronic screens. Some of that news includes content that China may regard as politically sensitive. Recently, Reuters was forced to pull a Chinese-language channel from its screens after pressure from the Foreign Information Administration Center, which complained that it contained sensitive news from Taiwan and Hong Kong newspapers, according to these people.

Dow Jones & Co. was formerly a large player in the financial-data market through Telerate, a subsidiary that it sold. Dow Jones is registered with the Foreign Information Administration Center as a financial-news vendor.

Joe Spitzer, a Dow Jones spokesman, said he had no immediate comment. In addition to The Wall Street Journal and its international and online editions and other publications, Dow Jones publishes Dow Jones Newswires, Dow Jones Indexes and MarketWatch and is co-owner with Reuters of Factiva. Reuters and Bloomberg also distribute Dow Jones Newswires.

The official from the Foreign Information Administration Center said the new rules were aimed at protecting the intellectual-property rights of foreign financial information vendors. "We hope this will not be misinterpreted," the official said, maintaining that because such information is being pirated around the country, creating a single channel to distribute it will bring order to the market.

Well, it must warm the hearts of foreign media organizations that FIAC is looking after their best interests. Keep up the good work, guys.


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