CHINA: Foreign first in China books sector
German media giant Bertelsmann has bought 40 per cent of one of China's three national book retailers
South China Morning Post
Thursday, December 4, 2003
By Andrew K. Collier
German media giant Bertelsmann has bought 40 per cent of one of China's three national book retailers, marking the first time a foreigner has ventured into the mainland's book distribution business.
The stake in Beijing 21st Century Book Chain, acquired by the firm's book distribution arm, DirectGroup Bertelsmann, will lead to a national expansion in Bertelsmann's book club business, which it has been conducting from its base in Shanghai.
The terms of the deal were not disclosed.
DirectGroup Bertelsmann China president Christian Unger said he intended to increase the company's 1.5 million book club members to more than five million in the next few years.
The company will also open 10 to 20 bookshops each in Shanghai and Beijing and up to 10 in a number of other cities across the country, primarily on the east coast. Operating profits are forecast within 20 months, with payback of the investment likely within three years.
The 21st Century Book Chain is one of three firms with a licence to sell books nationally, a list that also includes state-owned Xinhua.
The chain was founded several years ago by former university professor Luo Ruiren and grew to 20 chain stores.
However, Mr Luo sold off the shops before the sale of the company to Bertelsmann because the German company intended to launch a new group of stores in smaller premises with a Bertelsmann-21st Century logo.
It will also combine the new operations with its 600 employees, who distribute books to book club members and other buyers from its stores in Shanghai.
Although Bertelsmann had received a Shanghai book distribution licence, it was prevented by existing regulations from expanding nationally unless it acquired a minority stake in a national chain.
Under World Trade Organisation rules, the book distribution business is gradually opening up.
Minority stakes for foreign companies were allowed last year, with some geographical restrictions, which end next year, and by 2006 foreign companies will be allowed to own majority stakes in book distributors.
Club members receive a 10 per cent to 15 per cent discount on books if they pay an initial sign-up fee and agree to buy a book every three months.
More than 30 per cent of members drop out in a short period of time, forcing Bertelsmann to heavily promote the service to add as many as one million new members per year, Mr Unger said.
Date Posted: 12/4/2003
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