China Media & Entertainment Law Report : China Media Lawyer & Attorney : Reed Smith Law Firm : Entertainment, Sports & Consumer Rights Law

On November 13, 2009, the Ministry of Culture ("MOC") issued a notice on online game content control issues.  The new rules require operators to: establish internal control systems; strengthen file management systems for imported and domestic online game content; supervise and prohibit games with illegal content; and improve social supervision and industry self-discipline.

The MOC also will be issuing a general outline for training and examining online game enterprises.  The notice also indicated that MOC will be promulgating amendments to rules governing the content investigation process and other regulatory matters in the online games sector.  Provincial level culture administrations are slated to be responsible for investigations of online gaming operations in their respective jurisdictions.
 

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On November 15, 2009, the Beijing Consumer Association issued an open letter to celebrities and movie stars as a follow-up to recent false-advertisement issues surrounding well-known Chinese media personalities Hou Yaohua, Zhao Zhongxiang and Tang Jiezhong. This is the fourth time that the Association has issued an open letter to celebrities and movie stars on controversial advertising practices. The letter points out four main issues associated with celebrity advertising: lack of knowledge of the products; exaggeration of the curative effects of medical services and/or drugs; illegal promotion of the efficacy of health-related products; and/or possessing the intent to 'trap' consumers through advertisements. This final category sounds a little broad. Please let us know if you know of any specific examples of ads that don't intend on "trapping" us. This may be a new innovation in the advertising marketplace of which we are not aware.

On November 11, the Professional Committee of Media Shopping, which is affiliated with the China General Chamber of Commerce, identified 20 commercials that it considers to be either in violation of applicable laws or an exaggeration of the relevant product's qualities. Zhao Zhongxiang, a 67-year-old veteran host for China's national TV station CCTV, starred in two of the identified advertisements, which promoted medicine curing coughs and heart diseases. On November 18, Zhao apologized for starring in these commercials.

Earlier in November, the China Advertisement Association identified 10 fake or unregistered medicine-related commercials in which famous cross-talk star Hou Yaohua starred. On November 6, Hou announced on his blog that he was sorry for his actions.

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The State Administration of Radio Film and Television recently issued The Measures on Radio and Television Advertisement Broadcasting ("Measures"), which are applicable to all television or radio broadcasting entities. The Measures, which become effective as of January 1, 2010, restrict the length of advertisements during radio and television programs to no more than 12 minutes per hour for every program. IN any episode of a TV show, there will only be two commercial advertisements allowed, neither of which shall exceed 90 seconds.  An exception allows shows aired between 7-9 pm to have up to 18 minutes of advertisements per hour.  

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The latest move in the continuing saga between the Ministry of Culture [MOC] and the General Administration of Press and Publication [GAPP] over popular online game World of Warcraft has led to MOC reiterating its sole responsibility for the administration of China’s online games market.

NetEase, operator of the game in China, recently made World of Warcraft available online again after a two-month hiatus imposed by government regulators which was originally attributed to the game’s controversial content. However, following resumption of the game on September 19, GAPP issued a notice ordering NetEase to cease operating World of Warcraft in China.

The battle has intensified this week, with the Ministry of Commerce on November 3 issuing an official statement that GAPP has no authority to administer the actions of World of Warcraft, and that its notice on terminating the examination and approval of World of Warcraft was invalid, given that MOC is responsible for the administration of online games.

To further emphasize its stance, MOC today released an official announcement of its intention to conduct investigations into illegal online gaming products and operations, asking local cultural departments to conduct investigations into online games within the month. The announcement noted that, as the administrator of the online games industry, MOC’s responsibilities include regulating online games and strictly punishing illegal online game products and operations.
 

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China has established an exchange devoted entirely to trading in companies that own or deal with culture. The Shanghai Cultural Equity Exchange (“SCEE”), whose investors include the Shanghai United Assets and Equity Exchange, Jiefang Daily Group and Shanghai Jingwen Investment Co., Ltd., was established with the approval of Shanghai Municipal Government in June.
SCEE is expected to be a platform for the trading of property rights, creditors’ rights, equities, and intellectual property associated with cultural assets. Trading will cover a wide range of cultural products, services, and companies operating in the press, publishing, film, television and Internet sectors, among others.

In accordance with the “Measures of Shanghai Municipality for the Management of Property Rights Exchange”, SCEE will provide services such as consulting, public announcements, transaction structuring, and project financing related to the cultural assets exchange. SCEE will administer transactions in a manner similar to other assets and equity exchanges in China, which typically involve a public bidding process and negotiated transfer facilitated by exchange rules and procedures.  

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Reports indicate that China’s fifteen-year-old Consumer Rights Protection Law will undergo serious revisions this year. Liu Junhai, Vice Director of the China Consumers’ Association, noted in a June 15 interview with China’s Xinhua News Agency that changes are necessary to address new issues facing consumers in China.

The current Consumer Protection Law does not recognize an independent right to privacy. Mr. Liu noted that changes in contemporary society necessitated providing protections for individual privacy, and suggested that amendments would likely include provisions on a product recall system and the establishment of a cool-down period after major purchases, such as cars and houses. 

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On July 27, 2009, the Ministry of Culture Issued the “Circular on Investigation into ‘Gangs’ and Other Illegal Online Games”. The Circular notes that some popular online games based on the themes of gangs, the mafia, or “godfather” concepts advocate obscenity, gambling, or violence and undermine morality and traditional Chinese culture. It goes on to note that these games encourage people to deceive, loot, kill, and glorify the lives of gangsters, providing a negative influence on youngsters. The Ministry of Culture has prohibited websites from running, publicizing, or offering such online games, and has also ordered its law enforcement bodies to step up oversight and harshly punish any sites that continue to offer such games.

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Foreign companies and their Chinese partners have always been major players in the Chinese online gaming market. The partnership normally is has the foreign company licensing rights to a Chinese partner. The Chinese partner is then responsible for developing the local market. The Chinese partner is required to apply to the Ministry of Culture’s Content Censorship Commission (“CCC”) and the China’s General Administration of Press and Publication (“GAPP”) for pre-approvals to distribute the game. CCC censors game content and reviews the license agreement, which becomes effective upon CCC approval. GAPP examines the qualification of the Chinese partner to provide foreign online game services and decides whether to issue a License for Internet Publishing Service to the Chinese partner.

Chinese companies have accused foreign gaming companies of abusing their copyrights via unfair and arbitrary contractual terms. The Ministry of Culture and GAPP seem to be responding to these accusations by cracking down on foreign online gaming companies. On April 24, 2009, the Ministry of Culture issued the “Notice of Regulating the Censorship and Reporting Mechanism on the Content of Imported Online Games” (“MOC Notice”), and on July 20, 2009, GAPP issued the “Notification on Strengthening the Administration of Approval of Imported Internet Games” (“GAPP Notification”).

These two sets of regulations seek to tighten the control over the activities of foreign online gaming companies in China:

1. Each foreign online game must be distributed in China by a single Chinese partner with exclusive rights.
2. In the event that the Chinese partner is changed, the game is renamed or new game versions are released, the Chinese partner must re-apply with CCC and GAPP for approvals.
3. Foreign operators who are deemed to have included arbitrary contractual terms in their distribution agreements will be sanctioned and CCC may suspend its approval of the relevant foreign online game.
4. GAPP has expanded its authority to review the import of foreign online games for exhibition, demonstration, trade or promotional activities, all of which are now prohibited without GAPP pre-approval.

Kou Xiaowei, Deputy Chief of the Sci-tech and Digital Publishing Department at GAPP, stressed that GAPP would not discriminate between Chinese and foreign game service providers during the approval process. Still, Chinese produced online games only require filing with the GAPP before distribution, approval with GAPP or CCC is not a requirement.

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Reports indicate that the State Administration of Radio, Film and Television (“SARFT”) will issue new rules to limit the growing number of TV dramas. Wang Weiping, the Deputy Director-General of the Department of Teleplay Administration of SARFT confirmed that the agency has drafted a new set of rules stipulating that only two episodes of a given television drama can be broadcast consecutively during prime time (7 pm to 9:30 pm), and no more than three episodes will be allowed in the time period from 6 pm to 1 am the next day. No more than six episodes of one TV drama can be broadcast during daytime hours, while TV series will be restricted to 45 percent of the total programming schedule, limiting episodes to 46 minutes of air time. The new rules are expected to take effect in January 2010.

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On February 6, 2009, the State Administration of Radio, Film and Television (“SARFT”) and the Ministry of Commerce (“MOFCOM”) issued a joint decision (SARFT and MOFCOM Order No. 59) abolishing the “Interim Regulations on the Administration of Sino-foreign Joint Ventures and Cooperation in Broadcasting and TV Program Production and Management Enterprises” (“2004 Regulations”). This decision will effectively make it difficult to impossible for foreign companies to establish TV or radio joint ventures with Chinese partners.

In October 2005, SARFT issued the “Circular on Matters Relevant to the Implementation of the 2004 Regulations” (“2005 Circular”). The 2004 Regulations and the 2005 Circular allow foreign investment into broadcasting and TV program production and management enterprises on the condition that foreign partners are professional radio or television companies and the domestic partner is not a radio or television station.

SARFT announced on its Web site that the rationale for abolishing the 2004 Regulations stems from current developments in the broadcasting and television industries that have outpaced the scope of the regulations. SARFT officials disclosed that they are considering the implementation of new rules.

Overview of the 2004 Regulations

The 2004 Regulations formally permitted foreign TV and radio stations, as well as professional film and TV program producers, to set up joint ventures with Chinese domestic professional film and TV program production entities. The equity ratio of the Chinese partner was required to be no less than 51%.

SARFT and MOFCOM were jointly responsible for the examination and approval of the establishment of Sino-foreign jointly operated enterprises, and the provincial administrations of broadcasting and TV programs were responsible for the regular supervision and administration of the Sino-foreign jointly operated enterprises within their jurisdictions.

In addition to the certificate of approval and business license that foreign invested enterprises generally require, investors were required to obtain pre-approval from SARFT. Several noteworthy restrictions included: 

1. The legal representative of a Sino-foreign operated enterprise must be appointed by the Chinese party.
2. The registration capital of a Sino-foreign jointly operated enterprise can be no less than US$2 million (or an equivalent RMB amount); for Sino-foreign jointly operated enterprises engaging exclusively in the production of animated cartoons, the registered capital can be no less than US$1 million. Capital contributed by the foreign party must be provided in cash, while there is no restriction on the form of capital contributed by the Chinese parties.
3. All parties to the Sino-foreign jointly operated enterprise must be legal persons. At least one of the Chinese parties must have either a License for Broadcasting and TV Program Production and Management, or a Type-A License for TV Series Production.
4. The programs produced by a Sino-foreign jointly operated enterprise are restricted to specific areas such as features, entertainment, and animated cartoons, while news, current events and news-related topics and features are prohibited. The enterprise may produce a TV series only after obtaining a License for TV Series Production.
5. At least two-thirds of the Sino-foreign jointly operated enterprise’s annual production of broadcasts and TV programs must feature China.
6. A Sino-foreign jointly operated enterprise is prohibited from consigning or leasing its operations to the foreign party, institutions overseas, or other domestic foreign invested enterprises, and may not let the above-mentioned entities conduct contract-based management.

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The WTO released a landmark decision ordering China to ease some of its curbs on imports of American popular culture, noting that Beijing was breaching international trade rules by blocking foreign-owned companies from acting as importers and wholesalers of printed material and certain A/V products. The WTO found that China was requiring foreign companies to distribute their publications and A/V products through state-owned companies in violation of commitments to open the sales and distribution market in China and to treat foreign-owned companies similarly to domestic companies. The WTO Dispute Panel also ruled that China was in violation of its trade obligations because of the prohibition on foreign companies directly offering to Chinese consumers the ability to download music their computers and cell phones. The Dispute Panel ruled in favor of China in finding that (i) China’s criminal law was sufficient to deter piracy, and (ii) the requirement that foreign films be distributed through designated entities was consistent with existing trade rules.

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In an effort to address issues hindering development of the audio-visual industry in recent years, on July 20, 2009, the General Administration of Press and Publication (“GAPP”) promulgated “Several Opinions Concerning the Promotion of Healthy and Orderly Development for China’s Audio-Video Industry”. The Opinions included 26 articles outlining the industry’s development and focus, industry policy on mergers and reorganization, financing, and cross-industry cooperation.

 Key points noted in the Opinions include:

• The promotion of corporative reform: A/V publication houses affiliated with higher learning institutions and local governments, excepting non-profit organizations, are asked to execute reforms before the end of 2009. Institutions affiliated with central government departments are required to complete the transformation before the end of 2010.
• Encouraging the establishment of A/V groups: Audio and video institutions with similar business scope are encouraged to establish joint trans-industrial and trans-regional companies, ultimately establishing three to five large comprehensive A/V groups and 10 to 20 distinct and specialized companies within three years.
• Restructuring of some A/V institutions: Large state-owned newspapers and publication groups are encouraged to incorporate A/V enterprises into their operations via acquisition.
• Establishment of a creative industry base: Beijing, Shanghai, Guangdong and other regions with competitive audio and video enterprises are encouraged to set up music and creative industry bases or parks.
• Digital transformation: Companies are encouraged to diversify publication channels through cooperation with telecom and network operators.
• Expand sales channels: A/V companies are encouraged to establish sales chains in supermarkets, shopping malls, gas stations, airports, restaurants, tourist spots, kiosks etc.

The Opinions also provide comments on preferential tax policies, revisions concerning regulations for audio and video products, and a crackdown on pirated items, pornography, and illegal publications.

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In April 2009, the General Administration of Press and Publication (“GAPP”) released a set of opinions on publishing reform initiatives that establish timelines for increased privatization of the government-run industry. The “Guiding Opinions on Further Advancing the Reform of the Press and Publication System” (“Opinions”) provided the following key areas for reform work:

(1) Promoting the conversion of for-profit press and publishing agencies into enterprises and rebuilding them as market players

The Opinions require, before the end of 2009, the conversion to enterprises of for-profit press and publishing agencies of higher learning institutions and local governments that publish books, audio-visual products, and e-products. Conversion of central government publishing agencies is to be completed before the end of 2010. Non-profit press and publishing agencies are not subject to these requirements.

(2) After conversion, emphasis will be placed on promoting reorganization, while also accelerating the development of key media and publishing enterprises and strategic investors

The Opinions encourage the use of private investment to support the conversion process, especially by large State-owned enterprises. Publishers, in particular cross-regional businesses, that have satisfied all relevant requirements, are strongly encouraged to raise funds through public listings. The Opinions also set forth the goal of building, with government support, six or seven publishers in 3-5 years that have projected total assets and turnover exceeding ten billion yuan.

(3) Guiding the development of non-State-owned press and publishing studios and increasing publishing productivity

The Opinions recognize non-State-owned press and publishing studios as a boost to China’s cultural industries as a whole, and encourage their development in various forms in accordance with current regulations. The Opinions encourage non-State-owned publishing companies to cooperate with State-owned companies via capital investment and project cooperation.

(4) Deepening external exchanges and actively exploring the overseas market

The Opinions encourage domestic publishers to develop in overseas markets, including Hong Kong and Macao, by sole investment, joint venture, and/or cooperation.

Publishing Industry: History of Recent Reforms

In 2004, Chinese government authorities began initiating reform of the press and publication industries aimed at converting publishing agencies into for-profit enterprises and increasing private investment in the industry as a whole. Among the then existing 527 state-run publishing houses, only People’s Publishing House was to remain public while all other publishers were to be converted into for-profit enterprises.

In April 2005, the State Council issued “Several Decisions Regarding Non-publicly-owned Capital Investments in Cultural Industries”, which officially permitted non-publicly-owned capital investment in the cultural industries field, including investment into the publishing industry.

In October 2008, the State Council released guidelines related to the conversion of cultural for-profit institutions into enterprises and the support of cultural enterprises.

In 2008, GAPP, the Propaganda Department of the CPC Central Committee, and the Ministry of Finance released the “Notice on State-owned Asset Management in the Process of the Transformation and Restructuring of a Central Publisher,” aimed at preserving the value of State-owned assets invested in national-level publishers during the restructuring process.

In early 2009, the Chinese central government released its “Stimulation Plan for Cultural Industries,” indicating the government’s intent to develop cultural industries over a two to three year time span. As such, emphasis will be placed on fostering key cultural enterprises, planning public listings of cultural enterprises, and establishing bases for cultural industries. In July 2009, the Stimulation Plan was approved in principle by the State Council.

In March 2009, Liu Binjie, head of GAPP, revealed that a graded evaluation system would be applied to Chinese media agencies based on economic profitability, with less competitive media enterprises merging with larger groups. At present, more than 10 newspaper groups are preparing for public listings, with a total of 49 newspaper groups expected to gradually be listed.

Beijing Publishing House Group Restructured

Beijing Publishing Group Co., Ltd. (BPG), established on May 28, 2009, was formed by the restructuring of the Beijing Publishing House Group (BPHG) from an institutional organization into an enterprise. BPG was incorporated under the Company Law as a wholly state-owned company with the Beijing government as the sole shareholder. As part of the restructuring, BPHG was deregistered as a legal entity. A total of 28 publishing houses have now undergone reclassification from public institutions into for-profit corporations. Future plans call for only 4 public publishing institutions to remain under the ministry-level supervision, with the remaining 148 publishing entities all slated for enterprise reform.
 

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On March 30, the State Administration of Radio, Film and Television (“SARFT”) issued a new regulation, entitled “Notice on Strengthening Content Management of Online Audio-Video Programs” (“Notice”), that established licensing requirements for films, TV series, cartoons, and documentaries that are to be broadcast via the Internet. The Notice also set forth a list of 22 types of audio-video programs that online program service providers would be required to remove in a timely manner. Privately owned online program service providers are not prohibited from applying for licenses. However, licensing requirement provisions may be difficult to enforce because approval procedures may end up being too time consuming given the demand from users for timely content.

The Notice supplements the “Provisions on Administration of Internet Audio-Visual Programs” (“Provisions”) that were issued by SARFT and the Ministry of Information Industry (formerly the Ministry of Industry and Information Technology) on December 20, 2007. The Provisions required all online audio and video service providers to apply for an “online Audio-Visual Broadcasting License.” According to reports from Guangzhou Daily, in April 2008, 23 online audio-visual websites were among the first group to receive licenses under the Provisions. In December 2008, SARFT released a list of 332 online audio-visual websites that had been granted licenses. At present, almost all of the privately-owned online audio-visual websites that enjoy industry clout (e.g., www.tudou.com, www.youku.com, and www.ku6.com) have received licenses. Some websites have been shut down due to a failure to obtain a license as required by the Provisions.

Online Audio-Video 22 Prohibitions

The Notice requires Online content providers to remove any content that can be deemed to:

1. maliciously misinterpret Chinese culture, history or historical facts, or maliciously misinterpret the history of other countries, disrespect human culture, or the cultures and customs of others;
2. intentionally disparage revolutionary leaders, heroes, important historical personalities, or famous Chinese or foreign literary works or important characters of such famous literary works;
3. maliciously disparage the image of the people’s army, armed police, public security bureau and justice organs, or contain content about maltreatment of prisoners or extraction of confessions through torture, etc;
4. display criminal aggression, disclose specific investigation methods or disclose the image or voice of reporters or witnesses when they should be protected, etc;
5. preach religious extremism, provoke conflicts between different religions, different branches of religions or between religious and non-religious individuals, or harm public sentiment;
6. propagate superstitious activities such as fortune-telling, etc;
7. adopt an ironic or mocking tone in describing natural disasters, accidents, terrorist incidents, wars or other disasters;
8. graphically display promiscuous behavior, rape, incest, necrophilia, sexual perversion, etc;
9. display or imply sexual behavior or details related thereto;
10. intentionally display sexual organs;
11. contain suggestive sexual content;
12. contain content concerning extramarital affairs, sexual maltreatment or other related issues;
13. use “pornography” or other provocative words or pictures as video titles;
14. contain graphic murder scenes involving sexual activity, violence, suicide, kidnapping, drug use, gambling or other similar content;
15. contain scenes, subtitles, background music or audio effects that contribute to a sense of excessive horror;
16. graphically display content concerning the slaying or mistreatment of animals, or
17. capture and consumption of state-protected animals;
18. infringe upon individual privacy;
19. display fighting or abuse in an affirmative way;
20. preach a negative life outlook or worldview, or intentionally exaggerate backward tendencies among people or the dark sides of society;
21. contain scenes from films, television series or programs prohibited by SARFT;
22. violate the spirit of related laws and regulations.

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On May 19, the PRC Ministry of Industry and Information Technology (“MIIT”) issued a controversial regulation requiring all computer manufacturers to equip computers and PDAs manufactured in or shipped to China as of July 1 with “Green Dam Youth Escort” filtering software. The controversy, originating both from within China and abroad, included concerns over anti-trust, copyright infringement, and security and privacy issues. Despite efforts by MIIT to assure the public of the reasonableness of the regulation, it postponed implementation just prior to the July 1 deadline. In a mid-August press conference during which he acknowledged that the Green Dam launch had been mishandled, MIIT Minister Li Yizhong clarified that even though the software would not have to be installed on personal computers, it would still be mandated on school and Internet cafe computers.

The government sought to develop the Green Dam software to limit access to Internet content deemed “potentially damaging,” and to build on the government’s “Special Campaign to Restore the Internet from a State of Vulgarity.” Unlike previous methods of Internet censorship employed by the Chinese government which controlled content at the ISP and ICP levels, Green Dam, dubbed “The Filtering Bully” by Chinese Internet users, represented a new form of monitoring that linked computers and users directly to databases of prohibited sites and blocked access to prohibited addresses.

Some of the more prominent criticisms from sources such as Chinese legal experts, technology providers, international organizations, governments, and Internet users are summarized below.

1. Anti-trust complaints. Two Chinese law professors brought complaints to MIIT and the Anti-monopoly Committee stating that MIIT’s exclusive specification of Green Dam software represented a breach of China’s Anti-Monopoly Law (“AML”). The professors argued that the government abused its authority and excluded competition in violation of Articles 8, 32 and 37 of the AML to the extent it did not allow other software manufacturers to develop competitive filtering products.
2. Consumer rights violations.  Article 9 of China’s Consumer Protection Law provides that consumers have discretion in choosing products and services. Thus, pre-installation of Green Dam software breaches consumers’ rights to Internet filtering software options.   
3. Security and privacy. A University of Michigan analysis of Green Dam software revealed various security vulnerabilities, potentially allowing malicious sites to steal private data, send spam, or transform personal computers into “botnets,” which allow hackers to control computers installed with Green Dam. 
4. Copyright infringement. The authors of the University of Michigan study also suggest that a number of blacklisted files used by the Green Dam software were taken from the American-made censorship program CyberSitter. Other reports indicated that Green Dam lifted code libraries and configuration files from another software company. Solid Oak, a small US software company, said it had evidence to support a copyright infringement claim against Green Dam’s developers.
5. International trade concerns. The US government met with representatives of the Chinese government, notifying them of concerns with respect to potential international trade violations surrounding the implementation of the Green Dam regulation.

Regulators Crackdown on Google

The month of June also saw the government temporarily shut down some Google search functions after a report released by the China Internet Illegal Information Reporting Center indicated that Google China’s search engine contained “vulgar” online search results. Soon after the report was released, Google was the subject of intense public criticism including substantial television coverage from China’s central television station (“CCTV”). Industry followers and Chinese Internet users noted that similar search results could be found at any number of Google competitors, foreign and domestic. Mr.Li Kaifu, the president of Google’s China operations, was asked to meet with Chinese regulators to discuss this issue and develop solutions to the problem. Google promised to strengthen its control of “vulgar” online search results in China in order to assure compliance with PRC laws and regulations. 

Given the extent of coverage by the Chinese government and media on the issue of pornography and Internet use, and criticism directed at Google China’s management of Internet searches for pornographic content, we can expect more developments on the Green Dam/censorship front in the future.    This is not an easy issue for regulators from any country to tackle. China’s first major attempt at implementing regulatory measures at the consumer level did not work out as planned, but it probably won’t be the government’s last. Given the extent to which Google appeared to be singled out from some of its domestic competitors, foreign service providers and technology companies should be particularly sensitive to heightened oversight and potential investigations from PRC regulators. 

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On June 2, 2009, the Ministry of Culture announced new measures to encourage private investment in cultural industries, with a particular emphasis on Private Arts Performance Organizations (“PAPOs”). The “Several Opinions on Promoting the Development of Private Arts Performance Organizations” (“2009 Opinions”) also call for increased financial support for PAPOs from government agencies.

Pursuant to the “Regulations on Administration of For-profit Performances” issued by the State Council on July 7, 2005, foreign investment in the operation of performance venues and brokering agencies for stage performances is permitted in equity joint ventures or cooperative joint ventures, provided that Chinese shareholders hold no less than 51% of the equity interest in the joint venture company or hold a controlling position in the cooperative joint venture company. For Hong Kong and Macao investors, there is no such requirement. However, foreign investment (including investment from Hong Kong, Macao and Taiwan) in arts performance institutions is still prohibited in China.

In April 2005, the State Council issued “Several Decisions Regarding Non-publicly-owned Capital Investments in Cultural Industries” (“Decisions”), which officially permitted non-publicly-owned capital investment in the cultural industries field, including investment into arts performance groups, stage performance brokering agencies, and performance venues. In November 2005, the “Opinions on Encouraging the Development of Private Arts Performance Groups” were jointly issued by the Ministry of Culture, the Financial Department, the former Ministry of Human Resources, and the State Tax Bureau (“2005 Opinions”) in order to promote the development of private arts performance groups by simplifying the approval procedures for their establishment and encouraging private investment into those groups.

The Chinese government is increasing both the speed and scope of marketization in cultural industries with the 2009 Opinions.   These efforts include:

• Converting State-owned Arts Performance Groups (“SAPG”) from public institutions into corporations, and encouraging PAPOs to participate in the reorganization of SAPG by means of joint venture, joint cooperation and acquisition;
• Encouraging investment of private capital in PAPOs; and
• Cancellation, on a trial basis, of administrative permits for Chinese for-profit arts performances within China.

Conversion of State-owned Arts Performance Groups from Public Institutions into Corporations

Beginning in early 2005, PAPO were encouraged to participate in the reorganization of SAPG by means of joint ventures, cooperative agreements, and acquisition. Pursuant to the 2009 Opinions, the Ministry of Culture further revised the limitation that investment of private capital into SAPG be permitted solely at the local level via amendments now allowing for investment at the national level.

Encouraging Investment of Private Capital into PAPO

Limitations on investing in cultural industries were reduced by the 2005 Opinions when the requirements on minimum registered capital and certificates for individual performers were canceled. Following the 2005 Opinions, PAPOs were allowed to be established in various corporate forms including sole shareholding, partnership and via joint venture. Additionally, performers who have terminated their employment agreements with SAPG have now been encouraged to set up PAPOs.

The 2009 Opinions also require support for PAPOs at the appropriate government levels, including special support funds, discount interest loans, awards, and free or low rental pricing for performance stages.

Cancellation of Permits for For-profit Performances

According to the “Regulations on Administration of For-profit Performances” issued by the State Council on July 7, 2005, permits should be issued by cultural administrative authorities at the county level prior to holding for-profit stage performances. For performances involving the participation of foreign artists or groups, permits are granted by relevant cultural administrative authorities at the national or provincial level.

Pursuant to the 2009 Opinions, the Ministry of Culture has encouraged, on a trial basis, the cancellation of administrative permits for Chinese for-profit performances at the local government level. Further, in the case of Chinese for-profit performances, groups engaged in “non-material cultural heritage” arts performances, as well as PAPOs serving farmers and grass roots organizations that have received awards of excellence from the Chinese Propaganda Department and Ministry of Culture, are no longer required to obtain approval from the culture administrative authority. Instead, they need only to file a notification prior to staging performances.

Observations and Implications

The 2009 Opinions represent China’s continued marketization of its cultural industries. They aim to encourage government authorities to provide increased support for PAPOs, while relaxing approval procedures for establishing PAPOs and holding for-profit performances. The 2009 Opinions suggest that Chinese authorities are increasingly supportive of private investment in SAPGs.

Since China embarked upon its cultural industries reform program, a number of state-owned arts performance groups have been successfully converted from public institutions to corporations through the use of private capital. Examples include the Beijing Children’s Arts Theatre Company, the Shanghai City Dance Company, and the Jiangsu Performance and Arts Group.  Although various arts performance groups at the local and national levels are technically allowed to participate in the reorganization, in practice, reorganization of SAPGs directly administered by the Ministry of Culture is still rare.

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In January 2009, a WTO dispute settlement panel ruled on an IPR dispute the U.S. brought against China in April 2007. The U.S. argued that China violated its obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS Agreement”) in three ways, namely, failure to provide copyright protection of works banned in China, the unlawful re-release of seized counterfeit goods, and a failure to set proper thresholds for criminal prosecution of counterfeiting and piracy. The panel ruled in favor of the U.S. for the first two claims, ordering China to amend its copyright law and customs rules. 

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In August 2008, Chinese state broadcaster CCTV announced its May 2009 joint venture with global sports management company IMG Worldwide. CCTV brings a viewership of 850 million to the JV, while IMG Worldwide brings significant industry experience, including management of international sports stars such as Tiger Woods, and organization of approximately 4,500 sporting events per annum worldwide, including Wimbledon. Reports indicate that Jiang Heping, the head of CCTV’s sports channel, which claims 85% of China’s domestic sports TV market, was appointed Chairman of the JV’s Board of Directors. The first event managed by the JV will be October’s China Open, a global elite women’s tennis championship. CCTV-IMG expects to invest significant media resources in the China Open in the hopes of establishing it as one of the top global competitions. IMG said its financial investment in the 20-year joint venture was not substantial.

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According to the Chinese Basketball Association (“CBA”), questionable activities by basketball agents revealed limitations of the current agency system necessitating a revision of the regulations guiding agency activities. In the 2006 “Administrative Measures from the CBA on Basketball Agency” (“Measures”), the CBA defines a basketball agent as an individual or legal person holding a basketball agent license involved in basketball agency, including intermediation, commission agency, entrustment and/or other for-profit promotional activities.

The 2006 Measures established guidelines for broker eligibility and the two types of agents. Category A agents may manage foreign players, commercial entrustments or commercial promotion related to foreign players, manage Chinese National Basketball Team players and their commercial entrustments or commercial promotion, the commercial entrustment or commercial promotion of matches held by the International Basketball Federation, Asian Basketball Federation or CBA, and other basketball brokerage activities. Category B agents are prohibited from all activities except for basketball brokerage.

Current agent-related issues in the CBA range from uncertainty surrounding players’ legal representation due to frequent ‘agent-swapping’ to publicized failures of clubs to fulfill contractual obligations and an overall lack of transparency surrounding agent activities in the league. In response to these issues, the CBA has drafted the “Supplementary Regulations on the Administration of Measures for Basketball Agents in the Chinese Basketball Association,” which areintended to supplement the 2006 Measures. The CBA also has issued a circular to basketball clubs and agents that included a “Survey on Basketball Agent Activities,” which requests people to submit their general opinions on agents, the relationship between agents and players, and suggestions on ways to improve the current system.

The 2009 supplementary regulations established minimum qualifications for basketball agents, their rights and obligations, limitations on agent activities, and repercussions for violations of the regulations.

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On July 27, 2009, the General Administration of Press and Publication (“GAPP”) issued a circular aimed at improving the investigation process surrounding the issuance of Press Cards for journalists. The circular requires journalists to submit declaration materials, carry out self-investigations promptly, and strictly abide by the “Measures on Administration of Press Cards for Journalists”, the “2009 Circular concerning Renewal of Press Cards for Journalists”, the “Circular concerning Application for Press Cards by Journalists of Periodicals Institutions”, and the “Circular concerning Application for Press Cards by Journalists of Broadcasting, Film and Television Institutions”. According to the self-investigation provisions, anyone with a criminal record, staff outside of news departments and/or involved in media departments such as administration, logistics, advertising or engineering, as well as staff in other organizations that provide information to media organizations, and guest writers are banned from receiving press cards. The self-investigation period will end on August 31, 2009. From this point on, GAPP will issue new press cards on the basis of evidentiary documents, as well as a Letter of Commitment of Press Card Management with each journalist’s signature.

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On April 30, 2009, the State Council issued a new measure to implement China’s WTO settlement agreement with the EU, U.S., and Canada on restrictions placed on foreign financial information providers in 2007. The new measure effectively replaced Xinhua News Agency with the State Council Information Office as the key regulator for foreign financial information providers. The new system also formally reinstitutes the right of foreign financial information providers to distribute products directly to their customers. 

Foreign news agencies, industry associations and foreign governments all lodged complaints in the fall of 2007 when Xinhua News Agency, acting as both industry regulator and competitor, issued regulations that would have severely hindered the business operations of foreign news agencies in China. These complaints ultimately resulted in a WTO dispute filing by the EU, U.S. and Canadian governments in March of 2008.   In November 2008, China agreed to implement a new regulatory framework by June 1, 2009 to settle the dispute. The “Measures on the Administration of the Provision of Financial Information Services in China by Foreign Institutions” (“Measures”) were issued to comply with this settlement agreement.  

The Measures define “financial information services” as “the services provided to users engaging in financial analysis, financial transactions, financial decision-making or other financial activities in respect of the provision of the information and/or financial statistics which may affect financial markets.” It further emphasizes that “such services are separate from news agency services.”

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Effective May 20, 2009, China’s State Administration of Industry and Commerce (“SAIC”), the Ministry of Health (MOH), and the State Food & Drug Administration (“SFDA”) jointly issued “Measures for the Examination of Medical Device Advertisements” (“Measures”) and “Standards for the Examination and Release of Medical Device Advertisements” (“Standards”), both of which are relevant to medical device manufacturers and distributors advertising medical devices and diagnostic products within China. 

According to the Measures, provincial Food and Drug Administrations (“FDAs”) are responsible for examining medical device advertisements, while local Administrations for Industry and Commerce (“AICs”) are responsible for monitoring public advertising of medical devices. Applicants seeking approval for medical device advertisements are required to be qualified medical device manufacturers or medical device distributors. In instances where the distributor is the applicant, medical device distributors require approval from the medical device manufacturer, valid for one year. If the content of the approved medical device advertisement is determined to be false or fraudulent, the supervising authority is required to withdraw the advertisement, cancel the corresponding advertisement’s approval number, and refuse to accept advertising applications related to the relevant medical device from the infringing company for one year. If medical device advertisements aimed at individuals exaggerate the benefits of the medical device or include any overly misleading claims, the supervisory drug authority at the Provincial-level or higher may prohibit sales of the medical device. If the advertiser refrains from using the improper advertisement, the company will be eligible to resume sales.

According to the Standards, advertisements are prohibited for medical devices whose production, sale, and use are subject to legal prohibition by SFDA, and for devices developed by medical institutions for internal use. Medical device advertisements are required to be accurate in describing the applicable scope and effectiveness of medical devices, and shall not use the names or images of medical research entities, academic organizations, medical organizations, experts, doctors, or patients as testimony to the effectiveness of the medical device being promoted. Chinese agencies with enforcement authority retain significant discretion in how to apply these new rules and interpretation may vary from region to region. The new rules encourage careful attention to all forms of advertising and close coordination with the relevant Chinese agencies.

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In the past year, there has been extensive media coverage surrounding complaints from the general public against substandard products endorsed by celebrities. A high profile case in 2008 involved endorsements by celebrities of milk products tainted with melamine. The Chinese government imposed severe penalties on the milk manufacturer, including the imprisonment of its executives which led, in part, to the company’s bankruptcy. However, celebrities that endorsed the milk products were not subject to penalties, due to the lack of any clear legal foundation for litigation. This year, the scrutiny and public outrage over the role of celebrities in the advertising industry and the lack of adequate food safety regulation resulted in three significant legal developments affecting celebrity advertising in China. Celebrities and others engaged in advertising for food and/or pharmaceutical products can now face criminal liability (in the case of drug advertisements) and civil liability (in the case of food products) if the products they are advertising are fake, substandard or if the advertisements are misleading.

On May 27, the Supreme People’s Court and Supreme People’s Procuratorate issued "Interpretations on Several Issues Regarding the Application of Law on Criminal Cases Concerning the Production and/or Sale of Fake and Substandard Drugs" to address the manufacture and sale of counterfeit and/or substandard pharmaceutical products in China. Pursuant to Article 5 of these new rules, individuals or companies providing advertising can be found liable as accomplices for the crime of creating, manufacturing or selling fake and/or substandard drugs if they know or should have known that the drugs were fake and/or substandard at the time of the advertisement. In June and July, revisions to the "Food Safety Law" and the newly issued "Measures for the Supervision and Administration of Food Safety in Circulation" established a basis for finding celebrity advertisers liable if they recommend food products to consumers in false or misleading advertisements.
 

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