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Propaganda Doesn't Pay, So Beijing Cuts Loose the Media

China's southwestern Hunan province is best known as the birthplace of revolutionary peasant leader Mao Zedong. Now, a new revolution is brewing there. Ground central is the headquarters of Hunan Radio, TV & Film Group, just outside the provincial capital, Changsha. With seven channels focusing on everything from business to sports, plus four radio stations, various publications, Web sites, and an amusement park, the broadcaster and publisher is a key player in the transformation of China's media industry.

With its popular programming and 300 million viewers, Hunan is providing serious competition for dowdy China Central Television, the most widely watched broadcaster. And while the group is state-owned, like most media outlets in China, it operates with little official interference. Authorities have even allowed it to list its advertising and TV production businesses on the Shenzhen exchange. "Control is loosening," says the group's chain-smoking president, Wei Wenbin, "and the media sector has a great opportunity to grow."

BIG MONEY. Why the sudden about-face from a government that jails journalists and recently fired editors at Guangzhou's racy Southern Weekend tabloid? Simple economics: Beijing can't afford to fund thousands of periodicals and broadcasters, originally set up not to make money but to pump out propaganda. There is big money to be made if state-owned media can be turned around. Last year, according to official figures, China's periodicals and TV stations raked in $17 billion in revenues.

So the government is throwing open the sector to an unprecedented degree. It is allowing nonmedia companies to take minority stakes in newspapers and magazines. It is even considering opening the sector to foreign investors, who, with a few exceptions, have been barred entry. Moreover, regulators have signaled that more media companies will be allowed to go public. No surprise, then, that in recent weeks several old-line media outfits have launched flashy new publications in an effort to lure readers and advertisers. While censorship will continue, Beijing recognizes the economic value of an information society. "The only question is how and to what degree to open this field," says Huang Shengmin of the Beijing Broadcasting Institute, the top TV and radio academy.

One way to maintain some control is to keep publications in-house. Exhibit A: People's Daily, China's ultimate propaganda vehicle. At the end of May, it launched Beijing Times. In contrast to its gray parent, the Times runs color photos and recently featured stories about a gas explosion that injured diners at a Beijing restaurant, and a blind boy's visit to the Great Wall. The Times says it sells 300,000 copies a day, and that the potential for growth is huge in an underserved city of 13 million.

STEALTHY ROLE. Meantime, nonmedia companies with an eye to making a profit are transforming existing publications. In April, Shandong electronics retailer Sanlian Group took a money-losing paper aimed at rural readers and relaunched it nationwide as the Economic Observer. Sanlian plans to spend $10 million by 2004 revamping the publication. The target audience is China's burgeoning community of entrepreneurs.

Such opportunities remain difficult--but not impossible--for foreign investors. While Boston-based International Data Group publishes a score of tech periodicals in China, including Computerworld and Digital Fortune. Beijing, however, has not issued any new licenses to foreigners for some time. Nor does it officially allow outsiders to invest in the operational or management side of TV or radio. Still, overseas companies are finding ways around the rules, including buying into media through ostensible advertising and marketing outfits. As a result, foreigners have an increasing--if stealthy--role in producing content.

For Hunan's Wei, survival means not crossing the line--as Southern Weekend did with its political coverage. "Propaganda will always be [our] No.1 job," says Wei, toeing the party line. Yet he knows as well as anyone that as China's media become more financially independent, they may well break away politically, too. By Dexter Roberts in Changsha

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