[Article] How the Cultural Sector Works in China

(originally published in Europe-China Cultural Compass) The West is complaining. European countries struggle with their bond credit rating and, after the recent financial crisis, the latest trend has become reducing nonessential expenses. But among all the bad news about bankrupt states and rising unemployment, just one thing seems stable: China’s annual GDP growth rate. With the arts so dependent on public (Europe) or private (US) support, they are always among the first to suffer from recession or financial restructuring. Even well-known institutions like state operas need to make substantial efficiency improvements, as they manage on standstill grants with no allowance for inflation and rising costs.

Then we read about another splendid new theatre in a little-known 2nd or 3rd tier city in China. But what’s the real value of the arts in the PRC and where does the money come from? With funding as the main focus, this article also looks at related political and administrative frameworks and the key players in China’s cultural sector.

Policy framework

Article 22 of the Constitution of the People’s Republic of China says: “The state promotes the development of literature and art, the press, broadcasting and television undertakings, publishing and distribution services, libraries, museums, cultural centres and other cultural undertakings, that serve the people and socialism, and sponsors mass cultural activities.” At first sight this might sound similar to the cultural policy of some European countries. But in reality China’s cultural landscape has changed significantly over recent years.

The reform started with directions in the 11th Five Year Plan (2006–2010), summarized in a speech by Sun Jiazheng, then Minister of Culture. These guidelines were the start of a new era in which cultural industry itself should contribute to annual GDP growth, something that could only be achieved if the current public institutes and performing arts companies became self-managed organisations driven by the market rather than by the state. For this reason, the Ministry of Culture reduced public subsidies to stimulate commercial development. Over the following years, state-owned performing arts companies and institutions have been transformed from inefficient public organisations into market oriented and competitive businesses. Soon after, the state media announced the full success of this reform, backed up by information on growing revenues, rising salaries and increasing numbers of performing arts companies and theatres. A first conclusion might be that China is setting out to create a commercialised sector, similar to the system in the US. However, one shouldn’t ignore one important fact: although new regulations encouraged private companies onto the market, the transformation of national organisations is not the same as privatisation. The new market-oriented cultural giants are still owned by the state, in a similar way to the restructuring of public theatres in Austria and Germany, which were transferred to limited companies.

This reform in China is not yet over. Recently the current Cultural Minister Cai Wu, who succeeded Sun Jiazheng in 2008, was quoted by Xinhua that all state-owned cultural institutions should become market-oriented enterprises by 2012.

Players at government level

The Ministry of Culture reports directly to the State Council and is responsible for the development of China’s cultural policy and protection of cultural heritage. In addition, it directs China’s most prestigious art faculties, museums, theatres and performing arts groups, even if they have already become regular enterprises, and cooperates closely with the Ministry of Education. It also holds a supervisory function for the State Administration of Radio, Film and Television and the General Administration of Press and Publishing of PRC. Foreign artists coming to China usually need prior approval from the Ministry of Culture.

Another key player is the Ministry of Commerce (MOFCOM), in charge of trade and foreign investment policy, also closely related to intellectual property rights. The current head of MOFCOM is Chen Deming, formerly an official in Suzhou and Shaanxi.

Some important cultural industry events are jointly hosted by the Ministry of Culture and Ministry of Commerce. For example, the annual International Cultural Industries Fair (ICIF) in Shenzhen, first held in 2004, which has become one of the most important
events in China.

However, arts administrators and businesspeople will rarely deal with these highranking officials and decision makers. It is the duty of the provincial and local governments to implement, execute and monitor China’s cultural policies. At this level the responsibleentity is either a Cultural Bureau (e.g. Guangzhou) or can be linked to other departments such as the Information Office in Shanghai.

Companies – the new players

Large cultural projects are no longer directly executed by governmental organisations but instead by large state-owned companies. One of the key players is the Beijing Gehua Cultural Development Group, founded in 1997, which consists of Gehua Culture Centre, Gehua Media Centre and Gehua Science & Technology Centre. The Culture Centre owns the China Millennium Monument in Haidian and recently opened the Shijitan Contemporary Art Center, an impressive new artspace west of Beijing’s second ring road. Gehua usually focuses on intercultural projects, including exhibitions, entertainment shows, visual arts, performance etc. The group was also responsible for the Opening and Closing Ceremonies of the 2008 Olympic Games. For outsiders the structure of Gehua is often confusing, as it is divided into different limited companies that are part of the Culture Centre. For meaningful and long-term cultural business, it is difficult to avoid Gehua. One current example would be the Bob Dylan concert, finally approved by the Ministry of Culture and promoted by Gehua-LiveNation, a joint venture between Beijing based Gehua and the American concert organiser LiveNation.

Financing structures

Despite the fact that there are still so many state-owned key players, financing is dependent on different factors and channels. For any country or political system, basic arts management theory sets out three ways of funding cultural projects:

◎ Public means (direct and indirect subsidies)
◎ Private means (sponsorship, fundraising)
◎ Own means (capital, ticket sales)

Public means

According to the Ministry of Finance, the budget for culture and the arts increased steadily in recent years, with annual growth rates of between 10 and 20%.

The distribution of public subsidies is determined by the internal political structure. Central government is responsible for less than one tenth of the total cultural budget, with the rest distributed by smaller entities such as provinces, directly-governed cities, municipalities, special economic zones, villages and districts. For 1st tier cities like Beijing, district governments can take a particularly important role in decision-making processes. While little public funding for cultural projects is based on direct subsidy, the normally low tax rates could be counted as a form of indirect support. With current VAT for the service industry of about 6% and rather low tax on profits, there are no discussions in China about the need for tax relief for the cultural industries.

Two of the largest public subsidy funds are run by state-owned foundations: the BCDF (Beijing Cultural Development Foundation) and SCDF (Shanghai Cultural Development Foundation). Both can only be accessed by individuals and organisations registered in the respective cities. The subsidy can be either a direct financial payment or a loan (credit-worthiness is checked in advance).

For most arts-related projects, there is little available public funding from the Chinese side (at least for a foreign project partner). However, many reputable events are organised by state-owned companies, e.g. Gehua Culture Group runs the annual Beijing Design Week, or are hosted by public organisations such as universities or research institutes. For intercultural projects, any public subsidies often come from the budget for bilateral cultural cooperation in the European home country, or directly from the specific cultural attaché or European cultural centre in China.

Private means

Fundraising and sponsorship do not play a significant role in China and are more reliant on personal relationships (guanxi). Chinese brands are rarely linked to the arts, since the arts are not seen as a worthy image-creator. Even large cultural projects are more likely to have one public sponsor (city, organisation, university etc.), rather than a handful of commercial brands. Exceptions are made for prestigious venues like the National Center for Performing Arts (NCPA) in Beijing that – naturally – can easily acquire long-term partnerships. Currently, the NCPA is sponsored by Mercedes Benz, Bank of China, Rolex and Grand China (Hainan Airlines).

The Chinese ice cream brand Baxy has sponsored the Poly Theatre Group’s wellknown children’s summer programme (“opening the door to art”). But, sometimes, foreign brands seem to be more active than local ones. The Today Art Museum in Beijing, the first privately-owned museum in China officially given non-profit status, was supported by companies like Mont Blanc, Credit Suisse and J.P. Morgan in recent years. Nevertheless, in daily business life, improvements are needed to develop enthusiasm for sponsorship. Given the low tax rates and a difficult taxation system, the monetary incentive for private companies in China is rather low. In return for financial support, companies usually request a Chinese receipt (fapiao) for a tax-deductible service (depending on the industry). However, this type of receipt (which comes with an ID number and password) can only be issued by another legal person registered in China, and never by a foreign organisation (unless it has a legal entity in China). Much more common and easily found are in-kind sponsorship deals from transport and food and beverage companies. In recent years there has been a remarkable increase in the importance of private foundations in China. Legal conditions and requirements were improved, but also the rapidly increasing divisions in society encouraged a willingness to donate and commit to corporate social responsibility (CSR) principles. The China CSR map10 currently lists about 500 organisations with such activities. Despite this, one should not conclude that cultural foundations are set to expand in the near future, as this trend seems to be mainly focused on social affairs.

Prominent private foundations are therefore rare and, where they do exist, are usually focused on the visual arts. One such is the Minsheng Art Fund founded by Minsheng Bank, the first non-public joint-stock commercial bank in China. The fund gives awards to outstanding contemporary artists and sponsors their exhibitions around the world. After a first cooperation with the well-known UCCA (Ullens Center for Contemporary Art) in Beijing, Minsheng opened its own art museum in Shanghai in 2010. In addition, the Minsheng Contemporary Art Research Center funds and promotes academic research and publications. Other well-known organisations based on collections, are the Modern Chinese Art Foundation, which has Belgian roots and was founded in 2000 by Frank Uytterhaegen and Pascale Geulleaume, as well as the Guy and Miriam Ullens Foundation that established the UCCA in Beijing’s 798 Art District. Also worth mentioning is the Robert H.N. Ho Family Foundation that features both creative arts education programmes and artistic development for musicians, writers and painters in Hong Kong and mainland China.

Own means

Although subject to an alarming rate of inflation, the arts in China are still affordable and, as the 11th Five Year Plan points out, they should remain affordable for common people.

In recent years Chinese 1st and 2nd tier cities have many cultural programmes and enjoy numerous free events. For intercultural projects, ticket sales won’t make a large contribution to income, but they can be useful as compensation or incentive for a Chinese partner (agency). Sometimes ticket sale revenues go direct to the venue or event host. Other ways of generating self-earned income are licensing merchandise, food and drink sales, renting space or membership programmes.

Author: Tobias Zuser

The full essay was published as part of the Europe-China Cultural Compass, a joint initiative by partners of EUNIC (European Union National Institutes for Culture: Goethe-Institut, British Council, Danish Cultural Institute).

Both the Englih and Chinese version of the Europe-China Cultural Compass are now available as free download on http://www.eunic-online.eu!

EUNIC – http://www.eunic-online.eu
Goethe-Institut Peking – http://www.goethe.de/ins/cn/pek/deindex.htm
British Council – http://www.britishcouncil.org/china.htm
Danish Cultural Institute – http://www.danishculture.cn/en/