Business and Finance

Explaining Chinese book prices


Are books expensive? If you buy five-yuan pirated copies from the bookstall down the street, probably not. And if you shop at book fairs that offer discounts and incentives, you might think you are getting a good deal.

But do book prices reflect reality? Certainly there's a great contrast between book prices today and what's listed on the back of books published in the 80s before the industry was deregulated. Many people think that the book industry is just another racket out to make a quick buck by inflating prices and preying on readers' desire for good, cheap books.

An article in the 25 August Oriental Outlook takes a look at what contributes to the high price of books today - the setup of the production and distribution chain and problems with corruption and piracy. There are enough "industry insiders" whose explanations are at odds with each other that it's not clear which profit numbers are correct, but the piece provides a peek into how the industry operates.

China's Books: Why they keep getting more expensive

by Lu Wenjun in Shanghai

When the Shanghai Book Fair closed on 14 August, it had taken in a record 20 million yuan (US$2.47 million) from book sales. What distinguished this book fair was that it attracted readers looking for discounts. The fair's main promotional point in the media was that the 10 yuan (US$1.23) ticket price was more than worth it to get 20% off tens of thousands of titles.

That the prices of China's books have increased is uncontested. A 10-volume Historical Records published by China Press went for less than 20 yuan in 1982, while today you can easily find sets for upwards of 1000 yuan (US$123). The price of books in China leads many people to stop and wonder - is there any chart that sets out list prices? Where do the profits go?

Is there rubric for list prices?

Oriental Outlook performed random interviews at the Shanghai Book Fair and found that at least 80% of readers thought that books were too expensive. Many of them had come to the book fair to take advantage of the discounts offered.

Mr. Huang, who was holding a set of China Stories, said that the list price of this series was 1100 yuan (US$136). Though he bought it at a 20% discount, he still felt that it was a bit pricey. He said that he doesn't really understand how book prices work these days - bookstores all offer discounts, and he once bought his kid a four-volume Children's Encyclopedia that listed for 980 yuan (US$121). He paid 198 yuan (US$24.4), which he felt was reasonable at first, but later on he worked it out and felt that 50 yuan per volume still was a rather expensive. "They've got to be making a killing on these...," Mr. Huang said in a low voice.

Zhang Hong, vice director of Shanghai Foreign Languages Press, said that in 1993 the State Council deregulated the list prices of most books. But at present, Chinese books mostly follow a "paper price model," or what is commonly called "price by sheet;" the current price of a sheet is around 2 yuan (US$0.25). But it's not really logical to price all books according to the price of paper, since how can you sell a serious scholarly work at the same rate as a garish mass-market book? So more and more books are choosing to price according to the market.

Cheng Wei, a doctoral student at East China Normal University, spends about 300 yuan (US$37) on books. He has a unique view on book pricing - he believes that serious scholarly works in China are priced at a rate of 1 yuan per 10,000 characters, while frivolous mass-market books are often printed in large type and have accompanying illustrations. Looking at price from a content-buying standpoint, mass-market books are much more expensive, while scholarly books that are highly valued outside the country are "worthless."

Industry insiders blame the pricing system for the irrationality of China's book pricing, in which valuable books are priced cheaply, and worthless books command an unusually high price. Moreover, there are unprincipled book dealers trying to profit from this mess by over-inflating prices in an attempt to convince readers that fundamentally weak books are really immensely valuable.

Yu Hai, professor of sociology at Fudan University, says that Chinese book prices should reflect market mechanisms; non-fiction and scholarly books should be somewhat more expensive since they have a narrower readership. Reading material with a mass-market appeal, particularly supplemental textbooks, should not be priced too high. He adds that China's economic development is unbalanced, and its cultural consumption levels are low – per capita book sales average around 5 - so it's very difficult to predict sales. And when you take into account supplemental textbooks, an educational expense that many families are unwilling to pay twice, you can see why people think that books are so expensive.

The book sector's profit chain

Zhu Jie, head of East China Normal University Press, says, "Before I came to the press, I was a scholar. I liked to buy books, but I felt that they were too expensive. It was not until I came to this position that I realized that Chinese books are too cheap. This realization is not because I've gotten comfortable here, but rather than I've come to understand China's book industry linkages."

Li Guozhen, director of circulation at the Contemporary World Press, analyzed the industry's profit chain. In general, printing costs are usually 25-30%, content fees or royalties are 8-15%, and management of the publishing house is 6%. Costs are then basically kept under 40%, but the press usually gives distribution companies a 40% discount. Wholesalers make 5-10% in profit, while the retail market gets 25-30%.

In the analysis of administrative vice-general-manager of Guangdong's United Book Company Ye Fang, in the first place, while it appears as if the profit at the retail end is the highest in the chain, the penetration of small retailers is limited, operation is difficult, costs are quite high, and both investment and risk are both fairly large. Moreover in the city there are very few bookstores that do not give some sort of discount; price wars not only cut into a bookstore's profits, but they contribute to the image readers have of inflated book prices.

Secondly, while risk is small for wholesalers, they are incredibly competitive and profits are limited; sometimes they get pressure from both sides. Next are the publishers, who seem to have a profit margin of 20%, but risks are high. If a book is unmarketable, all copies can be unconditionally returned to the publisher, and the publishers also have to take on the risk of trusting the wholesalers and bookstores. With the current average return rate of 17%, publishers do quite well to maintain profits of 6-7%. Printers are even worse off.

"China's legitimate book sector is not a get-rich-quick industry. It's an industry of slim, even minuscule profits," says Peng Lun, high-ranking editor at Jiujiu Readers' Club. "When readers think books are too expensive it is a problem with perception. Buying a book in China is like buying a hamburger, smoking a pack of cigarettes, or taking a cab ride. Normal book prices are not only inexpensive, but they are actually too cheap, to the point that it is a drag on the development of China's book industry."

The profit chain for books is a complicated issue. Industry insiders point to the fact that individual cases vary widely. If a popular book has a large print run, then the up front costs can drop dramatically, bringing a potential for large profits. But the numbers of titles are multiplying and printing numbers are becoming pitifully low. Looking for profit in this sector usually requires breaking above the 5000 copy line; books with print runs below 5000 have no chance of making money. In fact, if a book that retails for around 20 yuan sells 10,000 copies, the publisher only makes 10,000 yuan or so.

Bookstores have it bad, wholesalers too, publishers worse, and printers worst of all - this seems to be the conclusion of looking at the book industry's profit chain. But the president of Shanghai's Book and Periodical Distribution Trade Association, Zhang Jinfu, says that the book industry turns a profit of around 30%, which is quite acceptable when compared to other industries.

In the analysis of an industry insider, due to the low threshold of entry in the industry, in particular the early areas which hardly have any costs at all, a lot of "gold-diggers" have entered the market, bringing chaos as they come. In order to meet sales goals, bookstores these days resort to brutal competition over discounts, creating a situation in which wholesalers and retailers fight to make use of the resources of the publishers above them and in the end enter a vicious circle of losses.

Massive profit from the "grey area"

Lai Jiang, who works at a government office in Shanghai, bought a set of General World History at a "Streetside Book Bazaar." The list price for this book from Beijing Press was 220 yuan, but he got it for just 66 yuan. Later he saw an identical set from the same publisher at a Xinhua Bookstore that listed for 68 yuan. He had fallen for the tricks of the bootleggers.

In Shanghai these days, from the cultural street of Fuzhou Road to the university areas to the campuses of government offices and large enterprises you can see "great works" going for as little as 10% or 20% of the cover price. An industry insider revealed that apart from overstock from legitimate publishers, these high-priced, hugely-discounted "great volumes" (as they're called in the trade) are invariably marked at inflated prices and then grudgingly sold at clearance prices, and they are always the "products" of underground distributors. Many are nothing more than pirate editions. The presence of these books is a great threat to the marketplace, making the already none-too-transparent book pricing system even more complicated and confusing. They also bring great harm to the readers.

Another individual in the trade who also declined to reveal his name said candidly that the profits legit businesses make from writing, printing, publishing, and sales are quite limited. The Chinese book market has been consumed by two kinds of actions - piracy, and corruption within the book distribution process.

The costs of pirate editions are extremely low - essentially nothing more than printing and binding, so profits can be shockingly high. And piracy these days pushes "fake but not inferior" by selecting paper and print quality that can be mistaken for the real thing. This is catastrophic for legitimate books. Experts say that the blame for the rampant piracy falls on a shaky legal system that gives few consequences for breaking the law. One other thing worth mentioning is that piracy often occurs hand in hand with local protectionism, making it difficult to combat. Crimes increase by the day.

In addition, forcible entry and monopolistic distribution in the area of circulation has become characteristic of corruption in the book sector in recent years. The latest distribution scandals have erupted in Shaanxi, Guizhou, Hunan, and Guangxi, in which officials and distributors with Xinhua Bookstores have been taken down. The industry contact says that this kind of corruption is what they fear most in the industry, but it is impossible to do anything about it. If these conditions are not effectively addressed soon, China's book industry has no future.

East China Normal University Press's Zhu Jie pleads, "I just want to ask one question: why do underground textbooks and inferior books with no publication number find their way so easily into students' book bags? What is the underlying problem?"

Another informed individual told me that some of those pricey "great volumes" are bought with public funds for use as gifts. The benefit purchasers and dealers gain from this goes without saying. These books are not originals, so there are no rights issues to deal with, and even if they are sold at a 90% discount there's still room for profit. If they are sold to the public at full price, imagine what kind of windfall that becomes.

Oriental Outlook is a newsweekly published under Xinhua's name but with an independent editorial board, and is intended to act as a contrast to the more official Outlook weekly.

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