PART TWO
China’s Creative Industry-
Strong Foundation for Future Growth
“China's creative history goes back centuries. Dance in China entered into a period of unprecedented brilliance during the
Tang dynasty (618-907 A.D.) as culture flourished. The imperial court founded the Pear Garden Academy, the Imperial
Academy, and the T'ai-ch'ang Temple and gathered the top dancing talent of the country to perform the magnificent
incomparably lavish "Ten Movement Music" dance.
Version 2.5 August 09 by China Creative Capital
1

“The directive from the General Administrative of Press and Publication(GAPP) sets for
the blueprint for transformation of China’s publishing industry..mandating that by the
end of 2010 all book, audio-visual and electronic [publishing by ministries of the central
government shall be separated from Government agencies and transformed into
independent market players…” Apr 2009
2

WHAT IS STATE OF CHINA’S CREATIVE & CULTURAL INDUSTRY?
WHAT ARE TRENDS AND IMPACT?
WHY CHINA HAS STRONG FOUNDATIONS?
3

Film - 10 th largest
global market valued
at USD400+m
Publishing – market
valued at USD 19bn
Skillnet Report 2008
TV - Largest global
broadcast market
valued at USD22bn “Bull run” in media consumption and
“loosening” with broad participation
across all media, including traditional
media(TV). China has world largest TV
Employing over audience market with over 90%
11m people in 2008 penetration and 1283 channels
The Chinese Government has targeted Creative & Media industry as a
key sector for future growth- driving change through de-regulation,
encouraging digitization across industries, upgrading of telecoms &
technology infrastructure and the recent roll-out of 3G..…
4

CCBN 2009 Visit Report
Chinese traditional broadcast market i.e. TV is the largest sector of the
Creative industry valued at USD 20bn (2008) with over 2000 channels
and access to 400m homes or 1.2 billion consumers
5

Breakdown of Media Market Share
BDA Mobile Broadband report China 2008
China’s internet/digital share of media market now at 11% (2008) with
digital content market already worth > USD 3 billion… strongest growth
potential from mobile TV and online games…
6

Chinese internet users from 2000-2008, Despite large digital user base, usage &
surpassing US in June 08 as the penetration low compared to US and
world’s largest globally
CNICC Survey 2009
Nielsen Online Survey 2009
The large digital user base will drive the growth of new media in China
potentially to potentially become world leaders in specific sectors like
online gaming, online music, etc
7

Survey of Chinese internet users
shows (1) strong need for internet (2)
differing usage vs US users
China is seen
experiencing
strong online
Ad spend
increase
AC Nielsen Online Survet 2009
BCG: Digital Generation Report 2008
Growing
number of
industries
focusing on
online Ads
globally
BCG: Digital Generation Report 2008
8

WHAT IS STATE OF CHINA’S CREATIVE & CULTURAL INDUSTRY?
WHAT ARE TRENDS AND IMPACT?
WHY CHINA HAS STRONG FOUNDATIONS?
9

3
2 Currently a USD80bn
industry & growing at 14%
CAGR till 2015
• Strong retail growth • World’s largest internet
averaging 15-20% annually population at over 300m
• China to surpass Japan as and 620m mobile users
World’s No.2 consumer Convergence • Digital content market
economy by 2010 Drives Industry already worth USD3bn
Change
• Consumption growth drives Creates • “Open” media sector to
ad spending to USD16bn- Opportunities drive growth- contribution to
5th largest globally GDP 3.2% vs UK’s 10%
• Consumer traditional media • Remain competitive
consumption reached • Create employment
USd22bn
Changes in the convergence factors
will create a positive reinforcement
effect on the industry as China is still 4
growing from a low consumption base
1 from a relatively “restricted” industry

1
China Retail Sales & Disposable
Income Trends
By 2015, >300M lower-
middle class; 100M Growth of Chinese
luxury consumers Middle-Class
> 200 Cities with Urbanization and
>1M residents Growth of Cities
NOW >300M users;
Growth and Impact of
>RMB 120B online
consumer sales the Internet
Grail Research : 2008
CONSUMER: China already 3rd largest consumer of luxury
goods – will be No.2 by 2015 with market value of USD12 bn
and 29% global market share (Grail Research 2008) ; soon will
surpass Japan as 2nd largest consumer economy by2010 .
11

1
Urbanization will create Internet will be an integral
consumer demands typical part of the consumer
in city-living economy
Over 110 high-consumer potential cities Impact of access to media & social media
with 34% of GDP ; Over 400 large cities influences plus expected growth of B2C
demand for services
McKinsey Global Institute: China Urbanization Report 2008 iResearch 2008
Chinese consumption is supported by multiple factors which are
themselves undergoing rapid changes which will sustain and further
accelerate the growth momentum 12

1
TV Media’s reach and penetration is the highest amongst
all media channels because segmentation & specialization
reaches targeted audience
China Ad Spend vs
Others
Growth of media
channels will
drive entire
creative value
chain from
content creation,
production,
distribution, etc
ZenithOptimedia 2008
Currently TV and Print media dominates share of Ad spend with
just over 70% market share but rapid rise seen from internet sector;
spend per capita still low with room to grow 13

2
China Becomes
Chinese World’s largest
Government Auto Producer
2 Key Issues : deliberate shift
(1) Current share of private and Auto Market
to focus on
consumption 35% (Half of increasing for 1H2009
the US) ; private overtaking the
(2) Rural income levels low consumption as US
compared to urban with long-term China Passenger Car Assoc.
rural population economic
strategy
Retail sales
+
USD600 bn
recovering as
result of
stimulus
packages
stimulus
package to
drive Chinese FT July 2009
economy National Bureau of Statistics “’… consumption accounted for 4.3
China Statistical Abstracts 2008 percentage points of China's 6.1 percent Q1 2009 GDP growth, compared
with 0.2 percentage points for net exports ..2 percentage points for
investment…”’
Chinese Government strategy to drive shift in economy appears to be
slowly bearing fruits..with the auto sector – a major consumption
indicator continuing strong growth despite the financial crisis ..
14

2
Part of China’s USD 587billion “Economic Stimulus”
Announced in Nov 2008 to Create Market Demand
Will drive creation of high- Next Will deepen penetration
Digital TV quality digital content and Generation and access to inner cities
increase value-add across which will be new engines
entire value-chain Internet of demand
China has one of the best infrastructure in developing economies; if
access cost can be kept low, further increase in media consumption
from current and untapped consumers in inner cities can be expected
15

3
Penetration of
digital devices
will extend from
current 1st/2nd
tier cities to
reach all the way
to rural China
BCG Report 2008
Emerging digital
channels like
IPTV already
gaining market
share
BDA China 2008
DIGITAL: Currently over 600M Chinese have digital access and
by 2015, will reach 87% of the population, with a significant
percentage being new consumers in the 3rd tier and smaller cities
16

4
NEW DRIVING
FORCE
Coming privatization of Partnerships between
Publishing sector in foreign & domestic
market valued at USD19bn media groups
DE-REGULATION
=
TRANSFORMATION
OF CHINA’S
CREATIVE & MEDIA
INDUSTRY
=
Coming conversion to
Digital/cable TV in market
valued at USD12bn by 2012 + Increased M&A within
domestic media
market – between
SOEs & new media
companies
NEW GROWTH
OPPORTUNITIES Growth of new Mobile Cross-media
Media market , currently collaborations +
valued at USD14.7bn collaborations across
media value-chain
De-regulation brings competition, accelerates change from
“standardization” to “innovation & differentiation”, transforming the
industry and creating “New Growth” momentum in the industry
hence “New Investment Opportunities” 17

4
Key Activities 2005 2006 /2007 2008 /2009
Allow foreign capital to accelerate 2010 timeline for divestment & privatization
Formation of publishing groups
development of private media of book, AV, publishing
Government Regulations regulating & managing news Encourage non-state participation in Laws to regulate video services
information cultural industry
Policy & Law Tradi tional
Media
Over 25 piecemeal regulations and directives to encourage cultural industries and development of specific creative clusters such as animation;
New
Grow th of outdoor advertisement market; Medi a
Growth of video sites (more than 200 new sites in 2006) and investments into SNS services
Listing of Focus Media (NASDAQ);
SMG first IPTV license; First of “Super Girl” Investments in the film industry increasing
Consolidation of ad sector
Domestic series launched by Hunan TV w ith financing from Asia
Industry
Multiple “f irst” listings of TV shopping, book retailer, digital TV channels
Development Baidu listed on NASDAQ; growth in internet
usage and online ad spend; Successful
listing of largest online gaming company Rapid growth of online/mobile gaming and multiple IPOs , including largest internet IPO
Shanda on NASDAQ Alibaba
Provincial Governments eg. Shanghai
Financial begin to form VC/PE funds to invest in
Government funding and incentives for creative start-ups available in
Related designated creative clusters; Increasing Chinese reserves needs to
the industry
Incentives & be re-directed to build the domestic SME economy Regulatory changes by end 2009 to allow
Regulations foreign PE firms to form LLC for RMB-
denominated PE funds
Chinese Government’s strategy will be broadly to separate control of
“broadcast” from “content + production”’ i.e. TV stations from TV
channels; and control of publication numbers, film censorship rather
than the creativity aspects.. 18

4
The Yangtze Delta Creative Cluster group, with over
3 Key Creative Clusters targeted in
100 creative parks centered around Shanghai with 5
Guangzhou, Shanghai and Beijing
other city clusters is one of the most vibrant
Wuxi- industrial design ,software &
animation design also home of
traditional pottery
Nanjing-leading cultural creativity
intelligence center in east china by Changzhou-national animation
2010 design base
Suzhou- one of China’s first hi-
Hangzhou- cartoon and animation tech park -digital software and
center of china technology; art cluster.embroidery
19

4
Currently all publishers have to be affiliated Foreign ownership of publishing is currently
with an upper-level authority- usually not allowed except through cooperation with
Pre- government agencies, political parties or Chinese publishers through copyright trading
academic institutions and public cooperation
“The directive from the General Administrative of Press and Publication(GAPP) sets for the blueprint for
transformation of China’s publishing industry..mandating that by the end of 2010 all book, audio-visual
and electronic publishing by ministries of the central government shall be separated from
Post- Government agencies and transformed into independent market players..GAPP is encouraging
publishers to accept private and foreign capital, including that raised through public listing…”
Apr 2009
Transformation of USD 19bn Top 20 Publishing House only
Publishing Market between control 20% of the market
2009 and 2010 compared to 80% in the US
2007 2008
Successful IPO -Liaoning Press Further IPOs of Anhui Press
whose share priced increased and Shanghai Xinhua News..
400% within 1 month to reach a 2009 onwards will
market cap ~RMB2.8 bn see formation of
large Chinese
publishing media
China’s publishing industry
groups, planning for
growing at faster than global at
5% between 2008-2012
IPO after M&A;
printers are buying
content houses &
Newspapers & magazines key components of
received 2nd largest share of Ad the value-chain
spend
Skill net China Media Report 2009
20

WHAT IS STATE OF CHINA’S CREATIVE & CULTURAL INDUSTRY?
WHAT ARE TRENDS AND IMPACT?
WHY CHINA HAS STRONG FOUNDATIONS?
21

Over 1000 years of
mythology since
12th Century BC..
recorded in
literature, poems
and songs “Eight Immortals’’ and the most famous
Chinese legend “The Monkey King” stems
from the Tang Dynasty around 620A.D.
“Chinese Dragon” is
Myth of the Dragon
one of the k ey
Kings
creature in Chinese
mythology
Close to 4000 years
of Chinese history
beginning from
2852BC… 25 major
dynasties and over
100s of emperors
The deep and well-documented Chinese history and myths provides a
strong content base (historical events, characters, stories, traditions,
artifacts) for the creation of modern creative & cultural entertainment -
22

“The Great Wall is the
great miracle in ancient
architecture.
By end 2008, 38
sites in China
identified as World
Heritage by
UNESCO with 27
Cultural sites Opening of the Trans- The famous Terracotta
Tibetan train brought warriors of Qin
increased tourists to Tibet
The ancient town of Lijiang
China has 28
officially recognized
written languages,
22 ethnic minority
and close to 100
spoken dialects
Minority tribes in China with their
A sign in Tibetan, Mongolian,
unique customs and cultures
Chinese & Manchurian
The cultural heritage within China gives a firm foundation for
development of cultural services and products eg. Cultural tourism,
historical artifacts reproduction, cultural entertainment &
performances…
23

Recorded history of The Wanli shipwreck ’s cargo
represented the best of Ming
pottery began
Dynasty pottery which were
11,000 years ago.. exported to Europe in the 16th
dominating world century
ceramic trade from
11th to 19th century
Export of Chinese –designed
today is primarily generic
wares to meet demands of
the US mark et- from lik es of
Walmart
Other aspects of
Chinese culture
have already seen
growing demand
across the world
Increasing demand for old
and contemporary art..
“ ..Chinese artist “..41,000 Chinese restaurants in the
LinFengmian’s auction at US ..more than 3 times number of
Sotheby’s fetched USD2.1m, MacDonalds” Chinese Resturant News
a record for the artist” 2008
Reuters May 2009
The variety and richness of Chinese culture provides opportunities for
the growth of new services in the Creative Industry, both to meet
domestic demand and also as cultural exports….
24

SHANDA
(NASDAQ: SNDA) -
The world’s largest
online gaming
company with
market cap of USD
3.8bn
BLOCKBUSTER
MOVIE
“RED CLIFF”
A recent USD 80m
movie directed by Already grossed over USD120m
Director John Woo in Asia alone part 1 of the 2 part
movie..
“..you can’t beat Red Cliff as the
“The Battle of RedCliff” in 208 A.D. during the most fabulous and classiest
Eastern Han Dynasty between two famous generals movie this summer” The
is one of most famous battle sin Chinese history Observer UK 2009
History and myths have been successfully leveraged to create
today’s entertainment and products from films, TV serials, animation,
games and merchandise
25

L ITTLE LAMB
(HKSE: 0968)
The most famous
Chinese hotpot
chain brand globally
Based on the traditional Mongolian love
Little Lamb was invested by UK VC 3i
for lamb hotpot, Little Lamb is now a
and listed on HKSE in June 2008
global 350 chain restaurant in China, US,
raising just over USD100M with a
South Korea, Japan and Indonesia
USD500M Mark et capitalisation
SHANGHAI
TANG
The first luxury
lifestyle fashion
brand to emerge
from China Shanghai Tang is an international clothing chain with over
20 outlets globally, founded in 1994 by a HK businessman
and now controlled by Richemont.
Shanghai Tang is a Chinese label that set out to rejuvenate
Chinese fashion. The fundamental design concept is
inspired by traditional Han Chinese clothing combined with
the modernity and dynamism of the 21st century.
The opportunity to merge Western management practices & branding
concepts with strong Chinese cultural products/services to create a
global brand has high probability of success
26

Xian – the Chinese city made famous by the “terracota
warriors” has leveraged its cultural assets to generate over
Tourism & Travel USD2.5bn (2006) in tourism related revenues; and is
Service Providers seeking to revitalize Tang Dynasty’s culture and create a
film production base and creative cluster
Tapping on wealth
of Chinese historical
There are 7 “Ancient Capitals of China” (Xian
sites
included) –Beijing, Nanjing, Hangzhou, Kaifeng,
Zhengzhou ,Anyang – some of which still
relatively undeveloped and offers strong future
potential….
“Sun Tze’s Art of War” written during the Spring and Autumn period of
Chinese history (722-481 BC) is widely regarded as a military strategy
Publishing, Online classic and used by generals throughout history- including Napoleon,
Game, Education Chairman Mao and General Schwarzk opf in the Gulf War.
services
Spin-offs from Already published in multiple
“Sun Tze’s Art of languages and widely read in
War” western military and corporate
circles..YET TO BE fully leveraged
in China..
Creative ways can be found to leverage on China’s greatest assets- its
deep cultural heritage to generate new products and services for both
the domestic and overseas consumers..
27

Large user base + Chinese internet companies have Examples of Innovative Business
industry constraints relatively strong financials Models
in terms of limited
payment systems,
low user + ad spend
Unique innovations QIFANG is a microfinance sopcial
community site allowing lenders
Micro-transactions and students to interact and secure
education loans.
QIFANG has recently been awarded
escrow system
WEF’s 2009 Technology Pioneer
prize, the first Chinese company to
Virtual currency do so. (prior winners include
Google, Wilkipedia)
Mobile payments
ALIMAMA is a micro-ad exchange &
micro-retail site targeted at
consumers
Combination of large internet consumer base + strong operating
margins + innovative business model= Creates a “winner” with a long-
term growth potential
28

TENCENT TENCENT has achieved
(HK:0700) revenues of over USD 1 bn in
2008 at an operating margin of
In C2C : The world’s
44%. TENCENT is ranked Top
largest and most 10 in Business week’s 2009 Top
profitable online 100 Global IT- the only Chinese
social network company to do so
“QQ” is the recognized
brand for over 300M
consumers
ALIBABA
ALIBABA has developed the
(HK: 1688)
world’s largest business member
In B2B : world’s base of 40m in over 240 countries.
largest B2B ALIBABA wins by offering offline
company with and online services plus service to
market cap of USD ensure trust/payment (the key
12bn issues faced with sourcing from
SMEs)
29