In the Hutong
Timing intervals twixt interruptions
Last year, the Chinese government, in an effort to further formalize the status of foreign financial information providers (i.e., Bloomberg, Dow Jones, Thompson/Reuters, etc) operating in the PRC, assigned the group a regulator: Xinhua, The New China News Agency.
The SCIO Bomb
The foreign financial information providers (FFIPs, or “fips”), understandably upset that an ambitious local competitor was going to serve as their regulator, cried foul, and the United States, the European Union, and Canada all protested to the WTO. Thus forced to concede that having the local champion serve as regulator carried the faint smell of protectionism, China agreed in a settlement to have the State Council Information Office (SCIO) serve as regulator.
Interestingly, the settlement also accepted a fairly broad definition of financial information, going beyond just prices and data and including news and other information. But more on that in a minute.
Congratulating themselves on a fairly satisfying and sagely compromise, the FFIPs returned to business.
Before heading off for the three-day May Day weekend, the SCIO published the regulation that formalized the agreement. Then, it noted that the FFIPs, while allowed to sell their business and corporate information services in China, would not be permitted to conduct news gathering activities.
And You Thought the WTO Was the Last Word
Speculation reported in the Financial Times suggested that the restriction on news gathering might have been inserted as a fillip to Xinhua. That may be the case, but I think there is a larger issue at stake for the Chinese government.
PRC law and long-standing policy prohibits foreign ownership of domestic news outlets. Nothing in the terms and conditions surrounding China’s accession to the WTO is going to compel the government to change this. And the FFIPs know this.
And getting all of the countries involved in last year’s WTO settlement to agree that “financial information,” broadly defined, included news probably sounded to the FFIPs that they had made a huge step forward. As it turns out, that may have opened a door allowing the government to ignore the distinction between an financial information provider and a news organization and roup the FFIPs in with the news business.
“Hey, What’s That Camel’s Nose Doing in Here?”
Because what I believe has happened in this case is that someone suggested to the SCIO that any organization capable of both gathering news inside China and of distributing news inside China is, effectively, a domestic news outlet. As financial information now includes news under the terms of an international agreement, that meant that Xinhua and its allies in government and the Party could make a good case that now Thompson/Reuters, Dow Jones, and Bloomberg were operating as de-facto domestic news outlets.
Confronted with that rationale, the Chinese government only has two choices: a) ban the FFIPs from distributing in China, which wouldn’t work because the WTO case would reopen and Chinese financial institutions would suffer for the lack of critical timely information; or b), prohibit FFIPs from engaging in news gathering, a restriction that is much more difficult for international organizations to challenge and ensures international financial information flows to domestic institutions.
So SCIO chose the latter. And now the ball is back in the court of the FFIPs in terms of how they want to play this.
Get Me Rewrite!
There has already been some outrage online and in the news, but if I may make a suggestion to my friends in the Fourth Estate, this would be a very good time to keep cool heads about this.
First, as with any regulation in China, the time delay between promulgation and enforcement is often long enough to allow for some discussion. Rather than make a formal case and get governments publicly involved, it is time to start tapping your sources of information, having quiet, off-the-record discussions with the people you know in government – as many as possible – and learning why this happened.
Second, we need to recognize that this could get a lot worse. Given that the wall between what is “news” and what is “financial information” has been destroyed by international legal agreement, Xinhua’s next move could be to declare that any financial information developed in China is the same as news, thus prohibiting the FFIPs from distributing so much as quotes from the Shanghai Stock Exchange within China. We don’t want to go there, now, do we? And Xinhua would love to have a captive market in the PRC for its real-time financial information service.
Third, remember that the FFIPs have natural allies in China that have helped them before. It is time to call upon those allies again. But that is not enough – you have gone back to that well too often – it is time to get more allies, and that means going public. Stop positioning yourselves as news companies (at least in China) and start making a public effort to demonstrate that you offer a service that is essential to the future of the Chinese nation and to its role as an emerging financial power.