The English-language media has written many snarky blogs and articles about China’s recent move to restrict TV shows featuring time trave, crime and spies as the Communist Party prepares to celebrate its 90th birthday on July 1. Most articles depicted the “ban” as a law or regulation, but actually it was more of a suggestion.
The regulator, the State Administration of Radio, TV and Film, said in an announcement on the state of the industry that it had noticed “a few improper creative works,” for example “fantasy and time travel dramas that alter the historical record” and “haphazard compilations of mythical stories…even propagating feudal superstitions.” Later in the announcement, SARFT says that TV stations should celebrate the 90th anniversary by “working hard to release excellent works that… accurately reflect the people’s struggle, under Party leadership, to restore the greatness of the nation.”
This translation doesn’t take away the weird China regulation quotient, but it does reveal something about how business works here. Suggestions or guidance made by an authoritative party can have the practical weight of a regulation; meanwhile, regulations fall into a grey area where they may be met or ignored depending on the regulator’s authority – creating a maze of requirements that companies must navigate.
Many of the blogs and articles featuring “this-and-that wacky rule from the Middle Kingdom” are actually discussing regulations issued by ministries, which are not universal. Here is Baidu Knows’ take on the difference between laws, statutes and regulations in China:
Laws (falv) are drafted and implemented by the National People’s Congress or its Standing Committee; statutes (fagui) are formulated by local peoples’ conferences; regulations (tiaoli) are implemented by ministries and committees within this system: among these laws and statues are universal, but regulations are not. Among these the force of the law is greatest, and when statues conflict with law, the law shall prevail.
That regulations are not universal can lead to patchy enforcement and conflict between agencies: For example, the turf war between regulators over a recent World of Warcraft expansion that resulted in months of delay and the eventual release of a slightly sanitized version of the game where skeleton figures had been replaced with wooden boxes. (China recently announced the creation of a new internet regulator, hopefully to help streamline this kind of conflict.)
This regulatory uncertainty does take a toll on companies and investors. In the past, it’s been difficult to tell whether investing money to follow a regulation will be a waste of capital for the company, or the factor that saves the business.
Renren provided some interesting examples of this in its pre-IPO filing, where it was required to disclose potential regulatory risks to its business. One such threat was the existing rule on virtual currency, which targets online gambling and the use of virtual currency in money laundering and illicit trade. Almost all online games companies and social network operators offer virtual currency services that could be said to violate the circulars issued by the Ministry of Public Security, the Ministry of Culture, the MIIT and the GAAP since 2007, perhaps in several ways. “It is unclear whether these restrictions would apply to certain aspects of our online games,” Renren said.
The filing also mentions an industry that was dramatically reshaped by regulation: wireless value-added services. Renren and many other providers exited the business after regulators launched a crackdown on providers in 2008.
How can investors minimize their exposure to this kind of regulatory uncertainty? It’s been said before, but the safest bets remain the regulators’ prodigal sons: Baidu, Sina and Tencent already dominate their markets in part because of their strong relations with the government. Even if they do run afoul of censors in the future, their businesses are sufficiently diversified to withstand the heat.