By Jaymee Ng, Principal Writer, China Business Knowledge@CUHK

Chinese state-owned news media has long been criticised as being the government’s “mouthpiece” due to its ties to the Chinese government. Many question the value of news reports they produce because report the information that the government intends to share. Setting aside this stereotypical image, a recent study finds that in terms of business news, even state-owned newspapers provide unique and valuable information to the country’s capital markets.

All news media in China are more or less controlled by the government. The government itself directly operates several official media organisations that espouses the views of the party. The biggest and most influential include People’s Daily, the largest newspaper in the country, television broadcaster China Central Television (CCTV), the news agency Xinhua, English-language daily China Daily and the tabloid Global Times.

“You must understand that government policy is fundamental to China’s economic growth and investment opportunities.”

Prof. Zhang Tianyu

However, recent years have seen the emergence of a new breed of media outlets in the country that appear to operate with relatively more editorial leeway, such as Caixin, Jiemian.com, and The Paper. They are still controlled by the state, but have a stronger profit incentive and are established with a clear mandate to attract and serve a broader readership. The news articles they publish often appear to be more critical, and they are seen as being more willing to push the boundaries of reporting in the country, often covering stories that the largest (and state-owned) media companies are unwilling to. Consequently, the news coverage of this new generation of media organisations is generally considered to be more valuable than the stories published on traditional state-owned media. However, according to research, this may not actually be the case.

“People often ignore the fact that state-owned media, thanks to their close links to the government, can provide ‘inside’ market news and information that other news media can’t,” comments Zhang Tianyu, Professor at the School of Accountancy at The Chinese University of Hong Kong (CUHK) Business School.

His research paper Firm News and Market Views: The Informational Role of Official Newspapers in China, co-written with Prof. Joseph Piotroski at Stanford University, Prof. TJ Wong at the University of Southern California and PhD student Shubo Zhang at CUHK Business School, proposes that old guard state-owned media and their more progressive brethren serve two different roles in providing information to financial markets. In the study, the authors reviewed nearly 3 million articles on domestic corporate news from 100 business newspapers in China from 2000 to 2017.

Different Informational Roles

Prof. Zhang explains that the more traditional state-owned media and the newer outlets are different in terms of acquiring, interpreting and disseminating information and therefore, the two types of media may serve different roles in providing information to the markets.

Typically, the more progressive news organisations tend to focus more on firm-specific reporting. This can help them to gain readers who are interested in inside stories of well-known companies and earn advertising revenue from firms that perhaps would like to be featured in the newspapers. In other words, their news articles would lead to an increase in the supply of information on individual firms, such as the performance of certain companies and their stock prices.

The more traditional state newspapers, on the other hand, are well suited to delivering political directives and policy-related information. Due to their close relationship with governmental units, these big official rags can provide the most precise policy direction and industry trends for corporate news. For instance, the study found that on average, their articles supply 10 percent more news on the general trends of specific industries and markets than semi-independent business newspaper articles. Furthermore, big state-owned newspapers tend to increase their coverage on industry and market news on days when the central government announces new industrial economic policies.

“You must understand that government policy is fundamental to China’s economic growth and investment opportunities. In other words, it wouldn’t hurt to listen to the ‘mouthpiece’ sometimes,” Prof. Zhang comments.

On the other hand, not all conventional state-owned newspapers are equal in terms of reporting policy-related information. According to the study, newspapers owned by the central government level often contain more information on the broader economy than the same type of newspapers owned by local governments. The study explains that this phenomenon shows that newspapers owned by the central government have greater access to future governmental policy directions, wider readership and they appeared to have greater credibility.

However, the study found that during the National Congress of China’s Communist Party – a meeting of top officials which is held every five years and serves to set the country’s national policy goals and to elect its top leadership, both types of newspapers reported an increase in their output of stories related to the macroeconomy to showcase their coverage of the country’s major political event of the year.

Diverging Editorial Stance

Interestingly, contents reported by the two types of newspapers diverged further after President Xi Jinping’s high-profile visit to the big three state-owned media – People’s Daily, Xinhua and CCTV – in February 2016. During this visit, President Xi ordered news media organisations to “follow the Party’s leadership and focus on ‘positive reporting’”, CCTV reported. The researchers found that after the visit, more editorially progressive newspapers drastically reduced the amount of coverage on the overall economic performance of individual industries and the macroeconomy, whereas the traditional state-owned news media saw a significant surge in their coverage of this type of information.

“What we saw was that the old school state-owned news media organisations aligning themselves with the overall political and propaganda role that the Party set for them in the economy, whereas news media with more independent editorial stances were distancing themselves from this political agenda to focus solely on their businesses interests,” Prof. Zhang explains. “This way, the two types of news media have different roles in providing different types of information for investors.”

The research study is the first to provide evidence that China’s different state-owned news media play an important and complementary role in providing useful information to financial markets. Prof. Zhang and his co-authors suggest future research can look into the way that the market reacts to existing biases in the content of official newspaper articles and whether the market corrects for these known influences.

The post The Unique Role of the State Press in the Chinese Economy first appeared on China Business Knowledge.

By Helena Pozniak

Do investors react differently to corporate news published in party papers or business publications? Given that the media in China is controlled by the government, will conglomeration of the media industry ultimately yield a more diverse and transparent media? These are some of the questions explored in the working paper ‘Political Bias of Corporate News in China: Role of Commercialization and Conglomeration Reforms’, the first paper looking into the consequence of the media reform in China.

The paper is written by Prof. Zhang Tianyu, Director of Center for Institutions and Governance and Professor at the School of Accountancy in collaboration with Prof. T.J. Wong, Former Dean of CUHK Business School and Director of Center for Institutions and Governance, as well as Joseph D. Piotroski, Professor of Accounting at the Stanford Graduate School of Business.

“Corporate news from an official newspaper is more likely to be positive but less reliable. Relatively, corporate news published in a professional paper is much more reliable, which implies a stronger impact on the stock price,” says Prof. Zhang.

The paper looked at the consequence of two serial media reforms implemented within China, that is, the commercialization of newspapers and the conglomeration of newspapers, a move to bundle them within larger regional media groups. Specifically, the paper investigated whether the business newspapers become less biased after commercialization and whether diversity of corporate news increases after conglomeration. If the reform is effective, the market should react differently to news articles published in official and business newspapers. The paper also finds evidence for that.

To conduct their research, the team rely on machine learning techniques to examine some 1.77 million domestic Chinese newspaper articles covering China’s listed companies between 2000 and 2010. To measure the political bias, the paper constructs the tones as well as the political tagging for each news articles through textual analysis.

“In areas under tighter state control – Beijing for instance – reports contained more political bias than they did in the more market-oriented Guangdong province.”

Prof. Zhang Tianyu

The Reforms of Chinese Media

China began to liberalize its press in the 1980s; this has resulted in a proliferation of commercially driven business focused newspapers. Unlike their state-funded counterparts, these newspapers receive no government subsidies and rely upon subscriptions and advertising revenue. According to the researchers, the newspapers in China serve as mouthpieces of Chinese Communist Party or government prior to the reform.

Beginning in 1996, the government also made a move to regroup both the commercial and state-run local newspapers under one roof to create geographically-based media conglomerates. The process began with the formation of the Guangzhou Daily News Group; now 38 such news groups exist across China. These reforms bring state-funded government mouthpieces under the same roof as commercial newspapers.

“This is the ‘double-track’ reform strategy that China government prefers,” says Prof Zhang. “We’ve seen it in other markets, such as double exchange rate in currency market, and double-track price in commodity market. Now the government put two types of media – the professionally-run financial papers alongside the mouthpiece of the government. It’s about balance,” he says.

China’s state owned media serves a dual purpose – as the government’s mouthpiece and as a market-oriented information institution. “These missions require a careful balance between political and commercial objectives, which are often in conflict with each other,” he adds.

When Asian stocks crashed in 1997, both markets and the Chinese government came out in favour of more transparency within the market, and in the reporting of it in the media. Some publications were able to act as watchdogs for financial markets. For example, the financial magazine Caijing《財經》has exposed incidence of corruption and fraud around the turn of the millennium.

The Findings

However, have these media reforms resulted in a more or less independent press? While readers expect commercial papers to have greater autonomy, can they still be expected to report objectively on state owned enterprises for example, when after all, the government still retains ultimate control of the appointment of editorial staff, and indirectly, ownership of the papers themselves?

The findings are revealing. China’s newspaper reforms – the conglomeration and commercialization – have boosted the diversity of news reported by state controlled newspapers. Unsurprisingly, business newspapers are less politically biased than official newspapers. But these differences are more pronounced for business papers after the establishment of media groups: business papers within media conglomerations appear more diverse, less politically biased than their free-standing counterparts.

“Different media play different roles within the same group,” explains Prof. Zhang. “Our research is the first to show this difference.”

Researchers also found that in areas under tighter state control – Beijing for instance – reports contained more political bias than they did in the more market-oriented Guangdong province. “We found newspapers in Guangdong are more professional,” he says.

And it all comes back to balance. With its mix of official and business publications, a media conglomerate can serves two editorial needs – publishing both for the state and the market. “For instance, if you say something critical here (i.e., in a financial paper), that’s okay because you already say something ‘good’ there (i.e., in a party paper within the same group). This kind of balance is at the heart of Chinese culture,” he says.

The Implications

The researchers found that reports in business papers are more likely to affect the share price of a company than if the news was published in an official paper. In other words, news articles published in a conglomerated finance paper have more impact upon share price than news from a free-standing paper.

The research shows that the reform of the media industry, which introduces market incentives, can enrich corporate journalism, without the state being forced to relinquish control of underlying news organizations, say the authors. And these findings are significant for emerging economies under autocratic governments which are wrestling with reform of a state-controlled media.

While researchers did not include social media in their research, they acknowledge the prominence of channels such as Weibo, WeChat and informal blogs held in the public eye. Despite state controls, the internet is now China’s most popular source of news – significant considering that individual investors – who glean information and tips online – are responsible, according to Thomson Reuters, for some 85 percent of share transactions. But news generated by social media is not always trusted, says Prof Zhang. While some rumours do originate from internet sources alone, most news circulated on the internet is still generated by more traditional media such as newspapers. “Credibility is still a big constraint for online news. Traditional newspapers still have the upper hand,” he says.

External pressures will drive Chinese media to greater levels of professionalism, Prof. Zhang believes. In addition to evidence presented in the paper, the authors also investigated overseas media in Chinese, including Hong Kong, Singapore and Taiwan, which have all revealed less political bias than their mainland counterparts. “These higher professional standards will spill over to China,” he says. “Likewise, the advent of the Shanghai-Hong Kong Stock Connect which has opened investment channel between mainland China and external investors will drive further demand for more professional information intermediaries.”

“This paper has thrown up many potential avenues of future research,” says Prof. Zhang. “Do less bias and more information actually improve operations for China’s markets? How do these reports compare with what has been published outside China? Has reporting improved only for state owned enterprises? What else, if anything, limits the role of Chinese media to report freely? And how does the subject matter of an article affect share price? These questions would inform our next steps,” he says.

The post The Long Road to Diversifying Chinese Media first appeared on China Business Knowledge.