New rules for foreign financial news wires: Q&A with David Wolf

David Wolf

David Wolf has been working in China’s media, technology and communications industries since the 1980s. He is a consultant to both local and international companies in those industries, and a frequent commentator in the press. He also writes a blog at Silicon Hutong and posts to Twitter as wolfgroupasia.

In Danwei’s comments section, Wolf recently disagreed with my take on what foreign financial information providers (FFIPs) should do in the face of new regulations prohibiting them from also collecting news in China:

Whereas I think that Reuters Thomson, Dow Jones, Bloomberg et al. should just make a ‘Chinese wall’ between their news gathering and information sales operations, David says that such a wall won’t work because it will be difficult to manage and won’t really fool anyone.

I sent him some questions to explore the issue a little further.

Danwei: Does it make any difference that the State Council Information Office is now the regulator? Might they behave in a different way from Xinhua when it comes to regulating FFIPs?

David Wolf: As with so many of these things in China, it’s a good news / bad news matter.

Having a State Council entity serve as the FFIP’s regulator is a good thing for the information sales side of the business, because the State Council (and by extension, the State Council Information Office) wants the nation’s financial institutions to have as much quality information as possible when investing the nation’s treasure.

Even Xinhua’s most ardent supporters must acknowledge that Xinhua’s interests are best served by weakening or eliminating the competition and taking a dominant or monopoly role in providing financial information to banks and investment houses in China, so it works to the advantage of the sales teams at Thompson/Reuters, Bloomberg and Dow Jones to have the State Council Information Office as their regulator.

But an important part of the State Council Information Office’s remit is managing China’s reputation overseas. That’s an ominous prospect for the people gathering news and information for the FFIPs, because it suggests that the State Council Information Office will have the leverage necessary to influence the editorial side of the business. Their opening gambit in the new relationship — the prohibition on news gathering — seems to justify those fears.

Make no mistake: information and news gathering in China for the FFIPs is not a revenue-free activity. Just as the world’s attention — and, more important, the financial world’s attention — is turning to China, many news organizations are being forced to slash their roster of correspondents. Global business has never been in greater need of a fire hose of reliable financial information coming out of China, and they will pay for it. So the regulation has put the FFIPs right where they did not want to be.

Danwei: Quoting from your blog:

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.

And do that now. Because I have a feeling this is just the opening shot of a larger battle.

Where would you take this public? In the Chinese media or abroad? Do you think its likely that these FFIPs could get over their customary shyness in talking about how they operate in China?

First, the FFIPs have to reach out to their full constituency overseas. They need to rally every financial institution of any reasonable size by explaining that in the one place in the world where they need transparency the most, they don’t have it. If the world’s investors lose confidence in the quality of financial information coming out of China, that puts both foreign direct investment and foreign indirect investment at risk.

That’s important, but it is no longer the bombshell it would have been ten years ago. The nation’s policy-makers are losing their taste for foreign investors.

So the FFIPs have to expand their appeal inside of China beyond the financial institutions and start getting China’s tens of millions of punters to understand the importance of of unbiased financial information to their own portfolios, and to start to insist on it.

There is a small but growing class of individual punters in China’s casino-like markets who understand that the difference between speculation and intelligent investing is access to good information and analysis. Between these individuals (who represent the broader population,) the foreign investors, and the local financial institutions, you have a potentially powerful chorus of voices.

But, as you point out, the FFIPs have to stand up.

And, I expect in the end they will have to agree to a narrower definition of financial information that what was in the settlement with the US, EU, and Canada.

Danwei: Is this about commerce or about affecting the news coverage of FFIPs and other wire services?

David Wolf: Single-factor explanations for any government action are comforting, but they belie the complexities that surround decision making in a consensus-based bureaucracy like ours here in China.

So I think there are several factors involved here: first, the government cannot permit a foreign-owned entity to collect news in China and distribute it to Chinese.

Second, nobody wants Xinhua to fail, and in fact the government wants Xinhua be on an equal footing with the FFIPs both in China and worldwide.

Third, China itself needs the widest range of financial information that it can get, and it will not hobble its banking and investment institutions in the name or politics or just to help the local kid do good.

Finally, China needs to project a better image of itself abroad than it has, and both Xinhua and the FFIPs have a role to play in that process.

This whole issue has come about because of how the State Council Information Office has decided to balance those factors. The only hope the FFIPs have is to gently convince the State Council Information Office that it has, with respect, erred in its calculus.