Chinese News Agency IPO May Pressure Foreign Media

TAIPEI (TheStreet) -- The world from New York to Namibia knows China aims to dominate it economically.

The country's unknown but growing military strength also worries much of Asia, and when China wants something politically in the United Nations, the other 190-plus countries listen.

But China's mass media are still an Orwellian throwback. News reports deify the Communist government and link to the Devil those who challenge it. Though pure objectivity is a myth anywhere, reporters in China outright scoff at it. We can see from protests (settled for the moment) at a newspaper in southern China last week how poorly Beijing tolerates varied viewpoints.

In another media development this month, China's uber-official Xinhua News Agency told regulators it will make an initial public offering for its Internet service, Xinhuanet.

The domestic IPO, though lacking a timeframe or other details, will let Chinese media raise money to expand their country's global influence through news stories. Orwellian or otherwise, this expansion funded by capital raised through sales of shares poses a threat to more trusted, often listed, international news media.

Xinhuanet presumably wants to raise money so it can join China Central Television, Blue Ocean Network television and People.cn (60300.SH), part of the Communist Party's People's Daily newspaper operation, in trying to be taken seriously by audiences outside the motherland.

The question isn't whether you should buy shares of Xinhuanet in Shanghai. Like a lot of state-owned firms, the parent company Xinhua is grossly fragmented, with some of its operations reported to be losing money. Your investment in Xinhua may just bankroll the fragments that don't perform.

Yet, share prices of People.cn have gone up 12% since it made an IPO in April and raised 527 million yuan ($84.75 million) in 2012. Someone has faith in its future.

Still a better question: When Xinhuanet raises money through share sales to become more dominant overseas, what happens to more trusted foreign media?

No state-run or state-monitored Chinese media organization will earn enough credibility outside China to vie for general guy-reads-his-paper-over-coffee audiences against the major U.S.-based or European-based international media. Audiences know the news is slanted to venerate China, to stick of for its offshore interests and occasionally to bash on enemies such as Japan and the United States.

Incidentally, the protests this month against editorial control in China had nothing to do with Xinhua. Those took place at Southern Weekend, a domestic newspaper known for pushing the limits. Xinhua does not push limits.

But it does push against borders. It pumps out news in English, Spanish, Russian and other major world languages. Countries without a strong international media presence may welcome Xinhua, not just quotes from it seen in the Western press.

"I think that China's state-funded media expansion abroad will start to win readers and viewers in developing countries that are poorly served by international news media," says Jeremy Goldkorn, founder of the Chinese media blog Danwei.

But even media-saturated audiences in developed countries may take Xinhuanet more seriously than their overseas rivals in evaluating certain types of news.

Chinese government orders and news releases carried by Beijing's own media will be less diluted via Xinhua by comments from analysts and why-you-should-care paragraphs inserted by journalists. That lack of interpretation may appeal to educated readers who just want official facts so they can form their own opinions.

News about listed, state-run Chinese companies may also be taken more seriously if reported by the media organizations that are part of the same big family. Audiences would presume the stories to be official and as such accurate, though in most cases biased toward the company.

Companies already turn first to Chinese media (scoop for the local guy), knowing they would get a glowing report instead of a critical one.

"I think Chinese news sources still have to prove their worth to the world, but if only Chinese news sources are covering certain topics or companies, maybe that would be the only choice," Goldkorn says.

Similar home-court advantages have given staying power to other Asian media outlets, such as Kyodo News of Japan and Yonhap News of South Korea. Audiences outside Japan and South Korea, including other international media, consider both to be about the most authoritative sources of news about their home bases. Consider how often the Western media cite Kyodo, Yonhap -- or Xinhua.

Media that might worry about a rising Xinhua are Thomson Reuters ( TRI), News Corp's ( NWSA) Dow Jones News Service and the Financial Times. All three cover blow-by-blow economic policy news announced by Chinese officials as well as the movements of major listed Chinese companies.

They already compete viciously with one another for subscriber eyeballs in a media-sphere that's hitting the major companies as readers learn to get their news for free. They're all quoting from Xinhua anyway.

Read all about how the Chinese news agency shapes up before taking positions in its overseas rivals.

At the time of publication the author had no position in any of the stocks mentioned.

Ralph Jennings is on LinkedIn.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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