Here's a real challenge to Chinese music lovers: When it comes to buying pirated CDs and music, take the same approach former US First Lady Nancy Reagan promoted regarding drugs in the 1980s just say no.

That's exactly the theme of a 100-day campaign the General Administration of Press and Publication launched last Saturday. It urges people to resist buying counterfeit discs and publications.

And that idea is music to the ears of China's music industry.

There aren't many areas these days in which China lags behind the rest of the world, and in many sectors it is starting to dominate.

But when it comes to the most lucrative music markets globally, the country ranks only 27th.

Piracy is rated as the No 1 factor behind the lowly standing. The volume of legitimate music sales in China last year was US$86 million, compared with US$7 billion in the United States, which ranks first.

However, the belief that China could eventually top the global charts for music sales and revenue is growing. John Kennedy, chairman of the International Federation of the Phonographic Industry (IFPI), said: "There is huge potential in China. There's no reason why it shouldn't be the biggest music market in the world one day.

"It has become the most influential country in so many sectors over the last few years, so there's no reason to think music should be any different."

The IFPI values illegal sales of music in China at about US$400 million annually, and despite the problems with piracy, many of the leading international record companies have built up their presence in China in the past few years.

EMI set up a joint venture with Shanghai-based Push Sound, BMG Sony established a partnership with the Shanghai Media Group, and Warner Music Group launched a subsidiary, Warner Music China.

Ironically, the very thing that has hampered the growth of the market in China could actually be the catalyst for its eventual emergence as a world leader.

"China has a market promise unseen elsewhere in the world," said Kennedy, who has spent nearly three decades in the industry.

"Because of the exceptional combination of an underdeveloped piracy-dominated physical market and a rapidly developing wireless environment, China is now uniquely placed to become the world's showcase digital music market."

Even efforts to lower the price of CDs in the past few years to make them proportionate to the spending power of Chinese consumers have failed to reduce piracy significantly. So, companies in China are experimenting with business models untried in other markets.

Last month Warner clinched a distribution deal with China Unicom, the country's second-largest mobile phone operator, to sell its music over the wireless network.

Kennedy said that although Internet music piracy was a growing problem in China and the rest of the world, mobile music channels seemed less affected, largely because of support and assistance from telecommunications operators.

The initiative by Warner and likely similar schemes by other companies in the future give China a chance to race ahead of music markets in other countries, Kennedy said.

"Mobile music is already far advanced," he said. "For the international record companies operating in China, sales of music via mobile phones already account for about 15 per cent of industry revenue."

China has nearly half of all the broadband lines in Asia and the world's second-largest mobile phone market, with more than 400 million users. Only the United States has more.

The IFPI is tackling Internet piracy in China head-on. Last week, it announced it was preparing to sue Yahoo China over complaints that the search engine violated copyrights by linking to websites that offered pirated music.

Yahoo China contends the search engine was acting "within the law."

Kennedy said the IFPI, which represents more than 1,400 recording companies in 73 countries, was looking for Internet service providers to take the lead in fighting Internet piracy.

"We are particularly concerned that the online market gets off on the right foot and that piracy could threaten the fledgling market before it has properly evolved," he said.

The IFPI has welcomed moves by the Chinese Government to crack down on music piracy, such as closing down illegal CD manufacturers.

Kennedy said there seemed a growing awareness in recent times of the need to tackle the problem. During an eight-month crackdown from the start of last year, about 2,600 people were arrested across China on charges of product piracy.

In addition, around 63 million compact discs and other counterfeit goods estimated to be worth 860 million yuan (US$107.5 million) were destroyed.

Officials recently revealed that 223 production lines for pirated CDs and DVDs have been shut down since 1996.

"But it needs even more investment by the Chinese Government in intellectual property protection to create the right environment for the music industry to grow," Kennedy said.

"I wouldn't expect any government in the world to do something just because the IFPI is saying so or I'm saying so, but I do believe the Chinese Government will do so as it is in their own self-interest.

"China has already secured worldwide dominance in manufacturing and is laying the foundation for an economy that could dominate the world. Now they are approaching the next stage of developing their economy, and protecting property rights is a part of that process.

"Protection helps encourage investment and innovation. But where there is none, there's no investment and no creativity as there is no incentive."

Holding shows

As general restrictions in China are lifted and the country engages more and more with the rest of the world, an increasing number of Western bands are holding shows in China in a bid to boost record sales.

The Rolling Stones performed for the first time in China at a concert in Shanghai in April, and US hip-hop quartet the Black Eyed Peas began a three-date tour on Sunday.

For the Stones' gig, however, foreigners made up 90 per cent of the audience, according to Chinese media reports, partly because of the high cost of tickets.

"More and more bands are coming to China as it becomes easier for them to do so," Kennedy said. "It's becoming a big market.

Taihe Rye Music Co Ltd, one of China's biggest record companies, has been instrumental in arranging for artists to perform in China. Last year, the company co-presented shows in Beijing and Shanghai by best-selling jazz singer and multi-Grammy Award winner Norah Jones.

Managing director Song Ke said it signaled a new trend in China.

"There were others before her, but mostly old and out-of-date stars," he said. "The issue with cost is not that the stars are so overtly expensive, but that the Chinese sound and lighting, as well as technical crews, are not up to par, so the bands have to bring in their own people, and that is where the cost goes up," said Song.

Among the acts on the Taihe Rye label is last year's "Supergirls" winner, Li Yuchun. Her rise to fame makes her the perfect figurehead for new forms of music distribution, Song said.

"We know the problems with the Chinese traditional music sales outlets, so we are trying to find new ways to target the market in China such as through mobile phones and the Internet," he said.

Another TV contest that has pushed talent to the fore in China is the "Wo Xing Wo Xiu." now in its third series. Harry Hui, president of Universal Music Southeast Asia, which produces the program, has appeared as a regular judge.

"The Chinese music market represents an enormous opportunity for new music creators and the new media industry," he said. "I believe there's an enormous appetite among young people to create and define a new generation. The TV show has allowed me to see this first-hand.

"The music they are producing and the songs they are writing are just phenomenal. We've seen 150,000 people across 22 cities, and my company has been investing an enormous amount of money to find the next big stars.

"However, at the moment, we have an industry in China that does not have an eco-system that nurtures performers, songwriters, producers and video directors, and that brings us back to the enormous piracy problem," he said.

(China Daily July 18, 2006)