Xinhua C & D is the operating entity that had been the distribution arm of the Chinese government's Xinhua Bookstores. It holds the only nationwide wholesale distribution license in China. This Beijing based wholesale book business that distributes to Chinese retailers has now been spun-out and privatized. Xinhua China has acquired a 57.67 percent interest. The new operating subsidiary will begin operations effective February 1, 2005 with registered capital of RMB(Y)300 million, or approximately US$ 36.2 million. The Chinese government has estimated 2004 distribution revenues at about $US100 million, with pretax income of more than $US 7 million.
The Chinese Government is a strategic partner retaining a 40 percent interest in Xinhua C & D through its Xinhua Bookstore Head Office. Xinhua China expects this strong relationship will help to expedite approvals required to import foreign publications that meet with Chinese government content approval for distribution in China. The remaining ownership interest of China C & D is held by seven domestic Chinese publishing companies including the People's Publishing House.
"We have completed this acquisition within the time frame we discussed in previous statements," said Mr. Xian Ping Wang, President and CEO of Xinhua China. "This acquisition provides us with access to one of the most vibrant businesses in the People's Republic of China. The non-textbook segment of the Chinese retail market for books is large, estimated at about $1.6 billion, and has the potential to become significantly larger.
"China joined the World Trade Organization in December of 2001 and agreed to open its book distribution market within three years. Xinhua C & D is one result of that promise. This provides Xinhua China a solid base from which to pursue additional opportunities including the distribution of additional domestic and imported books in China."
Mr. Wang further noted "Book consumption in China was reportedly valued at the equivalent of only $US 3.86 per capita. In comparison, per capita spending on book consumption in the United States is reportedly valued at $93.00. Obviously, there exists a tremendous opportunity and we are particularly well positioned to develop it. There are several ways to do that. There are only about 150,000 titles currently approved for sale in China compared to over four million for some major distributors in the US. We believe that as China's standards of living continue to rise, literacy rates stay high, and the number of approved titles both domestically and in foreign languages increases, the per capita consumption will rise dramatically".
"Secondly, with the opening of the market to competition, including competition from those outside China, the Chinese government recognized the need to instill