Warner Music International is set to become the first international record company to establish its own distribution arm in mainland China, according to industry sources.

Warner Music International is set to become the first international record company to establish its own distribution arm in mainland China, according to industry sources.

Billboard.biz understands that WMI will likely receive formal approval in the next few weeks from the Chinese government to set up a distribution subsidiary in Shanghai. The sources tell Billboard.biz that Hong Kong-based Warner Music China will own a majority stake in the new company, with an unnamed local firm holding a minority share.

Industry observers say the move will have a major impact on the way the Chinese music industry is run by bringing it more in line with international business practices.

In the past, non-mainland companies could not own a majority stake in mainland China distribution companies. However, under the Closer Economic Partnership Arrangement, which came into effect at the start of 2004, Hong Kong-based companies are allowed to invest in publishing and distribution services in mainland China.

Warner Music -- which in September 2000 became the first major foreign label to set up a full-scale record company in mainland China -- currently licenses each of its new albums to a local distributor on an album-by-album basis. The distributor then manufactures the CD and jacket, before distributing it to local retail outlets, with Warner receiving a percentage of the wholesale price.

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