In addition, the central and local governments allocated special funds of 5.2 billion yuan ($812.5 million) to support the development of the cultural industry last year. By February, investment funds and companies providing the cultural industry with a total capital of 10 billion yuan ($1.56 billion) were established in seven provinces and municipalities.

Gu Xin, Chairman of the China Oriental Performing Arts Group, said the number of potential investors he met in the past year was equal to the total in the previous eight years.

"Through communication with these strategic investors, I came to know the capital market and became aware of the brand value of China Oriental," said Gu. "I'm not only a businessman, but while other employees of China Oriental are proud of the brand, I see a gold mine awaiting exploration."

But there are still a number of restrictions in movie production and distribution, broadcasting, publishing and printing. Generally, companies in these sectors should be state-controlled and allow a stake of less than 50 percent to private investors, according to a decision on the entry of non-public capital into the cultural industry, which was released by the State Council in April 2005.

In a 2009 plan to invigorate the cultural industry, it was made explicit private and overseas capital should be encouraged to invest in these sectors, especially in shareholding restructuring of state-owned enterprises.

"I don't think there are only two kinds of entities in the sector: for-profit enterprises and non-profit institutions funded by the government to provide public services," said Zhang. "Is it possible for non-government funds to establish and operate non-profit cultural facilities such as libraries and museums?"

By 2010, a total of 1,444 public museums and memorial halls had been opened to the public for free and nearly 45,000 public libraries of varied sizes had been established in cities, communities and rural areas.

What these institutions lack most is not capital, but creativity and the right mindset for being true market players, said Gu.

Xinhua Bookstore, a national brand and China's only countrywide distribution channel for books, magazines, CDs and DVDs, started its innovation in Zhejiang Province. While increasing the number of stores in the countryside, the bookstore connected all these small outlets with computers, allowing information sharing and efficient inventory adjustment while offering farmers quick access to a diverse variety of books.

"But before having any impulse to innovate, we should have a full understanding of the roots and seeds of the culture so that we can pass it on to future generations," said Hu Huilin, another author of the CASS blue paper and professor with Shanghai Jiao Tong University.

In addition to innovation, striking a balance between profit seeking and social responsibilities is another challenge.

"The key word in the 'cultural industry' is cultural, not industry. That's why cultural enterprises should give priority to their social responsibilities instead of profits," said Hu. "Cultural enterprises have to be farsighted, not pursuing quick money at the expense of the mental health of one generation."

Over-commercialization and vulgar content should be avoided during product development and innovation, because only cultural businesses that value the social benefits of products will have growth momentum for long-term economic returns, said Chen Shaofeng, Vice Dean of the Institute for Cultural Industries at Peking University.

The Cultural Sector Reform

2000: The Fifth Plenum of the 15th CPC Central Committee decided to improve the policies for cultural industries, strengthen administration of cultural markets and promote the development of the cultural sector. "Developing cultural industries" was first written in Central Government documents.

2001: The State Council required Shenzhen to experiment with reforming cultural institutions. China's first leading team of cultural sector reform was established in Shenzhen in November.

2002: The 16th CPC National Congress decided to promote the cultural sector reform and work out a plan for the reform as soon as possible.

2003: The CPC Publicity Department required 35 cultural institutions and nine cities to do cultural reform experiments, marking the beginning of China's cultural sector reform.

2006: The reform made a breakthrough and extended to the whole country. The decision on pushing forward with the cultural sector reform, made by the State Council in January, was implemented. The decision made explicit the guideline and goal of the reform.

2007: The 17th CPC National Congress pledged to work out policies to improve and support non-profit cultural services while developing cultural industries and encouraging innovation.

2010: By the year-end, more than 4,300 cultural institutions in publishing, distribution, movie production and other sectors had completed their transformation from government-funded to for-profit enterprises.

2011: The Sixth Plenum of the 17th CPC Central Committee adopted the decision on deepening the cultural sector reform and achieving cultural prosperity. The decision calls for an incentive mechanism for cultural products be established. It also encourages production of more high-quality works and healthy Internet content, requires cultural enterprises put social benefits of their products at the first place, encourages private capital into the sector to support innovation, and pledges to establish a nationwide network of free cultural services.