In 2015, digital revenues rose 68.6 percent and international record companies have pushed to build partnerships with local internet companies in China, which is a strategy seen as key in the fight against piracy, and to reaching out to China's vast audience of more than 680 million internet users.

The report says that the most influential internet company in 2015 was Tencent, which first launched a paid service, Green Diamond, in 2008, and has licensing partnerships with two international record companies, Sony and Warner, and some 25 local independent labels.

Guo adds that this is not the first time China's record labels and digital services have tried to convert to a paid model. A similar move in 2012 was less successful.

However, the difference this time is in the level of engagement by the government and major Chinese companies.

In addition to licensing music, international record companies are investing more in the development of local artists, looking to extend from the traditional hubs of Taiwan and Hong Kong and focus more on the Chinese mainland.

"This is particularly significant in a market where record companies have long had to depend on nontraditional revenue streams, such as touring, brand partnerships and TV to compensate for the choking effect of piracy on traditional sales," the report says.

Sony Music in 2015 signed Cui Jian, China's "godfather" of rock 'n' roll, while Chinese singer-songwriter Li Ronghao has been signed by Warner Music.

Universal Music, which has a recording studio in Beijing and is home to artists including Sa Dingding, Ava Zhao and Wang Tao, has also stepped up investment and aims to take Chinese talent to an international audience.

"Our key strategy is to invest in local repertoire and build up our artist roster," says Timothy Xu, chairman and CEO of Sony Music, China.

Despite the progress in China's music business, the Chinese mainland remains one of few markets that do not have full performance rights.

According to Guo, a draft proposal has already been submitted by the copyright administration to the State Council, China's cabinet, for its consideration.

But progress is slow.

"Shopping malls, restaurants and radio stations－you can listen to songs broadcast from those places daily but the songwriters get nothing from that," says Guo.

"Achieving full performance rights and bringing China in line with 147 other countries, where they are established in law, is a critical priority for the local and international music industries and will help in developing China's music industry even faster," he adds.