The good news: More websites are getting licenses and paying royalties. Nine Chinese companies appear on IFPI's list of licensed digital music services - Baidu, China Mobile, China Unicom, Duomi, Kugou, Kuwo, Nokia Comes With Music, Tencent, and Xiami.

Chinese Internet company Sohu and its search engine, Sougou, have just settled a long-fought lawsuit with Universal Music, Warner Music, Sony Music Entertainment Hong Kong, and Gold Typhoon Entertainment.

Their agreement will allow Internet users in China to download and stream music for free from Sougou. The search engine will pay royalties and licensing fees to the four music labels, which will upload their full music collection and upcoming new releases. Chinese search leader Baidu made a similar deal in July 2011.

According to IFPI's Digital Music Report 2013, "the global recorded music industry is on a path to recovery, fueled by licensed digital music services and rapid expansion into new markets internationally". The report didn't probe into the Chinese market, although it says that "markets such as Brazil, India and South Korea are starting to tap their vast potential".

"China has the potential to be one of the leading world markets in music, both because of China's musical heritage and the developing of licensed music websites," IFPI's chief executive Frances Moore says.

By the end of 2012, China had 564 million Internet users, among whom 77.3 percent use online music, according to China Internet Network Information Center.

Although more Chinese websites provide licensed music downloading and streaming, it is still free for Internet users in China to access online music. Websites pay royalties with their incomes from advertisements.

Content holders have been talking with websites as well as service providers to charge for music downloading. So far they haven't reached any agreement, though Zang expects one within this year.