November 17, 1999 03:36pm
Foreigners Interested in China's Web
Source: AP
by: JOE McDONALD
(SHANGHAI, China) -- China's promise to allow foreigners to invest in its booming Internet industry has reawakened interest in Web ventures just two months after a Chinese official banned outside ownership of these companies.
Would-be investors are looking to sign on although it's not known how the Chinese government might restrict or censor politically-sensitive material.
U.S. officials say Monday's deal to allow China to join the World Trade Organization will also let foreigners own up to 50 percent of Chinese Internet ventures, giving China's Web pioneers the opportunity for vast new sources of money.
"Our phone has been ringing since the agreement was announced with people ... who now want to jump in," said Eric Rosenblum, chief executive officer of ChinaNow.Com, an entertainment and commerce Web site.
Monday's deal seems to counter a ruling in September by Wu Jichuan, China's top telecommunications regulator, who said a ban on foreign ownership of Chinese telecom ventures would be extended to the Internet. His decision cast uncertainty over several deals, including joint ventures set up by foreign-owned ChinaNow.Com and one between Dow Jones & Co., publisher of The Wall Street Journal newspapers, and Beijing-based Sohu.com.
With no details released yet, it isn't clear how open the industry will be to foreigners, who could face politically motivated restrictions. China's communist leaders revere the Internet as a source of economic growth but fear its potential to spread dissent.
In spite of any concerns, investors in Hong Kong reacted quickly to the U.S. announcement Monday, bidding up shares in China-based Internet companies by as much as 75 percent.
The Internet has been a shining success in China's slowing, state-dominated economy. Hundreds of firms employing some of its brightest young minds have sprung up offering Internet access, shopping and other services.
Beijing has promoted Internet use, cutting access charges twice in the last year. The number of Chinese users has risen past 4 million, according to the latest official figures released in July. Growth estimates say that over the next decade, that could grow to 85 million users.
Lured by those numbers, foreign investors bought into Chinese Internet companies long before the government issued rules on the fast-changing field.
Wu, who is credited with guiding the rapid development of China's telecom industry, was a leading opponent of opening phone and Internet markets to foreigners. His Ministry of Information Industry said Wednesday it couldn't comment on the new deal because even the minister hadn't seen details yet.
The biggest winners from the deal could be China's growing list of private Internet firms offering everything from sports news to online shopping. Unlike heavily protected state industry, they already compete with foreign sites, most of which are freely available to Chinese Web surfers.
Many of these companies are starved for capital in an economy with primitive financial markets and banks that generally lend only to established state-owned companies.
Chen Rui, founder of Soim.com, a 2-year-old Chinese-language entertainment site, said he looks forward to chances to attract foreign financing. The Shanghai-based company is preparing to branch out into e-commerce.
"WTO can help to promote further development, so we welcome it," Chen said.
Obstacles to a foreign Internet role in China range from defining what businesses the deal covers to political control over online content. Investors who supply online material could be subject to the same censorship as Chinese media.
China's state-run Internet carrier already blocks access to material considered pornographic or politically dangerous. That includes sites run by human rights groups and news organizations such as The New York Times.
Draft rules under discussion before the WTO deal are believed to include censorship, said James McGregor, the chief Dow Jones corporate representative in China.
"Chinese media already have a censorship authority. I would imagine they want one for the Internet," he said.
Even without formally announced rules, Chinese Web sites lately are emphasizing entertainment and online sales, which are less politically risky and could be more profitable. But foreign-affiliated firms also could find online commerce restricted if it threatens traditional state industries, said Rosenblum of ChinaNow.Com.
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