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 互联网行业：Foreign Investment in China's Internet Business: Forbidden, Forgiven, Forced Open? （转贴） |
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安普若
[博客]
[个人文集]
头衔: 海归元勋
声望: 大师
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加入时间: 2004/02/21
文章: 26038
来自: 中国美国的飞机上
海归分: 4196257
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作者：安普若 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
Foreign Investment in China's Internet Business: Forbidden, Forgiven, Forced Open?
By Xing Fan**, Center for Strategic and International Studies
In September 1999, China's information industry minister Wu Jichuan spoke publicly for the first time about foreign investment in the country's burgeoning Internet business on two high-profile occasions. One was during his interview with the Financial Times; the other was at the Shanghai Fortune Global Forum where network economy was addressed as one of the two core issues. The point Minister Wu asserted was that Internet-related business (ISPs and ICPs) in China falls into the category of value-added telecom services which cannot be financed or operated by foreign entities. Consequently, foreign investment or involvement in China's ISP/ICP services must be banned. The official regulation Minister Wu cited in support of his statement is a 1993 rule on telecom services promulgated by China's former Ministry of Post and Telecommunications (MPT).
Interpretation of Minister Wu's statement was offered subsequently by several MII officials. Zhang Chunjiang, MII bureau chief of telecommunications administration, stated that "the Chinese government has not agreed to foreign investment in Internet services, even though the official pledge has been made to gradually open up China's huge telecom sector. We cannot ignore the disordered situation in China's Internet financing, which is dominated by foreign investors. Those invested must bear full responsibility for losses resulting from their clashes with the government policy."
Zhao Xiaofan, Director of MII Department of Informatization Promotion, commented that "opening China's Internet sector to the outside world is our direction, but there is a matter of timing. It is impossible for China to give away its interest to others before it has the assurance of its own stakes."
Wang Jiangli, MII official in charge of press relations, indicated that until a new policy is made or a new instruction is given, the 1993 rule remains valid, thus, no foreign investment should be allowed for China's Internet services. He also added that China would soon issue an interim regulation on ISPs and ICPs before the nation's telecommunications law comes into existence. This regulation, he asserted, would make China's Internet services more open and more compatible ("standardized") to the international practices.
MII officials depicted the situation in rather ambiguous tones: (1) MII will conform with the State Council's policies if China enters WTO; (2) China's telecom services will gradually be opened to foreign companies when market conditions are mature; and (3) value-added services will be initially liberalized as they are designated as the pioneering experimental field for international competition.
Old Policy, New Confusion
MII's regulatory move as regards foreign investment in China's Internet-related services has created confusion, not clarification, among both Chinese and international business communities.
First, when the 1993 rule stipulated that no foreign equity ownership or foreign involvement was permitted in China's telecom networks (public, private, wired and wireless inclusive) and in telecom service provision, Internet services were largely unknown. There was no regulatory definition of an ISP or an ICP, and therefore no explicit distinction between ISPs and ICPs.
Second, few understand why MII has suddenly backed away from its silent and lenient position toward foreign investment in China's Internet services at a time when foreign-invested Chinese ISPs/ICPs are increasingly recognized as drivers for China's long-term social and economic growth.
Third, MII does not have specific policy measures in place on how to regulate ISP/ICP's diversified and complex collaboration with their international partners, whether it be financial, technical, or managerial. While it intends to clarify its authority over the Internet, MII is unclear on what its mandated jurisdiction is, particularly in a context where a number of powerful Chinese government organizations are significantly involved and have high stakes in Internet-related applications.
Apparently, MII faces serious dilemmas and controversies, as "foreign" investment is overseas investment by not only "foreigners" but also overseas Chinese. To cut off the ties between the Chinese ISPs/ICPs and the overseas investors, MII is likely to kill many of the fledgling Chinese ISPs/ICPs that depend significantly on funds from abroad.
Reactions Varied
MII's policy statement has come as a shock to many overseas investors who have or are planning to have financing deals with Chinese ISPs/ICPs. Their reactions are evident in deep concerns, policy inquires, and declarations that the investment made or asset purchase deals with China's ISPs/ICPs are legally justifiable and conform to China's current regulations. Cyberbank Corp, China Digital Info, Zhongzhou Share Holding Corp, and Guangxing International Inc., for example, have all reacted along this line.
Chinese ISPs/ICPs, in contrast, appear relatively unconcerned or self-restrained. Sina.com's President and CEO Wang Zhidong said he was not sure what impact MII's public announcement could be but he would approach MII and other government agencies for clarification and details. Sohu.com President Zhang Zhaoyang commented by saying "I am not worried about it at all. But if the ban is enforced, it will strike a fatal blow to China's Internet industry." Sina.com, affiliated with Beijing's Stone Richsight Information Technology Co. Ltd., is currently China's top Internet portal, with servers installed in Beijing, Hong Kong, Taiwan, and North America. It has set up strategic partnerships with CBS Market Watch and Alta Vista in the U.S., and has about one million subscribers worldwide. Sina.com's web utilization rate has reached almost 200 million page views per month. The company is very active in initiating new business programs including e-commerce, and is planning for an initial public offering (IPO) through NASDAQ this year. Sohu.com is China's most noted web search engine. It counts big name multinational players such as Intel Corp. and Dow Jones & Co. as supporters. Zhaodaola, another noted portal in China, has kept a low profile and continued its business as usual, even though it has U.S. Televangelist Pat Robertson and Malaysian conglomerate MUI Media as investors.
Yahoo: Going against Wind?
Despite MII's announced ban on foreign investment and involvement, in late September 1999, U.S. Internet player Yahoo! launched Yahoo!China. This enterprise is a joint venture between Beijing Founder Electronics Co., a leading Chinese computer company, and Yahoo! to provide Chinese online information and advertisement services. This venture is widely looked on as a bold endeavor to test MII's position.
Through China's official press reports, political controversies concerning this venture has been significantly exposed. While Hexun Caijing (Homeway Financial News) reported, on October 1, 1999, that a MII official pointed out that Yahoo's joint venture was not approved by MII and thus MII would make an effort to investigate why a MII vice-minister was present at the Yahoo-Founder News Conference; Diannao Bao (Popular Computer Weekly) stated, on October, 18, 1999, that MII had announced that the alliance between Yahoo and Founder is legal.
The paper went on to say that Minister Wu's statement about telecom services in China was not intended to target the Internet industry; the 1993 rule was directed at telecom services, not the Internet sector. Accordingly, cooperation and financing deals between Chinese ISPs/ICPs and foreign entities do not conflict with Chinese government policies and therefore the partnership between Yahoo and Founder does not violate any Chinese regulations.
Beijing Youth Daily also contradicted MII's position in an article of September 23, 1999 arguing that foreign investment has fueled the China's Internet growth and has kept unprofitable local ISPs/ICPs alive long enough to lure millions of new users onto the Internet. The paper seemed to imply that MII is "out of touch with reality."
Sina.com: Foreign Money Boldly Accepted
MII's position is further challenged when Sina.com announced on November 9, 1999 that it had secured US$60 million from overseas funding, in addition to its previously raised US$25 million. Sina.com's foreign investors include U.S. Dell Computer Corp., Creative Technology Ltd. of Singapore, Trend Mirco Inc. of Taiwan, Sumitomo Corp. of Japan, United Overseas Bank of Singapore, Hong Kong Pacific Century Cyber Works, Hong Kong Pacific Convergence Group, Softbank Corp. of Japan, Goldman Sachs, Crystal Investment, Crosslink Technology, Economic Development Bureau of Singapore, and Walden Investment Group. Many of these investors are also strategic partners of Sina.com. Besides, Softbank's Chief Financial Officer Yoshitaka Kitao joined Sina's Board of Directors.
Open Debate: MII Challenged
China used to be a country where the political environment was solely dominated and controlled by the government. No debate or challenge was supposed to be present about government policies.
This, however, is being changed. MII's policy on Internet development and its attempted ban on foreign investment in China's Internet ISP/ICP sector aroused extensive concern, from both the international business community and the Chinese general public.
To have this public concern addressed, Beijing University held a policy debate on November 15, 1999, at which issues such as "what will be the impact on China's Internet development of banning foreign investment," "the pros and cons of foreign investment in China's Internet business," and "should China's Internet sector be opened or closed" were intensively discussed. Chinese economic and network experts, ISP/ICP industry leaders, and China's government organizations, MII included, were asked to participate. American experts, policy makers and IT industry leaders had a role in the forum as well. They represented, among others, the Institute of International Economics, Federal Communications Commission, PriceWaterHouse Coopers, Compaq Corp., General Motors and Hewlett Packard. This debate was an important indication that China's political arena is no longer monopolized by the government, through which both Chinese and foreign stakeholders' voices can find a channel to be heard; and that Chinese official policies are now open to serious debates and challenges. In the Internet area, other academic and informal groups, e.g., I&I - Internet and Industry (composed primarily of expatriate executives), and ICPMS - Internet Content Providers Management Summit (made up of China's major ICPs) have also hosted forums and debates in an attempt to influence China's Internet related policies and regulations.
Policy Makers: Caution Required
If China does shut itself off from foreign investment in the Internet sector, in an effort to protect the market for domestic players, the country runs the risk of losing the capacity to leapfrog and catch up with the advanced nations by missing out on benefits emerging from the global Internet economy. These benefits will likely dwarf any short-term gains China may reap from its stiff closed-door practice. China's online business is now about US$43 million, but the value may reach US$220 million in 2000; within a 5-year period, China's Internet online transactions may climb up to over US$11 billion.
Whether such growth can materialize will largely depend upon China's regulatory framework and the degree to which China becomes a global Internet player and innovator. Some Chinese policy makers and Internet executives have argued that in the high technology area, capital itself is no longer a controlling power. Instead, knowledge, expertise, human resources, and the prevailing legal and economic systems matter more. Foreign investment not only brings in capital, but also provides Internet players in China with access to these crucial elements. China can benefit from increased foreign investment in Internet services.
Foreign investment and equity ownership in China's rather loosely-knit yet highly entrepreneurial ISPs/ICPs are murky and almost impossible for MII to discern. A freeze or ban on foreign investment in this field is extremely complex and difficult to enforce. Conflicts of interest between MII and other Chinese institutions and business entities involved in Internet operations will most likely generate strong resisting "firewalls" to MII's policy implementation. MII may have a more positive and compelling effect on China's Internet development if it endeavors to establish a regulatory system by which foreign firms and investors can register their investment and operations legitimately with the relevant departments and receive requisite licenses for ISP/ICP services or cooperation with Chinese companies.
When the U.S. and China reached a bilateral accord on November 15, 1999 for China's WTO accession. The Chinese government made a significant concession in permitting foreign investment in Internet services sector, which seems to override MII's pledged ban just two months earlier. Once China formally enters WTO, according to the announced agreement, China will allow foreign investors to hold up to 49% of the equity ownership of the Chinese telecom companies and 50% two years afterwards.
However, there is no clarification yet on what exactly these percentages mean. Do they refer to value-added services, wireless paging and mobile services, data communications services, Internet, or basic telecommunications services? In what time frame? Over-optimism should be cooled down as implementation and enforcement of WTO rules are years away. Foreign investors may yet have to conquer many policy constraints and contextual problems before they can really compete in the Chinese market. WTO will not work overnight magic that opens China's long-closed telecom door.
As is always true, devil is in the details. In his interviews with the Wall Street Journal and a Chinese magazine, the MII Minister elaborated on foreign investment in China's Internet. His remarks suggest that 50% may be a maximum limit, whereas going beyond it will be dealt with "appropriately" and "rationally." The official supposition is that Internet service providers in China ought to be classified into network access providers (ISP) and content providers (ICP), each regulated by different government organizations. ISPs will be overseen and regulated by MII that sets technological criteria and issues licenses for operation while ICPs will be supervised and monitored by government authorities other than MII, with jurisdiction over information resources. These authorities may include China's media and publishing regulators, the radio and TV broadcast administration, and the public security agencies.
All ISPs, as MII indicated, are under MII's administration and must apply for licenses. MII's approval and granting of licenses to ISPs will be based on the applicants' capital structure, technology strength, capability for long-term services, and management readiness. All foreign investors involved in China's ISPs cannot have their shares go above 50%. They must get official approvals before taking stakes in China's Internet ventures.
MII seems to have speeded up its Internet opening process after the US-China WTO agreement. MII is reported as saying that ISPs in Beijing, Shanghai, and Guangzhou will be open shortly to foreign investment; fourteen other Chinese cities will follow this trend within next year, and the door will be opened more extensively within six years. Meanwhile, MII reiterated vaguely that foreign firms that have side-stepped rules and poured money into China's Internet services prior to the country's WTO accession will be "dealt with."
Important policy dilemmas and controversies inherent in MII's statement, however, are evident when MII minister emphasizes that foreign investors' stakes in ICPs are not confined to 50%, but regulated by non-MII content control authorities. That seems to imply that foreign shares in China's ICPs are not yet capped, but could be lower or higher than 50% depending on the specific deals with China's content regulators. MII seems to be making a great effort to concentrate on network service regulations while it tries hard to get its hands free of the ICP business.
MII's position on Internet is seriously questioned. To what degree of feasibility and practicality can China's Internet service providers be clearly divided into ICPs and ISPs? Who are China's content regulators and how can they oversee the operations of ICPs before and after MII's licenses are granted? Last but not least, what is the policy guideline on foreign investment in ICPs in case where an ICP does exist independently of an ISP?
Footnotes
1. Wu heads the Ministry of Information Industry (MII).
2. The growth of Internet users in China is dramatic. The number was 1.5 million at the beginning of 1999; it jumped to 4 million in July and was expected to reach 7 million by the year-end. If low-cost and fast access through TV cable becomes widely available, Internet users may increase at a higher rate. Presently, China has approximately 80 million CATV subscribers and about 300 million TV sets in use.
3. Internet Service Providers and Internet Content Providers.
4. Some analysts comment on MII's move as a negotiating tactic to gain more bargaining leverage, or to force more US leniency for China to enter the World Trade Organization. But the US government so far does not seem to be very concerned over China's ISP/ICP sector, as China's current Internet market size is tiny (about $44 million), taking less than 0.2% of the total telecom market share, and US investment in China's Internet sector is very limited and has no significant impact on US economic interests. Unless China's ISP/ICP business is counted into the package of telecom services as a whole, US government is unlikely to trade concessions with China over China's ISP/ICP business.
5. China Daily, on October 24, 1999, indicated that foreign venture investors had penetrated China's Internet market and had gained controlling shares of some of the country's leading Internet portals.
6. For instance, Ministry of Foreign Trade and Economic Cooperation, State Economic and Trade Commission, State Internal Trade Bureau, State Administration of Radio, Film, and Television, Ministry of National Security, and Ministry of Public Security.
7. China.com, based in the Cayman Islands and operating out of Hong Kong, may be a different case. The company has Xinhua News Agency (14.8%), New World Construction and others as its shareholders, and has raised US$85 million by IPO (4.247 million shares at US$20 each) in New York (AOL purchased 10% of its stocks). The company maintains that it is operating outside China, and therefore, should not be regulated by MII's policy toward foreign investment. (*One source, however, says china.com and cww sites are operated within Beijing Telecom's facilities. If so, this arrangement might subject them to China's telecom regulations, including the 1993 rule on value-added telecom services.)
8. Data taken from International Data Corp., a global market research firm.
9. MII may claim the right to make interpretations about the terms governing telecom and Internet services in the bilateral U.S.-China agreement.
10. Some observers call the US-China WTO agreement a psychological boost that sets China's economic reform in stone and throws light on perilous gray policy areas.
**Frank Xing Fan is a research fellow at The Center for Strategic and International Studies. The reports and papers written by Fan cover China's IT and telecom status and strategies, network development, electronic commerce, foreign stakes in China, and comparative U.S.-China IT policy issues. He can be contacted at [email protected].
作者：安普若 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 互联网行业：Foreign Investment in China's Internet Business: Forbidden, Forgiven, Forced Open? （转贴） -- 安普若 - (20247 Byte) 2004-9-15 周三, 15:03 (1264 reads)
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