By Michael Newlands
China’s protectionist Minister of Information Industry Wu Jichuan appears to have softened his hard-line stance on foreign investment in the Chinese internet industry as major multinationals continue with their development plans regardless. Two weeks ago Wu issued a statement saying that large-scale foreign investment in Chinese internet service providers and internet content providers is illegal, causing considerable consternation amongst the investors and hitting the share price of listed internet companies with foreign shareholders.
But Wu has now told an international conference in Beijing that, although the investments are illegal, China is rushing to introduce new legislation dealing with the internet to allow some degree of foreign involvement. It is not a blanket ban on all foreign investments in the internet sector but only in internet services provision, internet content provision and other value-added activities. We will open up these areas for foreign investment sooner or later; the question is we have to have the proper rules governing their operations in place, he said. In a separate statement he said: We understand the urgency of the issue. My wish is to open the market immediately, but first we must create a legal framework.
Analysts say the apparent toning down of his stance could be simply because the earlier rhetoric had been aimed at WTO negotiators to try and force concessions as talks on China’s membership continue to stagger along. However others feel the ongoing power struggle between reformers led by Premier Zhu Rongji and hard-liners such as Wu could see contradictory messages coming out of China for some time to come unless, as some predict, President Jiang Zemin halts economic reform and sidelines Zhu.
In the meantime, several major international internet firms have decided to go ahead with their plans in China, with the apparent blessing of the Ministry. The head of China’s top private-sector IT company feels a blind eye will be turned to this type of investment until new rules are in place. So many foreign companies have already invested in these areas here, and the trend points to more foreign participation because the country needs plenty of money, said Stone Group president Duan Yongji. Yahoo! at the weekend launched its new China Web Site with chief operating officer Jeffrey Mallett saying: We are walking into this with our eyes wide open. The site significantly expands the existing features of a Chinese Yahoo! web site already online, and it is being hosted in China by government-owned Beijing Telecom, the Chinese capital’s branch of China Telecom which falls directly under Wu’s ministry.
The new site is a joint venture with China’s top software developer Founder Group. Mallet said Yahoo! and Founder, together with relevant government agencies have been working out the details of the venture for the past year. We are in accordance with all existing laws, he said. And should it change, in our agreement with Beijing Founder, we can quickly and swiftly move out. At the launch ceremony in Beijing, Yahoo! chief executive Jerry Yang was joined on stage by MII Vice Minister Qu Weizhi. They were shoulder to shoulder, Mallett said, MII has been well briefed on this.
The new Chinese-language Yahoo! will have all the features of the American web site, but localized for the Chinese language market. The site will include news, web-based email, and customizable homepages. Content will focus on domestic and international financial news and information which is what China’s internet users most want, according to Mallett.
Other US internet content providers are also moving fast with AOL chief executive Steve Case now in Hong Kong to launch a new AOL Hong Kong service which will try and attract business from China. It will work together with Nasdaq-listed China.com whose shares have plummeted since Wu’s earlier remarks, and in which AOL is a major shareholder.
Just three months ago Netscape rolled out a new Chinese browser and revamped its China portal while Lycos Vice President Bo Peabody told Reuters last week his company is looking to expand into the China market in the short term.
They are prepared to take a risk because of the high stakes involved. Some analysts estimate there are already more Chinese-language than English-language internet users in Asia. Wu told the Fortune Global Forum in Beijing there will be more than four million users in China by the end of this year growing to 10 million next year and 20 million by 2003. However this was seen as highly conservative by the president of the China Academy of Social Sciences, Lu Yongxiang, who predicted as many as 60 million users by 2003.
There will be a rich source driving the Chinese IT market. There will be more than 200 million people who have received higher and secondary education and more than 10 million college students. By that time, Chinese homes will have 40 million computers, there will be 200 million fixed-line and mobile-phone users, 400 million television sets, and 30 million web television sets, he said.
