Western and Chinese internet industry executives will convene at Beijing University next week to try to persuade Chinese officials to keep the countryÆs
internet open to foreign investment amid signs that the anti-protectionist faction may be making a comeback.
Last week Chinese telecom officials attending a Silicon Valley conference defended the internet foreign investment ban announced earlier this year by hardline information industry Minister Wu Jichaun, to the surprise and consternation of the many multinationals which have already invested. However at the same time they hinted forthcoming legislation might provide a legal role for foreign investors.
But the strength of the protectionists was shown late last week with another shock announcement banning cable television operators from accessing the national telecommunications grid thus cutting off advanced plans by most of them to become internet service providers. Around the country the cable operators have invested hundreds of millions of dollars in infrastructure to offer high-speed access to the internet and to provide IP telephone services to 80 million cable TV subscribers.
During next weekÆs conference the overseas companies who have already invested, foreign venture capitalists, domestic Chinese internet executives and academics will try to persuade Chinese policy makers that integration, not isolation, is the best way to benefit from the World Wide Web. Catherine Mann, senior fellow at Institute of International Economics in Washington DC who will deliver the keynote speech said: Many countries are looking upon electric commerce as being a key ingredient to leapfrogging forward across a technology gap. Electronic commerce can be the lubricant for an improvement in underlying infrastructure that is essential for moving the regular economy forward.
She points out that by erecting a protectionist barrier around the domestic internet industry China would cut itself off from the global market. You lose the capacity to leapfrog, you lose the benefit of a global marketplace and international standards, she said.
Whatever the assembled gurus have to say, no matter how logical or compelling, is unlikely to have much impact on whether or not the Chinese internet industry and the telecommunications industry as a whole is opened or closed even tighter. It is the behind-the-scenes struggle between reformist premier Zhu Rongji and the protectionist lobby, which is using the high-profile telecomunications sector as its major battlefront, that will determine which direction is taken. President Jiang Zemin, having clipped ZhuÆs wings earlier this year, now seems to be standing above the fray as he tries to determine which line of action will best aide his single-minded drive to join the Chinese communist pantheon as an equal to Mao and Deng.
However a fightback by Zhu is apparent with the official government-owned media this week putting the pro side of the foreign investment question, after months of pushing the protectionist line. The China Daily went so far as to quote China.com Corp chief executive Peter Yip as saying: China can play a major role in shaping the global rules of the game for the next internet millennium if we are fully involved in it. But it is up to us to determine whether we will exert influence in the internet era. Nasdaq-listed China.com counts AOL amongst its major investors.
The paper quoted a manager of a domestic internet company as saying the country’s internet operators seriously lack sufficient capital support since all of them are losing money. We need foreign investment as there is no a mature finance market to provide venture capital domestically, he said.
The paper pointed out that dozens of Chinese firms in the internet sector have connections with foreign companies and it is unclear whether China will allow them to continue to receive foreign investment or allow other overseas companies into the market. Tellingly, it then went on to report a meeting which took place at the weekend between Intel president Craig Barrett and Premier Zhu at which Barrett said China would benefit from allowing foreign investment in the sector as it would add a wealth of experience and funds to help Chinese companies grow. The paper went on to quote Barrett as saying: China is in a position to become a major player in the coming world of a billion internet connected PCs which will generate over $1 trillion of annual e-commerce revenue within the next few years.
No mention was made of the upcoming conference, but the timing of the articles was certainly fortuitous and unlikely to be a coincidence. Meanwhile, many of the participants are preparing for the worst in a variety of different ways. Yahoo! claims it is neither an internet service provider nor, less convincingly, an internet content provider so its new China portal does not fall under the ban. AOL chairman Steve Case and Sina.com President Wang Zhidong have both called for clarification on the ban. Others have simply threatened to move their base of operations offshore while continuing to provide Chinese-language content to whoever can access it.
