By Mike Newlands
Days after the US and China signed their long-awaited WTO accord, there is intense speculation but no clear answer as to what it will mean to the internet industry in China. But everybody wants to be in on the action. One view from the inside is articulated by Charles Zhang, founder and chief executive of the world’s most popular Chinese-language portal Sohu.com. During the two months since the Ministry of Information Industry declared outside investment in the internet industry in China illegal, Zhang has kept a low profile in public while continuing to rapidly grow his company.
Now that outside investment in Chinese internet companies is to be legalized, Zhang says China’s internet market will see rapid growth. However, he said it had been relatively easy for Chinese internet companies like Sohu to get millions of dollars in venture-capital funding, even though the government had said foreign investment was barred. Sohu’s foreign investors include American internet guru Nicholas Negroponte as well as Intel Corp and Dow Jones. With the WTO agreement money is not a problem now, he said.
Looking to the future he said one problem which could continue is that Ministry of Information Industry officials had problems in categorizing the internet. Some people view the internet as a simple extension of telecom services. But many believe it is not and that it sustains portal, media and publishing industries, he said. Zhang claimed such views would be conducive to further opening up of the sector and could mean foreign investors were allowed more than the 49% shareholding stipulated for telecoms services business by the agreement.
Zhang said there could be up to 20 million internet subscribers in China by the end of next year and 50 million by 2002. The growth is more likely to be focused on the mobile access technology and television with set-top boxes than through fixed telephone line access, he said.
Also optimistic about the prospects is Richard Li, chairman of Hong Kong’s Pacific Century CyberWorks, which plans to become Asia’s largest internet service provider. Li said his company will definitely be making investments and said there are several well-established internet companies as well as start-up companies that we would like to consider.
However others are not so certain about how much and how quickly the Chinese internet market will open, whatever the WTO agreement says. Approvals for foreign investment will still be done on a case-by-case basis, even after China enters the WTO, said Volker Pasternak, a Hong Kong-based lawyer who specialises in the internet. Ministries and agencies can provide any number of reasons for rejecting foreign investment. In one case I was involved in the applicant was simply told the proposed investment was not in China’s interests, he said. Pasternak said whether or not this sort of behaviour would change once China joins the WTO is open to question.
Another analyst pointed out: Foreigners have to go through a Chinese partner, and the local partners will have to abide by local rules. And China has an awful lot of rules.
