FEBRUARY 28, 2000 VOL. 155 NO. 8

Regulation
China's Net Commandments

	ALSO IN TIME
	Cover: China Dot Now The world's last big communist state is hit by a wave of Web mania, and the bureaucrats are fighting to contain it • B2B: Joseph Tong casts a Web over Chinese exporters • Chortling: Wang Zhidong should have laughed last • Crazy Man: Jack Ma goes for the shrimp, not the whales • Princeling: Antony Yip finds the right sites • Geek Chic: Shao Yibo grows up fast • Regulation: How Beijing plans to control the Net
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You can tell how big the Internet is in China from Beijing's lack of a coherent policy for dealing with it. The power struggle among government agencies over who will supervise what on the Net has been brutal. Minister of Information Industries Wu Jichuan initially presumed cyberspace was his turf, and he started to lay down the law in a particularly hard-nosed way. Last September, Wu announced that foreign investment in the Internet would be banned. But Prime Minister Zhu Rongji's advisers, aware that the Internet presents a great opportunity for China to modernize, quietly began contacting Net entrepreneurs for information to use in circumscribing Wu's power. Other ministries and agencies saw the huge flows of money into dotcoms--and the potential "benefits" of being able to license part of the industry.

Then came the crucial trade agreement China signed with the United States in November, which provides for 50% foreign ownership of telecoms--the U.S. side says this also applies to the Internet. Suddenly venture capitalists were flocking to Beijing, and this time they didn't even bother to knock on Wu's door. On the defensive, Wu snapped to the Chinese media in December that "we will not allow the introduction of trash [online] that is harmful to the people." He promised strict monitoring of Internet sites. But power was already slipping from his hands, and the following month Wu was obliged to say his ministry would only be regulating Internet service providers, with content to be monitored by other agencies. The situation is still far from clear, however, as turf battles continue. But here's the current state of play as Beijing insiders see it:

ONLINE CONTENT This will be treated like regular print media, under the aegis of the State Secrets Bureau, the State Press and Publications Administration (sppa) and the Ministry of Culture. News must be approved before being posted online. Web journalists must have state accreditation. Net companies expect the enforcement of these regulations to be sporadic at best. They note how easily people have gotten around a previous ban on satellite dishes and controls on fax machines.

LICENSING The Radio, Film and Television Administration will monitor online video and sound, while the sppa will oversee Net publishing and bookselling. Fees may be levied--official or otherwise--to ensure that the bureaucrats concerned get their slice of the pie.

ENCRYPTION Companies were required to register their encryption technology by the end of January. If enforced, this rule would make e-commerce payment systems vulnerable and compromise corporate secrets. Many companies are refusing to register.

E-COMMERCE The policies aren't clear. For domestic commerce, the Internal Trade Ministry and possibly the Finance Ministry would supervise transactions through some sort of licensing system. For export business, the Customs Bureau and the Ministry of Foreign Trade and Economic Cooperation would no doubt be involved. Players should start building relationships in the relevant ministries.

FOREIGN INVESTMENT The decreed 50% limit on foreign equity holdings has already been exceeded by many of the market leaders. The government is likely to fudge the rules, although it might create difficulties for companies wanting to list overseas.

IPO LISTINGS Dotcoms seeking to sell shares overseas will likely need approval from the China Securities Regulatory Commission, the Ministry of Information Industries and the relevant office of the State Council. They may also be required to list on a proposed high-tech exchange to be set up in China. Delays and investor frustration could propel some companies to move operations offshore.

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