China Bans Foreign Investment in Internet Sector

A senior Chinese official has declared that foreign investment in China’s Internet sector is prohibited.

China’s Minister of Information Industry, Wu Jichuan, said Monday that foreign companies would not be allowed to invest in Chinese Internet businesses, whether content providers or service providers, according to the Financial Times.

Previously, China has banned foreign ownership of local ISPs but talk of a ban on content providers appears to be an expansion of the scope of the ban.

With the thaw in US-China relations and progress on World Trade Organization (WTO) talks, the announcement comes as a shock to the Internet and business communities.

Wu however did not indicate how the Chinese government would prevent foreign companies from being part of China’s Internet content business, particularly those companies that operate outside of mainland China but target a Chinese audience.

For example, leading China portal operator is based in California. IPO success story Corp. [CHINA], in which AOL (AOL) has taken a significant stake, is based in Hong Kong.

Leading to more confusion, in a press conference Tuesday, Wu reiterated that there was a ban on foreign investment in Chinese telecommunication-related businesses but was ambiguous about how Beijing would act towards Internet businesses.

The move is a reverse from statements made by Zhu Rongji, China’s reform-minded premier, during his April visit to the United States that foreign companies would soon be able to take minority stakes in telecom companies.

Some observers say that the statement is indicative of a power struggle going on China’s leadership. Since the U.S. bombing of China’s embassy in Belgrade, China’s anti-reformists have been resurgent and resisting reforms, even those necessary for the country’s WTO accession.

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