Intel Ignores
Chinese Curb
On Investment
In the Internet
By Matt Forney and Jason Dean
Staff Reporters of The Wall Street Journal
BEIJING -- At least one Chinese Internet company and its foreign partner have given their response to rules barring overseas investment in China's Internet: ignore them.
Intel Corp. yesterday announced its participation in a new e-commerce system operated by a Chinese Internet company, Sohu.com, in which Intel owns a stake. Sohu.com will use Intel technology to allow Internet users to buy goods over the Internet using electronic debit cards. The deal comes just days after a Chinese minister said foreign companies cannot own shares in Chinese Internet companies.
The minister's words startled executives in China's Internet industry, a small but fast-growing sector of the country's economy. If enforced, the rules could deprive Chinese start-ups of vital overseas venture capital, as well as access to overseas stock markets. It's not clear what will happen to existing foreign investments in the Chinese industry. Dow Jones & Co., owner of The Wall Street Journal, also owns a stake in Sohu.com.
Despite the uncertainty, it appears that few business plans are being rewritten. "A lot is going on around the country, and the government is taking the position of letting it happen," says James Jarrett, president of Intel Corp.'s operations in China.
But Beijing's Ministry of Information Industry, which oversees the Internet, is extending rules to Internet companies that were designed to regulate telecommunications firms. And it shows no signs of backing down from its interpretation.
"These Internet companies, including ISPs [Internet service providers] and ICPs [Internet content providers], are using telecommunications lines to do valueadded telecommunications business," said Wang Lijian, vice director of the ministry's news office, yesterday. "Under these circumstances, according to the spirit of the original regulations, they are all prohibited from taking foreign investment."
Mr. Wang added that "there are some companies that already have foreign investment and have foreign investors; this is something the companies themselves will have to take responsibility for."
Charles Zhang, chief executive of Sohu.com, said the ministry is still trying to figure out just what the Internet is so that it can adjust its regulations. "We provide a test case for the government to study," he said.
When Beijing feels it has learned enough, though, Mr. Zhang bets it will conclude that "it's in the best interest of the government to promote China's information technology industry." Mr. Zhang said he never considered postponing his e-commerce announcement until after the government's position becomes clearer.
For now, companies are forced to maneuver around regulations that have fallen behind the fast-developing new medium. It's impossible for companies to register with the government as Internet content providers, for example, because the category doesn't exist. Instead, many content providers register as software companies.
Capital-hungry Chinese Internet companies, meanwhile, are trying to calm potential investors' fears. Hexun Co., a content provider hopes to raise funds on the Nasdaq Stock Market, posted a message on its Web site yesterday saying the new regulations "won't have much affect on our company."
Still, the confusion is likely to make potential foreign investors hesitate. The ministry "raised the stakes for any foreign company getting into the Internet" in China, says Duncan Clark, a partner at telecommunications consultant BDA China Ltd
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