Chinese Internet companies face tough regulations

From...

by Terho Uimonen and Stephen Lawson

(IDG) -- The Chinese government Sunday made public new regulations imposing strict controls on the operation and financing of Internet content and service providers, unveiling the long-awaited set of rules on China's National Day.

Chinese Internet companies and foreign investors who own stakes in the industry have been operating in an uncertain regulatory environment, with different regulations being proposed and imposed by various government agencies. If the broad new rules are the final word on Internet regulation, Chinese and foreign companies may face a hard road ahead in developing the country's Internet industry.

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All Internet service and content providers will need a license from the relevant authorities, which in many cases will be the Ministry of Information Industry (MII). Approval also will be needed for companies seeking a listing on domestic or foreign stock exchanges or to form joint ventures with foreign companies, according to a Chinese-language version of the regulations published on the Web site of Xinhua, China's official news agency.

The proportion of foreign ownership in such companies must comply with relevant laws and regulations. The regulations governing Internet companies are basically a subset of new regulations covering China's telecom industry that were passed by the State Council, China's cabinet, on Sept. 20, and were made public late last week.

According to the new regulations, foreign ownership in ventures offering basic telecom services is limited to 49%, although that may change once China enters the World Trade Organization.

All companies offering commercial Internet content services will have to provide extensive records to MII in the next 60 days to obtain licenses for their operations. Unlicensed operators will face fines up to $121,000, or in more serious cases, a mandatory shutdown of their services.

The regulations include a sweeping ban on presenting or disseminating information that could harm the state or threaten reunification efforts with Taiwan. This also could include state-classified information, pornography, gambling and advocacy of cults such as Falun Gong, a group that was banned last year and has come under a government crackdown.

Moreover, the Internet companies must be able to hand over to the government records of all users who have used their sites and all information posted there for a 60-day period.

Content providers in areas defined as strategic, including news, education and health care, also will need to seek approvals from relevant agencies in these areas.

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