China restates internet investment ban

The head of China's IT ministry yesterday reiterated his government's ban on foreign investment in local internet companies. However, he held open the door to a change in policy and regulations governing foreign investment in both internet and telecomms companies.

"We'll expand our opening up to the outside world in the formation of (new) regulation and rules," said Wu Jichuan, minister of China's Ministry of Information Industry (MII), here yesterday. "We'll improve our telecomms laws and constitutional frameworks leading to a fair, open and transparent telecomms market." He was speaking yesterday at an IT roundtable kickstarting the Fortune Global Forum taking place here through to Wednesday.

The regulations are currently being fine-tuned and then they will be reviewed by China's State Council, Wu said.

"Having just one set of standards will be beneficial," Wu said, "It'll put everyone on an equal footing. There will be collaboration (between China and foreign companies) in the technology field, in software, the entry to capital markets and formulation of new regulation." In response to a question as to whether future investment in local Net businesses by overseas Chinese will be encouraged, Wu said, "After the formulation of our policy, on the whole, we'll support them."

Two weeks ago, Wu's reported remarks on the continuing Net investment ban caused waves, leading to falls in the share prices of companies with China interests such as Hong Kong-based Chinese-language Web portal China.com.

However, since Wu's remarks, several high-profile Net deals have been announced between Chinese and foreign companies without any hindrance, for instance, last week's Yahoo and China's Founder Group tie-up. The implication is that the Net investment ban stands, but any government action against IT companies is unlikely.

Wu appeared optimistic about China's ongoing efforts to enter the World Trade Organisation (WTO). Negotiations between US and China on the WTO were due to restart yesterday, after relations between the two nations entered a decidedly frosty phase following the NATO bombing of the Chinese embassy in Belgrade in May.

"The WTO needs China and vice versa," Wu said. "After WTO, there will be opportunities and challenges for China. Technically, we can learn a lot from other countries in terms of technology management in the upgrading and internationalisation of Chinese technology."

China has been trying to join the WTO and its predecessor the General Agreement on Tariffs and Trade (GATT) for the past 13 years. The closed nature of China's telecommunications market has long been one of the barriers standing in the way of the country's admittance to the trade body.

Once China is part of WTO, the uptake of new technology may involve some unemployment and redeployment of personnel, Wu said. "Some people may lose their jobs and those in low technology content (operations) may have to change jobs."

Looking towards 2003, Wu predicted that China as a whole will have 22 per cent teledensity -- the number of phones per 100 people -- up from 12 per cent this year, with an annual average growth rate of 2 per cent. The number of fixed-line Mainland telecomms subscribers will grow to 170 million by 2003, compared with a current level of 100 million, Wu said. Mobile subscriber numbers will rise to 100 million up from a current level of 36 million, he added.

Turning to the internet, Wu estimated that China will have between 20 to 30 million Net users by 2003, up from around 4 million today and 2.1 million last year.

Although electronic commerce is technically possible in China, some issues still need to be resolved, namely the issue of electronic payment, Wu said. "Only with joint efforts with various countries, can we facilitate e-commerce development," he added.

In the area of micro-electronics, China is lagging behind developed countries, Wu said. "We're still in the stage of preliminary development, with less than 20 per cent of demand met domestically," he said. "We have to collaborate."

China is actively developing a home-grown software industry, with the government offering local start-ups incentives, such as tax breaks, he said. The country will also be looking to foreign software companies for help in moving its software industry forward. "We don't want to close the door and do everything ourselves," he said.

Overall, Wu said, "We are a developing country and still have a lot of work to do. We have great disparity across our country -- the demand for and level of consumption (of technology) is very different." How to open China's IT markets further is the issue, he said. "We still have more detailed work to do and more regulation to be formulated," he added.