A Study On Foreign Investment In China's Internet Industry

By John J. DengAs a result of the rapidly increasing business opportunities on the Internet industry in China together with the rosy anticipation of Chinese market after China's accession to the World Trade Organization (WTO), a wide range of foreign ventures have sought to expand into the booming Chinese Internet market. However, foreign investment in Internet-related business endeavors in China is handicapped by China's existing tight and ambiguous regulatory control over the Internet industry. This article is based on the author's long-term watches, studies and practices in China's Internet industry and intends to present a general picture of foreign investment in this area. Section 1 illustrates the main matters of foreign investment in China's Internet Industry. Chapter 1 provides the definition of the "Internet Industry" herein, which is inclusive of the Internet Service Provider (ISP), Internet Technology Provider (ITP), Internet Content Provider (ICP) and E-commerce. Chapter 2 introduces the categories of foreign investors in this area, which include venture capitalist, foreign investors of traditional industries and established dotcoms, together with their investing features.Section 2 reviews the existing regulatory frames of foreign investment in China's Internet industry. Chapter 3 highlights the main events and official documents during the past two years. First, it discusses the ICP Permits applied in Shanghai at the preliminary stage in the middle of 1999. Second, it analyses the implication of the ban on foreign investment in China's foreign Internet industry articulated in September 1999 by Mr. Wu Jichuan, Minister of China's Ministry of Information Industry. Third, it discusses the application scopes of the two Rules regarding dotcoms' business actives and registration of dotcoms' web-site name, which are promulgated by the Beijing Administration of Industry and Commerce in 2000. Last, it introduces the ICP License system and its result to foreign invested dotcoms. Chapter 4 provides a general introduction on China's existing regulations and rules on Internet industries. Based on the forgoing of this section, in Chapter 5, the author concludes the features of China's existing Internet regulatory frames and expresses the opinions on the current ban over the foreign direct investment in the Internet sector. Although the regulatory frame is unfavorable to foreign investors, however, many dotcoms that rely upon foreign funds still thrive their ways during the past years of "dotcoms mania". Section 3 pierces the secrets behind it. Chapter 6 provides a comprehensive introduction to the "onshore/offshore model", which is presently employed as the most common model for the investment of venture capitalist in China's Internet-related industry. This Chapter discusses the reason why foreign investors are apt to such arrangements, the operating process of this model and the acquiescent attitude of governmental agencies towards this model. In addition to this "onshore/offshore model", several other investing models are briefly introduced in the following Chapter 7.In light of China's accession to the WTO in the foreseeable future, Section 4 discusses the impacts of WTO on foreign investment in China's Internet Industry from the legal perspective. Chapter 8 first summarizes the commitments regarding market access and national treatment to the Internet and related industry promised by China during her negotiation with several Contracting parties. In the rest of this chapter, the author anticipates that, after China's accession to WTO, China's regulatory frames over the Internet industries will be more streamlined, transparent and consistent; while foreign investment will act an active and important role in China's modernization and informatization processes.