The Ministry of Information Industry (MII) has recently come out with a circular on strengthening administration of foreign businesses engaging in value-added telecommunications services in China, barring overseas money to flow into these services without authorization.

Given that this is a signal to keep foreign capital in line, most insiders believe that it is a rule to rectify the market, rather than protectionism. Spokesman of the MII, Wang Lijian, was quoted as saying that five foreign-funded value-added telecommunications service providers in China have received business licenses from his ministry.

Transparency needed  "The new circular is aimed at helping and supervising foreign capital in the domestic market instead of keeping them outside," said Chen Jinqiao, head of a think tank under the MII, in response to those questioning the new code.  Honoring China's WTO membership commitments and the Provisions on the Administration of Telecom-munications Enterprises With Foreign Investment effective since 2002, foreign companies are allowed to offer basic and value-added telecommunications services through establishing equity joint ventures with Chinese partners.

Two years after China's entry into the WTO, in 2003, geographic restrictions on foreign service providers were removed, but still foreign investors' combined contribution to a joint venture engaged in value-added telecom-munications services should not exceed half of the total. By December 11, 2006, geographic restrictions for mobile voice and data services will be lifted and foreign investors will be allowed to hold at most 49 percent shares in a joint-venture service provider.

Chen Jinqiao agreed that the new rules favor increasing the market, not preventing foreign investment. China needs a well-managed telecommunications and Internet market, and the government needs to be well informed of what is going on, he said.  Professor Kan Kaili of the Beijing Posts and Telecommunications University said, "It is not China's policies that stop foreign capital, but their own strength is not big enough."  The Nasdaq-listing of China's major Internet portals, such as Sina, Kongzhong and Sohu, and the Hong Kong-listing of the country's two mobile service providers of China Mobile and China Unicom, according to Kan, show that the government has no intention of closing up the Chinese telecommunications market.

Hard to monitor In recent years, it is common to see some unapproved foreign capital influx into the value-added telecom-munications service sector.  Earlier this year, google.cn came online using the ICP (Internet Content Provider) license of the indigenous ganji.com. Before that, Yahoo, eBay and Amazon had all unveiled their services on the Chinese mainland with borrowed business licenses.

According to a senior executive of an Internet company who declined to reveal his name, almost all foreign-capital enterprises are operating in the fringes by sharing licenses with local partners. "Some so-called joint ventures are actually 100 percent owned by the foreign investor," he said. For domestic ISPs (Internet service providers), they are leasing, transferring or selling their business licenses and short message service numbers to foreign investors.

Apparently, more and more foreign capital is entering the Chinese market through the springboard of local businesses. UK's biggest value-add telecommunications service provider, Monster Mob, recently spent $260 million acquiring three Chinese counterparts. LaNetro Zed, a Spanish company bought Beijing's Sensky and Entel for $140 million and $90 million, respectively. While the takeover of Beijing-based Linkrich Telecommunications Co. Ltd. by JAMSTER, a German company, is near completion.

"For foreign funds, they should start business after getting approval. However, the current situation makes them escape from administrative surveillance," complained Chen Jinqiao.  Obey the rules  The five foreign companies that are licensed to engage in valued-added telecommunications services on the Chinese mainland had abode by the MII's provisions and submitted their applications within the timeframe required by the ministry, Wang Lijian explained.

Meanwhile, he said that the industry regulator would tighten the issuance of licenses for value-added telecommunications services as well as that for domain names, trademarks and servers, in addition to requiring effective measures for information security. "It seems that indigenous companies will take back their domain names and trademarks," said Lu Bowang, an IT analyst. "Including those Nasdaq-listed companies, namely Baidu, Sina and Sohu, will be required to transfer their domain names and trademarks to domestic companies." Industry insiders have urged foreign capital flooding the Chinese market should heed the new policy. These overseas investors should reevaluate the risks brought by irregularities before setting foot in the market, the MII also warned.  It is also reported that the MII will make supporting rules and regulations available within months.

(China.org.cn)