- The Washington Times - Friday, July 28, 2006

BEIJING (AP) — China is trying to tighten control over foreign investors in Internet ventures in a crackdown that a state newspaper said yesterday could see some companies stripped of operating licenses.

It wasn’t clear how the crackdown might affect industry leaders such as Yahoo Inc., EBay Inc. and Google Inc., which have started portals, search engines and e-commerce sites with local partners in China, the world’s second-biggest online market.

Regulators say some foreign investors are using licenses, domain names or trademarks that are improperly shared by Chinese partners, the China Daily said.

A notice on the Web site of the Ministry of Information Industry, which regulates Internet businesses, orders companies to comply with rules on domain names and other regulations.

The three-sentence order, dated Wednesday, doesn’t give details of violations or which companies might be affected. The ministry press office didn’t respond to a request for more information.

The crackdown adds potential legal complications for companies that have faced criticism from human rights activists for cooperating with the communist government’s efforts to censor the Internet.

With 123 million people online, China has the world’s second-biggest population of Internet users after the United States, and aggressively promotes Web use for business and education.

Regulators are eager to see benefits flow to Chinese companies, and require foreign investors to take on local partners and operate under rules that limit their ownership of ventures.

China capped foreign ownership stakes in Internet ventures at 50 percent under its World Trade Organization commitments to open markets to outside competitors.

Regulators say some have bought into Chinese companies without obtaining required government approval, while others fail to follow operating rules, the China Daily reported.

It said companies that fail to comply with the latest order could lose their operating licenses.

“Some foreign companies, which already offer telecoms value-added services might have to reapply for a license,” said Chen Jinqiao, a researcher at a think tank affiliated with the telecommunications ministry, quoted by the China Daily.

It wasn’t clear how the order might affect Chinese companies such as search engine Baidu.com Inc. and portals Sohu.com Inc. or Sina.com Inc. that have set up foreign entities or sold shares on stock exchanges abroad.

A spokesman for Chinese e-commerce site Alibaba.com, which runs Yahoo’s China operations, said it had no comment. A spokeswoman for Google didn’t immediately respond to a phone message and an e-mail seeking comment.

In February, regulators investigated Google after a Beijing newspaper said it was improperly using the Internet service provider’s license of its Chinese partner, Ganji.com. The government said it completed the probe but no results were announced.

Spokesmen for Baidu, Sohu and Sina didn’t respond to requests for comment.

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