HONG KONG (03/21/2000) - Following a series of moves aimed at regulating the development of the Internet, the Chinese government plans to issue new regulations governing financing of Mainland-based Web sites and Internet service providers (ISPs), according to a series of Mainland press reports published this month.
In China, concerns have long been raised that a successful technology-based economy requires the free flow of capital within and across international borders, something that is currently not allowed in the country.
Earlier this month, however, Wu Jichuan, China's minister of information industry, confirmed that commercial Web companies are permitted to list on international stock markets contingent upon approval by the Ministry of Information Industry (MII) and relevant government departments, Beijing Youth Daily reported on March 7.
MII plans to issue detailed regulations governing domestic Web site companies' listings overseas soon, the report added.
Providing the first evidence that these regulations may be near completion, the Financial Daily newspaper reported Sina.com sources had confirmed that the company recently received final approval from officials at MII and the China Securities Regulatory Commission (CSRC) to list abroad. However, the report did not elaborate on whether Sina.com would need further approval from other government departments, including the State Council, before proceeding with an actual listing.
Sina.com originally had planned an initial public offering for late last year, but due to internal reorganization in September, the plans were delayed.
In addition to the company's management shuffle, the plans reportedly were delayed over Chinese government concerns about the level of foreign investment in the company. Sina.com has a large amount of foreign funding. Its overseas investors include Softbank Corp., Dell Computer Corp., Pacific Century CyberWorks Ltd., and venture capital firm Walden Group.
Even if Sina.com has received approval for a listing abroad, other issues remain to be addressed, according to one Beijing-based analyst.
"The question is that the approval is for what, exactly?" said Duncan Clark, partner at BDA China, a Beijing-based consultancy for telecom companies. "There (are some observers) saying that it might have (Sina.com) split into two, one (company) for its content and the other for its technology business. Things are not really clear."
Clark attributed the delay in the issuance of a clear set of regulations to a number of factors.
"It's not clear about how to define these companies. The jurisdiction of each ministry is overlapping, (while in some cases) there are gaps. And the technology and the capital market are moving very quickly, so it's almost like a moving target, and they're trying to jump on it," he said.
"For Internet content providers (such as Sina.com), the jurisdiction is certainly not clear," said Clark, adding that even MII has given out contradictory messages about whether it is responsible for regulating content on the Internet.
While the government seems busy trying to grapple with the issue of foreign funding for Internet firms, Homeway Financial News reported that officials are also set to release regulations governing the financial management of domestic Internet service providers (ISPs) by the end of this month.
According to the Homeway Financial News report, the regulations will require an examination of each China-based ISP's funding structure and whether the ISP is able to provide long-term and stable services with its available funding. The report also stated that MII's Wu has said that even ISPs backed by domestic investment come under MII's jurisdiction and must undergo the ministry's licensing procedure.
Such regulations are overdue, analysts said.
"The problem with China is that there are too many ISPs. The estimate varies from two to five hundred, depending on who you talk to, some of them are inactive and some of them basically have, say, five customers," Clark said.
"Quite a few actually run into debt, especially the independent ISPs. They owe money to the local telecom authorities for renting lines. To some extent, the PTAs (post and telecommunications authorities) haven't collected this money because these (independent ISPs) will go bankrupt," Clark said, adding that the market for independent ISPs has become very limited and difficult as a result.
"It's an obvious problem that there are too many ISPs over too few customers, and they are losing money. They're stuck and are just hanging on there. There needs to be some consolidation. In China, this is going to work out through a combination of economic and regulatory pressure," Clark said.
Jocelyn Young, research director of International Data Corp in Beijing, agreed.
Young said poor performance by independent ISPs is a result of the high networking fees that the PTAs charge. "Compared to the U.S., this is extremely high, and it's no wonder that they're not profitable," she said.
Although the reported regulations for ISPs might help consolidate the market, the problem of high networking fees charged by PTAs would remain unresolved, Young said.