China Issues New Net Restrictions

China has announced sweeping Internet regulations that restrict foreign investment in Internet content providers and require Web sites to maintain highly detailed records that must be turned over to the police on demand.

The new rules -- passed two weeks ago, but first published Monday in the state-run Xinhua Daily Telegraph -- are expected to severely limit the growth of the country's nascent Internet industry, which has been dependent on foreign investment.

Internet content providers in China now have 60 days from October 1st to provide information about their businesses and obtain licenses from the Ministry of Information Industry. After that, Web sites without licenses and those that exceed the scope of their licenses will be either fined or shut down.

Foreign Investment Feared

Last year, China announced a total ban on foreign investments in Internet content providers, but because many Chinese Internet content providers are dependent on foreign capital for their survival, the rule was not often enforced.

Under the new rules, Internet content providers will need the approval of the Ministry of Information Industry before they can receive foreign capital, work with foreign businesses, or attempt domestic or overseas stock listings.

The definition of content providers under the rules is considered broad enough to include e-commerce sites that contain articles, chat capabilities or message boards.

Earlier this year, China said that when it joins the World Trade Organization (WTO), it will allow up to 49 percent foreign ownership of Internet content providers. China has not yet entered the WTO, however, and in the meantime, the new rules will make it difficult for foreign firms to invest in Chinese Web firms at all.

On the Record

Not only do Internet content providers have to register with the Chinese government, they must keep detailed records of what they publish.

Companies are also required to "record the times users log on to the Internet, users' account numbers, Internet addresses or domain names and the phone numbers users dial in from."

These records are to be maintained for 60 days and must be turned over to the government upon request.

Controlling Content

Additionally, the new regulations severely limit what content can be made available to the public. Beijing has banned any content that "harms the reputation of China," or that could be classified as "disrupting social stability."

The regulations also prohibit content that is "harmful to ethnic unity" and that will hurt the country's efforts to assert sovereignty over Taiwan.

The new regulations are in keeping with existing censorship of Net by the Chinese. In May, the Chinese police shut down a news Web site, the China Finance Information Network, for 14 days, and fined the company for publishing what police called a false media report.

In a similar case in June, Chinese police arrested the founder of the country's first human rights Web site.

Impeding Progress

The rules published Monday are another sign of Beijing's complex relationship with the Internet. While the Chinese government welcomes the money and technological progress that the Internet offers, it loathes the freedom of information and loss of control that the Web brings.

Before the announcement of Beijing's latest crackdown on e-commerce, research firm IDC had predicted that e-commerce revenues in the country would grow from $43 million (US$) last year to $12 billion by 2004.