Chinese Trade Agreement Paves Way For Foreign Internet Investment

China’s Internet and technology stocks soared yesterday following news of a U.S.-China trade deal that may pave the way for China’s entry into the World Trade Organization (WTO).

The deal lifts China’s ban on foreign investment in Internet stocks and clears the way for U.S. companies to enter China’s online market, which is expected to mushroom over the next two to three years.

Internet Investment in China Now Fully Legal

“Investment is no longer an issue,” U.S. Trade Representative Charlene Barshefsky told reporters. Wu Jichuan, the conservative Minister of Information Industries, warned U.S. Internet companies last September that foreign investment in online content and Internet provider services was illegal.

In spite of the dire warnings, U.S. companies such as Yahoo! poured millions (US$) into China’s emerging Net companies. These companies continued to invest, believing that China would inevitably open its doors to investment in its attempt to gain acceptance into the WTO.

China’s Internet Stocks Soar

In Hong Kong, investors jumped full-force into Internet stocks, which are expected to be the big target for foreign investment now that the barriers are lifted. Shares of China’s software firm, Founder Ltd., rose an impressive 23.48 percent Monday.

Founder recently signed a deal to launch an Internet portal with Yahoo!.

Shares of New World Infrastructure, the biggest shareholder in Internet portal, soared 19.53 percent. On the Nasdaq, shares of (Nasdaq: CHINA) skyrocketed almost 75 percent. “I think people will view’s share price as an indicator of where the China Internet stocks are going,” said Osamu Wilde, Internet analyst at Jardine Fleming.

“There are relatively few things in life you can say are unadulteratedly positive and this is one of them,” said Richard Margolis, political analyst at Merrill Lynch.

Fears Persist in China

In some sectors of China, fears remain about the likelihood of further foreign investment. “Most state-owned enterprises which cannot survive the competition might have to close, leaving many people jobless,” said Liu Jainchuan, supervisor of a state-owned maintenance company in Beijing.

In the technology sector, the news was very welcome, since China needs foreign investment and management in order to extend its Internet infrastructure and develop e-commerce. China now has two million Internet users. The number is expected to double next year, then hit 50 million within three to five years.

Uphill Road Through Congress

The deal was signed on Monday by the Clinton administration’s trade team, but the president now has to steer the agreement through a Republican Congress. Congress likes trade, but Republicans are suspicious of Clinton. Barshefsky, however, is confident Congress will approve the deal.

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