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The People’s Republic of China (PRC) announced that new regulations will be issued by the end of June to allow foreign investment in Internet content providers (ICPs) and Internet Service Providers (ISPs), initially up to 49 percent, and possibly 50 percent after two years. The regulations come as a result of the PRC’s trade accord with the United States on the PRC’s entry into the WTO and represent a turnaround from a September announcement by the PRC’s Minister of Information Industry, Wu Jichuan, that Internet content providers or service providers were covered under the 1993 regulations relating to the telecommunications sector, and therefore that foreign investment in ISPs/ICPs and e-commerce businesses and services in the PRC was prohibited. Nevertheless, foreign investors have been actively pursuing investments in Chinese Internet ventures. Many ventures are set up as a two-tier structure, with an offshore company established in a jurisdiction that will facilitate a subsequent listing in Hong Kong or on Nasdaq. The offshore company has a wholly foreign-owned enterprise or joint venture in the PRC that carries on the actual business, often with tacit or overt support of local or governmental authorities. For example, meetChina.com, a business-to-business web site for PRC manufacturers and suppliers set up by individuals from Silicon Valley, publicizes on its web site its support from the Ministry of Information Industry (MII). In the case of Sina.com, discussed below, its Chinese web site is owned by an entity in which Sina.com has a minority stake, although most of the income flows back to Sina.com under contractual arrangements. FOREIGN LISTINGS: APPROVAL NEEDED In October, the China Securities Regulatory Commission (CSRC) put in place guidelines to regulate the listing of PRC issuers on the Growth Enterprise Market (GEM) in Hong Kong. Under these guidelines, high-tech applicants recognized by the Ministry of Science and Technology will be given priority for listing. Prior approval must be sought from the CSRC at least three months in advance, before PRC enterprises may apply to become listed on GEM. In January, the PRC went one step further. It was announced that Internet companies operating in the PRC — even those registered overseas and backed by foreign capital — would need to secure approval to list their shares abroad from three Chinese bodies: the CSRC, the MII and the State Council. Formal application procedures for such approvals have not yet been announced. CSRC approval has been granted for the Nasdaq listing of Sina.com, and an application has been filed with the SEC. Sina.com is widely recognized as the leading Chinese web portal, and most of its funding originates from U.S. venture capital funds. Pauline Ashall is a partner with Linklaters in Hong Kong. E-mail: [email protected].

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