Chinese Government May Ban Foreign Web Investment

A report that the Chinese Government is considering a ban on foreign investment in Web companies sent shares of China.com (Nasdaq: CHINA) plummeting sharply Wednesday and caused jitters throughout the region.

The head of the Ministry of Information Industries told the Asian Wall Street Journal that the government – which has relaxed many investment rules in recent years — might impose a crackdown on foreign investment in mainland China-registered Internet companies that provide access or content.

After the report, shares of China.com — the largest Web portal in the country — dropped nearly 17 percent. Trading volume nearly doubled its daily average.

America Online has a 10 percent stake in China.com, and the company has been actively wooing foreign investors since its July initial public offering.

In an ironic twist that accurately portrays the dynamic line between capitalism and communism in modern day China, China.com has close links with Xinhua, the government-run state news service. The agency reviews and edits much of the company’s content that goes though its mainland server to sites aimed at Taiwan and Hong Kong.

In a Holding Pattern?

Tuesday’s report is not the first to state that the Chinese government is considering a crackdown on foreign investment. It is unknown if the comments were a warning shot aimed at Internet multi-national companies, or simply an offhanded remark that resonated loudly.

In any event, shares of AOL fell slightly Wednesday as well. According to reports last week, the Dulles, Virginia-based company and China.com are planning to set up an ISP in Hong Kong by year’s end. Like Intel, News Corp., Dow Jones, Lycos and other companies that have made significant investments in China, AOL will have to adopt a wait-and-see attitude on the government’s position.

China.com held an IPO in July and saw its share price triple on the first day of trading. The company booked a second quarter loss of $2.2 million (US$). It has 350,000 registered users for its bilingual sites in China, Taiwan and Hong Kong.

EnReach Focuses On China

In related news, Santa Clara, California-based EnReach Technology announced Thursday that it has launched a portal called Focus China.

The portal will feature Internet news, e-commerce and multimedia tools. An Internet platform software, content and service producer, EnReach’s software can be found in over 20 million VCD and DVD players in China.

The company claims that it is going online with the largest WebDVD and TV set-top box manufacturers in the country.

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