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FEBRUARY 7, 2000 VOL. 155 NO. 5

R E G U L A T I N G   T H E   I N T E R N E T
Beijing Tries to Build Barriers
By HANNAH BEECH Beijing

Ask any twentysomething in Beijing what's going to save China's slowing economy, and the answer is invariably the same: the Internet. Rattled by the country's rising unemployment rate and stuttering growth, young entrepreneurs are latching on to the dotcom revolution as their financial savior. But not everyone is so excited by the digital age. Wary of the Internet's freewheeling nature, China's leadership is strengthening a raft of regulations that could roil the nation's infant online industry and frighten off foreign investors.

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Cover: Dotcom Mania
As Asia's Internet start-ups race toward lucrative listings, investors have dollar signs in their eyes
First, Create the Hot Start-up: Helloasia.com's founders think they can make their red-hot site 'sticky' and profitable
Then Pray for The Angel: After a midlife career change, investor Jim Mellon is looking for a few good ventures
Next, Call in The Venture Capitalist: AsiaTech takes high-stakes gambles on Internet firms
Cozy Up with The Incubator: A Hong Kong financier and his British partner hope to nurture the next big things
Now You Are Ready for The Listing: Hong Kong debut endures rough ride on the market
Or, You Can Just Sell Out: Eschewing an IPO, an Indian entrepreneur gives up his portal for a quick pot of cash

Beijing Tries to Build Barriers
Regulating the Internet

Viewpoint: New Eras All Too dot.common
What's pumping up Internet-company valuations? Hot air

Viewpoint: The Sound of Asia Booming
In this online exclusive, Bob Davis, president and CEO of Lycos, gives his take on the growth of Asia's Internet economy

The most wide-ranging restrictions, published in the state media last week, target content on Chinese websites, making portals liable for any information posted on their pages that could be deemed a "state secret," a vague term that could mean anything from the latest in the Fujian province corruption case to central bank data. Any material not from official sources must also be vetted by the government. As problematic as the regulations might be, they aren't surprising. "China's Internet companies have been prepared for these rules for several years," says Vincent Wang, a consultant at BDA Associates, a telecoms-analysis firm in Beijing. Most sites already employ monitors to trawl their chat rooms and billboards for sensitive material.

But Beijing's other online regulations could prove more troublesome. As of this week, firms are required to divulge details about the encryption software they use to send protected information over the Internet. That could impede e-commerce in China and, in a worst-case scenario, open the door for industrial espionage. "Coca-Cola doesn't want to risk its secret formula ending up in the wrong hands," says Michael Furst, executive director of the American Chamber of Commerce in Beijing. Equally worrisome to foreign investors, the government is hammering out rules requiring all Internet companies based in China to get official approval before going public in overseas markets. These restrictions, as well as a two-year jail sentence given last year to a man who provided Chinese e-mail addresses to overseas dissident groups, are sure to give the anti-China lobby in the U.S. Congress more ammunition in its attempts to block normalized trade relations with the People's Republic.

Beijing's renewed efforts to control the Internet bring up a larger question: Will the leadership's skittishness stifle a young industry it hopes will power the economy? "The government sees itself as a parent whose role is to protect its children," says Charles Zhang, head of Sohu.com, a top Chinese portal. "It wants to create order on the Internet." But by its very nature, the Web lacks a vertical hierarchy, thriving instead as a chaotic mass of links. And China's technologically inept State Secrets Bureau lacks the manpower required to comb through the multitude of Web pages generated each day by techno-geeks across the country. China now has only 8.9 million Internet users, but that's nearly four times the number just a year ago. What parent anywhere could deal with a child growing up so fast?

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