November 15, 1999
Web posted at: 3:03 p.m. EST (2003 GMT)

(CNN) - China's new rules banning overseas investment in Chinese Internet companies come at a time when the nation tries to work out a deal in its 13-year quest to join the World Trade Organization.

Still, many technology companies are hopeful that the regulations will change.

"The reason there's so much interest in Internet investment in China is related to the size of the Chinese market. The feeling is that as the Chinese economy grows and as more and more Chinese become affluent and become exposed to the Internet, the e-commerce possibilities in China are almost limitless," said James Mulvenon of Rand Corporation.

The number of Internet users in China doubled during the first six months of 1999 to about 4 million. That number is expected to grow to more than 16 million by 2003.

Those numbers are enticing to western technology giants like Intel and IBM.

But recently, China's Minister of Information Industry Wu Jichuan shook up international investors by saying that existing laws bar outside investment in the Internet in China.

Many companies found his remarks unclear, and observers suggest a variety of reasons for the ban.

For one, China may want to keep Internet competition within its own borders.

"The real problem is the Internet tends to leap around the sides," says Robert Berring, professor at the University of California at Berkeley. "It's going to be much more difficult for them to control."

One gray area is Internet content. Many outside companies, such as Yahoo! and America Online, are investing heavily in this field in China. Now they're unclear as to where they stand.

"China is an a very interesting position," Berring said. "It wants to be a modern nation and be cutting edge, entering the world of modern technology. And that means it wants to be wired but at the same time it wants to keep out foreign control and foreign influences."

The Ministry of the Information Industry has promised to come up with new regulations by the end of the year.

Correspondent Alison Tom contributed to this report.

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